TiVo DEF 14A 2016
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2160 Gold Street
P.O. Box 2160
San Jose, CA 95002
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MONDAY, JULY 11, 2016
To our Stockholders:
The 2016 Annual Meeting of Stockholders of TiVo Inc., a Delaware corporation, will be held on Monday, July 11, 2016, beginning at 10:30 a.m. local time at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, 525 University Avenue, Suite 1400, Palo Alto, California. At the meeting, the holders of the Company's outstanding common stock will act on the following matters:
All holders of record of shares of TiVo common stock at the close of business on May 31, 2016 are entitled to vote at the meeting and any postponements or adjournments of the meeting. This notice and the accompanying proxy statement and proxy card are being first mailed to stockholders on or about June 3, 2016.
San Jose, California
May 27, 2016
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN PERSON. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD HOLDER A PROXY ISSUED IN YOUR NAME.
This proxy summary highlights certain information contained elsewhere in this document; the proxy summary is not intended to be comprehensive and you should carefully read the full proxy statement to ensure that you have reviewed the full description of each of the points highlighted in the proxy summary. Additionally, for more comprehensive discussions of the company’s financial performance and risks, please review our most recent Annual Report on Form 10-K and other periodic filings we have submitted to the Securities and Exchange Commission.
2016 Annual Meeting of Stockholders of TiVo Inc.
Leadership Changes Since the 2015 Annual Meeting of Stockholders
We have a rapidly growing operator business with tangible domestic and international growth opportunities. Our operator business includes TiVo’s traditional end-to-end solutions, as well as Digitalsmiths and Cubiware, and achieved an approximate $100 million annual revenue run-rate in the fourth quarter of Fiscal Year 2016 and 59% revenue growth in Fiscal Year 2016. The footprint of operators deploying our products and services now reaches 90 million homes in more than 25 different countries. Additionally, we grew subscriptions in our consumer business for the first time in 8 years. The consumer business continues to be a critical component in driving product innovation and has helped fuel the strong growth in our operator efforts. While we have momentum and opportunity in our operator business, TiVo needs to evolve as our business faces ecosystem changes that demand new strategies, and we are taking action to meet those needs.
Intellectual property licensing remains an important component of our revenue and we continued to extract value from our intellectual property in 2016; we are pursuing patent enforcement claims where appropriate.
On April 29, 2016, we announced that we had entered into a definitive agreement to be acquired by Rovi Corporation. The transaction is subject to closing conditions including approval by TiVo and Rovi stockholders and certain regulatory clearances. Assuming all of the required closing conditions are met, we expect the transaction to close in the third calendar quarter of 2016.
Executive Compensation Highlights
The Board recognized the outcome of our 2015 Say-on-Pay proposal as a strong message that stockholders had concerns the Board needed to address. The Board embraced the need for change.
On behalf of the Board, representatives of management, and in some cases with the Lead Independent Director, met with stockholders representing over 50% of our outstanding stock in Fiscal Year 2016 to discuss performance, governance, and operational issues, including executive compensation.
Current Board Overview
* Up for election
(c) Committee Chair
ELECTION OF CLASS II DIRECTORS
Our Amended & Restated Certificate of Incorporation and Amended and Restated Bylaws provide that the Board of Directors shall be divided into three classes, with each class having a three-year term. Unless the Board determines that vacancies or newly created directorships shall be filled by stockholders, vacancies and newly created directorships on the Board may be filled only by persons elected by a majority of the remaining directors. A director elected by the Board to fill a vacancy (including a vacancy created by an increase in the number of directors) shall serve for the remainder of the full term of the class of directors in which the vacancy occurred and until such director's successor is elected and qualified.
The Board has selected two Class II director nominees to be re-elected at the 2016 Annual Meeting of Stockholders. All of the nominees for election to this class are currently directors of TiVo. The term of office of each person elected as a director at this meeting will continue until the 2019 Annual Meeting or until the director's successor has been duly elected or appointed and qualified, or until such director's earlier death, resignation, or removal.
Directors, in an uncontested election, such as this, are elected by the affirmative vote of a majority of the votes cast by the shares represented and entitled to vote on the proposal at the meeting. In the event that any nominee should be unavailable for election as a result of an unexpected occurrence, such shares will be voted for the election of such substitute nominee as the Board may propose. Each person nominated for election has agreed to serve if elected, and management and the Board have no reason to believe that any nominee will be unable to serve. There are no family relationships among any of the directors, director nominees, or executive officers of TiVo.
The Board has selected directors, including the nominees, based on their distinctive skills and experiences, with the goal of developing a diverse Board well-suited to overseeing TiVo on behalf of stockholders.
The names of the nominees, their ages as of May 1, 2016, and certain other information about them are set forth below:
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE IN PROPOSAL 1
DIRECTORS NOT STANDING FOR ELECTION WHOSE TERMS DO NOT EXPIRE IN 2016
The members of the Board whose terms do not expire at the 2016 Annual Meeting and who are not standing for election at this year's Annual Meeting are set forth below:
CORPORATE GOVERNANCE GUIDELINES; LEAD INDEPENDENT DIRECTOR
We have adopted corporate governance guidelines titled “Corporate Governance Guidelines of TiVo Inc.” which are available at www.tivo.com by scrolling to the bottom of the page and clicking on "Investor Relations" (under the heading “Our Company") and then “Corporate Governance.” These guidelines were adopted by the Board to best ensure that the Board is independent from management, that the Board adequately performs its function as the overseer of management, and to enhance the accountability of the Board to our stockholders. We updated our corporate governance guidelines in November 2015 to reflect the fact that the Board appointed Daniel Moloney as Lead Independent Director in November 2015.
BOARD LEADERSHIP STRUCTURE
The Company's Corporate Governance Guidelines state that the Company has no fixed policy on whether the roles of chairman of the board and chief executive officer should be separate or combined, with this decision being made by the Board based on the best interests of the Company considering the circumstances at the time. Pursuant to Mr. Rogers’ Transition Agreement, the Board of Directors appointed Mr. Rogers as non-executive Chairman of the Board effective February 1, 2016. Consistent with the Company's Corporate Governance Guidelines, Mr. Rogers shall serve as Chairman of the Board for a term commencing upon his election by the Board and ending on the nearest regularly scheduled meeting of the Board preceding the annual meeting of the stockholders of the Company.
The independent directors also appointed a Lead Independent Director, Mr. Moloney, to work with our Chief Executive Officer in setting the agenda of Board meetings and to focus on the development and maintenance of governance practices that support the Board in meeting a high level of performance with regards to the duties of the members of the Board, including leading executive sessions of the Board's independent directors.
The CEO is best positioned to efficiently manage the process for creating board agendas, with Board input through its lead independent director. Additionally, each committee of the Board has a standing position on the Board's agendas to report its activities and its concerns, if any, to the full Board. The committee chairs have regular contact with the CEO and there are frequent operational and strategy updates between Board members and management to provide the kind of direct flow of information and input between the Board and management that keeps the Board's time and attention focused on the most critical matters impacting the efficient execution of the Company's strategic plans.
The Company's directors meet in periodic executive sessions without any members of management present. The purpose of these executive sessions is to promote open and candid discussion among the directors.
The Board makes an annual determination of independence as to each Board member under the current standards for “independence” established by NASDAQ Global Market (“NASDAQ”). In April 2016, the Board determined that all of its directors, except Mr. Rogers, are independent under these standards.
DIRECTOR NOMINATING PROCESS
The Nominating and Governance Committee considers candidates for director nominees proposed by directors and security holders. The Committee may also retain recruiting professionals to identify and evaluate candidates for director nominees.
The Committee evaluates all aspects of a candidate's qualifications in the context of the needs of the Company with a view to creating a Board with a diversity of experience and perspectives. In accordance with the Nominating and Governance Committee's charter, the same evaluating procedures apply to all candidates for director nomination, including candidates submitted by security holders. Among a candidate's qualifications and skills considered important are personal and professional integrity, ethics, and values; a commitment to representing the long-term interests of security holders; experience in corporate management, such as serving as an officer or former officer of a publicly held company; experience and/or academic expertise in the Company's industry and with relevant social policy concerns; experience as a board member of another publicly held company; and practical and mature business judgment. The Committee gives consideration to a wide range of diversity factors as a matter of
practice when evaluating candidates to the Board and incumbent directors, but the Committee does not have a formal policy regarding Board diversity.
The Nominating and Governance Committee will consider prospective candidates nominated by security holders, in accordance with the Company's Amended & Restated Bylaws and its Amended & Restated Certificate of Incorporation, if the name(s) and supporting information are submitted by certified or registered mail to: Corporate Secretary, TiVo Inc., 2160 Gold St., P.O. Box 2160, San Jose, CA 95002. Any stockholder who desires to recommend a candidate for nomination to the Board who would be considered for election at the Company's 2017 Annual Meeting must do so no earlier than March 24, 2017 and no later than April 23, 2017 in accordance with the provisions of the Company's Amended & Restated Bylaws.
MAJORITY VOTE STANDARD
In accordance with our Amended and Restated Bylaws, each director must be elected by the affirmative vote of a majority of the votes cast by the shares represented and entitled to vote. A “majority of the votes cast” means that the number of votes cast “for” a candidate for director must exceed the number of votes cast “against” that director. Any nominee for director in an uncontested election who fails to receive a greater number of votes cast “for” his or her election than votes cast “against” such director's election is expected to tender his or her resignation for consideration by the Nominating and Governance Committee, or, alternatively, a committee consisting solely of independent directors. Any nominee who fails to receive the requisite vote shall not participate in the deliberations or decisions of the Nominating and Governance Committee or committee of independent directors. The Nominating and Governance Committee or committee of independent directors will make a determination as to whether to accept or reject the resignation or whether other action should be taken (including whether to request that the subject director resign from the Board if the director has not tendered his or her resignation).
In a contested election (i.e., where the number of nominees exceeds the number of directors to be elected), a plurality vote standard will apply.
SECURITY HOLDER COMMUNICATIONS WITH THE BOARD
Security holders may contact the Board regarding bona fide issues or questions about TiVo by mail, facsimile, or e-mail, addressed as follows: Board of Directors, or individual director, c/o Corporate Secretary, 2160 Gold St., P.O. Box 2160, San Jose, CA 95002; or by Fax: (408) 519-3304; or by e-mail: Board@tivo.com. The Corporate Secretary periodically will forward such communications or provide a summary to the Board or the relevant members of the Board.
CODE OF CONDUCT
We have adopted a code of conduct that applies to all our directors, officers, and employees, including our Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer, as required by applicable securities laws, rules of the SEC, and the applicable NASDAQ listing standards. This code of conduct is posted on our Website located at www.tivo.com. The code of conduct is available at www.tivo.com by first clicking "Investor Relations,” then “Corporate Governance,” and finally click on “Code of Conduct.”
BOARD INVOLVEMENT IN RISK OVERSIGHT AND RISK ASSESSMENT OF COMPENSATION PRACTICES
Day-to-day management of risk is the direct responsibility of the Company's Chief Executive Officer and the senior leadership team. The Board has oversight responsibility for managing risk at the Company, focusing on the adequacy of the Company's risk management and risk mitigation processes. The Board recognizes that an important part of its responsibilities is to evaluate the Company's exposure to risk and to monitor the steps management has taken to assess and control risk.
For example, at each Board meeting, management provides the Board with updates on the Company's strategic and operational plans for the year including its execution of operational and strategic priorities, such as research and development initiatives, on-going litigations, and potential business deals as well as risks presented by current business strategy, competition, evolving government regulations and legal compliance requirements, general industry trends including the disruptive impact of technological change, capital structure and allocation, mergers and acquisitions, information security risks, and disaster recovery preparedness. In addition to the discussion of risk at the Board level in connection with these strategic and operational areas, the Board's standing committees also focus on risk exposure as part of their on-going responsibilities.
Oversight of Compensation-Related Risk
In setting compensation, the Compensation Committee regularly reviews with management the Company's compensation policies and practices for employees as they relate to risk management and, based upon this review, the Company believes that any risks arising from such policies and practices are not reasonably likely to have a material adverse effect on the Company in the future.
Specifically, the Company believes that the elements of the Company's compensation program do not encourage unnecessary or excessive risk-taking. Base salaries are fixed in amount and thus do not encourage risk taking. While Company annual bonus program and sales commission plans focus on achievement of short-term or annual goals, and short-term or annual goals may encourage the taking of short-term risks at the expense of long-term results, given the sales employees' other compensation opportunities and the Company's internal control procedures, the Compensation Committee and management believe that the annual bonus program and sales commission plans appropriately balance risk and the desire to focus certain employees on specific short-term goals important to the Company's success.
A significant portion of the compensation provided to the Company's executives, and a material amount of the compensation provided to other employees, is in the form of long-term equity awards that are important to help further align employee interests with those of the Company's stockholders. The Company does not believe that these awards encourage unnecessary or excessive risk taking because the ultimate value of the awards is tied to the Company's stock price, and because awards are staggered and subject to long-term vesting schedules to help ensure that employees have significant value tied to long-term stock price performance.
This Proxy Statement, including the preceding paragraphs, contains forward-looking statements. The Company has based these forward-looking statements largely on the Company's current expectations and projections about future events. Forward-looking statements contained in this Proxy Statement should be considered in light of the many uncertainties that affect the Company's business and specifically those factors discussed from time to time in the Company's public reports filed with the SEC, such as those discussed under the heading, “Risk Factors,” in the Company's most recent Annual Report on Form 10-K, and as may be updated in subsequent SEC filings.
MEETINGS AND COMMITTEES OF THE BOARD
Each director is expected to devote sufficient time, energy and attention to ensure diligent performance of his or her duties and to attend all Board and applicable committee meetings. The Board met 11 times during the fiscal year ended January 31, 2016. Each director attended at least 75% of all Board and applicable committee meetings during the fiscal year ended January 31, 2016. One Board member attended our 2015 Annual Meeting.
The Board currently has the following three standing committees: (1) Audit; (2) Compensation; and (3) Nominating and Governance. The Strategy Committee was dissolved in November 2015 and the Search Committee was established on a temporary basis. The composition of the committees for Fiscal Year 2017 is presented in the table below. Each of the standing committees has a written charter approved by the Board. The Board has affirmatively determined that each director who currently serves on the Audit, Compensation, Nominating and Governance, and Strategy Committees is independent, as the term is defined by applicable NASDAQ listing standards and SEC rules. A copy of each of our written committee charters can be found at www.tivo.com by first clicking “Investor Relations” and then “Corporate Governance.”
Audit Committee. The Audit Committee is responsible for, among other things, making recommendations to the Board regarding the engagement of our independent registered public accounting firm, reviewing with the independent registered public accounting firm, the plans and results of the audit engagement, approving professional services provided by the independent registered public accounting firm, and reviewing the adequacy of our internal controls and financial reporting. The Audit Committee is currently composed of three outside directors who are not our officers or employees. The Board has determined that each member of the Audit Committee meets the independence and financial experience requirements under both SEC and NASDAQ rules. In addition, the Board has determined that Mr. Hinson is an “audit committee financial expert” as defined by SEC rules.
Compensation Committee. The Compensation Committee is responsible for determining salaries and incentive compensation for our directors and executive officers and for administering our stock plans. The members of our Compensation Committee are “independent” as required by the listing requirements of NASDAQ. For further discussion of the process and procedures for the consideration and determination of executive and director compensation, see “Compensation Discussion & Analysis.”
Nominating and Governance Committee. The Nominating and Governance Committee was established by the Board in November 2002 for the purpose of, among other things, (i) making recommendations to the Board regarding candidates for membership on the Board and regarding the size and composition of the Board, (ii) establishing procedures for the nomination process, and (iii) reviewing matters related to our corporate governance. The members of our Nominating and Governance Committee are “independent” as required by the listing requirements of NASDAQ.
Search Committee. The temporary Search Committee was established by the Board in November 2015 for the purpose of identifying and recommending to the Board potential CEO candidates. The Chairman and members of the Search Committee are compensated on a monthly basis as opposed to per meeting. With the announcement of the planned merger with Rovi, the Search Committee has ceased further work on the CEO search.
Strategy Committee. The Strategy Committee is authorized and directed by the Board to oversee the strategic planning process that management is responsible for, including the identification and setting of strategic multi-year goals and expectations, material business and product initiatives of the Company, and strategic financial and capital market activities of the Company. The Strategy Committee was dissolved in November 2015.
The following table sets forth the composition of the Board's committees for Fiscal Year 2017 as well as the number of meetings for each committee during Fiscal Year 2016:
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of our Compensation Committee are Messrs. Aquino, Cella, and Moloney. None of the current members of our Compensation Committee is currently or has been, at any time since the Company's inception, an officer or employee. None of our executive officers currently serves or in the past year has served as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our Board or Compensation Committee.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We have adopted a written related party transaction policy. This policy covers, with certain exceptions set forth in Item 404 of Regulation S-K under the Securities Exchange Act of 1934, any transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships, in which we were or are to be a participant, when the amount involved exceeds $120,000 and a related party had or will have a direct or indirect material interest. Under the policy, our executives and certain other employees are required to consult with our legal department upon learning of any proposed transaction that may constitute a related party transaction. If our legal department determines that the proposed transaction constitutes a related party transaction under applicable NASDAQ listing standards and SEC rules, in accordance with our Audit Committee Charter, such related-party transaction must be (i) approved by the Audit Committee or a majority of the independent and disinterested members of the Board, (ii) on terms no less favorable to TiVo than could be obtained from unaffiliated third-parties, and (iii) in connection with bona fide business purposes. Our executive management, General Counsel, and Chairman of the Audit Committee will also confer with regard to any potential transactions that may not otherwise constitute a related party transaction under applicable NASDAQ listing standards and SEC rules in order to determine whether it may be appropriate to submit such transaction for review, approval, and/or ratification by the Audit Committee or a majority of the independent and disinterested members of the Board. For a discussion of other transactions with related parties described elsewhere, see the headings "Corporate Governance-Director Independence", “Executive Compensation and Other Information-Compensation Discussion and Analysis-Severance and Change of Control Payments” and “Executive Compensation and Other Information-Employment, Severance, and Change of Control Agreements.”
Directors and Executive Officers.
We have entered into indemnity agreements with substantially all of our directors and officers that provide, among other things, that TiVo will indemnify each such persons, under circumstances and to the extent provided for therein, for expenses, damages, judgments, fines and settlements he or she may be required to pay in actions or proceedings to which he or she is or may be a party by reason of his or her position as a director, officer or employee, and otherwise to the full extent permitted under Delaware law, TiVo's Amended & Restated Bylaws, and TiVo's Amended & Restated Certificate of Incorporation.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
COMPENSATION DISCUSSION AND ANALYSIS
The following discussion and analysis contains statements regarding individual and company performance targets and goals used in setting compensation for our named executive officers. These targets and goals are disclosed in the limited context of the Company's compensation programs and should not be understood to be statements of management's future expectations or estimates of future results or other guidance. The Company specifically cautions investors not to apply these statements to other contexts. We refer to our fiscal years throughout this discussion and analysis as “FY” (e.g., “FY16” refers to our Fiscal Year 2016, which ended January 31, 2016).
TiVo is a leader in next-generation video technology software services and innovative cloud-based software-as-a-service solutions. TiVo’s software and cloud-based services provide an all-in-one approach for navigating ‘content chaos’ by seamlessly combining live, recorded, Video on Demand, and over-the-top (e.g., Netflix, Amazon, Hulu Plus, Vudu, and YouTube, among others) content into one intuitive user interface with simple universal search, discovery, viewing and recording, creating a unified viewing experience. This experience is distributed both directly to consumers and through distribution relationships with approximately 70 television service providers who utilize some or all of TiVo’s software, hardware, and cloud services to power their own television products. This includes the traditional TiVo products as well as our cloud-based search and discovery capabilities for non-TiVo user experiences and our emerging market television experiences. As of January 31, 2016, TiVo had distribution relationships with television service providers representing 90 million global households as well as close to 1 million direct to consumer subscriptions.
We have four primary revenue streams
On April 29, 2016, we announced that we had entered into a definitive agreement to be acquired by Rovi Corporation. The transaction is subject to closing conditions including approval by TiVo and Rovi stockholders and certain regulatory clearances. Assuming all of the required closing conditions are met, we expect the transaction to close in the third calendar quarter of 2016.
Leadership Changes in Fiscal Year 2016
Executive Compensation Highlights
The Board recognized the outcome of our 2015 Say-on-Pay proposal as a strong message that stockholders had concerns the Board needed to address. The Board embraced the need for change.
interim CEO’s compensation package is designed to compensate Mr. Chopra during the period he serves as interim CEO to further incentivize performance and for retention purposes. The Board acknowledges the significant increase in his responsibility with the expansion of his role as both Interim CEO and CFO and also provides flexibility reflecting the uncertain timeline for identifying a permanent CEO by providing a one-time restricted stock award with a one-year vesting period due to the expected short-term nature of being an interim CEO; maintaining his CFO salary plus supplemental cash payments of $23,000 per month while serving as interim CEO; and severance arrangements appropriate for an interim CEO.
CEO compensation excluding Mr. Rogers' transition-related payments which became due to him in FY16 pursuant to the terms of his previously negotiated and amended employment agreement effective as of September 13, 2012, which was terminated pursuant to the Transition Agreement in FY16, declined by almost 26% from FY15 to FY16. The compensation model we have adopted for Mr. Chopra, presented here as an annual pro forma amount, represents a significant shift from the approach historically used and reflects feedback we received in the course of the stockholder engagement. Although a final decision regarding the Company's CEO position has been placed on hold as a result of the merger announcement, if Mr. Chopra were to serve as Interim CEO throughout FY17 under the current arrangements, CEO compensation as reported in the Summary Compensation Table would decline further, as reflected in the chart above which assumes a cash incentive award at 100% of target.
Transition-Related Payments to Mr. Rogers
In connection with the transition of Mr. Rogers from CEO to non-executive Chairman of the Board, the Board agreed to enter into a Transition Agreement. The Transition Agreement ensured leadership continuity through the end of Mr. Rogers’ service. By entering into the Transition Agreement, Mr. Rogers' Employment Agreement was terminated and Mr. Rogers agreed to serve as CEO through January 30, 2016, after which the Board agreed to elect him as non-executive Chairman of the Board. In connection with the termination of his Employment Agreement, Mr. Rogers became entitled to the separation benefits specified in his Employment Agreement. Furthermore, consistent with the Company's Corporate Governance Guidelines, Mr. Rogers shall serve as Chairman of the Board for a term commencing upon his election by the Board and ending on the nearest regularly scheduled meeting of the Board preceding the annual meeting of the stockholders of the Company.
Strong Company Performance in Fiscal Year 2016
FY16 marked the fifth consecutive year of strong performance for TiVo. We experienced improved performance as a company on several fronts that factored into the Committee’s determinations regarding overall cash and equity incentive compensation for the year. However, the named executive officers did not accomplish all performance goals established for them, and any unmet goals were reflected in their FY16 compensation.
The most significant factors demonstrating our strong FY16 performance were the following:
Stockholder Engagement - Response to 2015 Say-on-Pay Vote
Stockholder outreach is an integral part of our business practices, as stockholders provide feedback on a variety of topics, including our operations, governance, and compensation. Members of our executive management team and in some cases with the Lead Independent Director, talk to and receive feedback from our investors through continual conversations and outreach. In 2014 we sought input from our 25 largest investors (representing approximately 70% of our outstanding shares) and in 2015 we continued that effort, meeting with our institutional shareholders, collectively representing over 50% of our outstanding equity. Our goal in engagement is to ensure that we understand and address, our investors’ concerns and considerations in connection with our corporate governance and compensation policies. We presented investor feedback to our Board of Directors (the “Board”) and our Board’s Compensation Committee (the “Committee”) to ensure our investors’ views are understood and incorporated into the formulation of future governance and compensation decisions.
At our 2015 Annual Meeting, only 40% of votes cast supported our non-binding proposal on executive officer compensation. This outcome emphasized to the Board that change was needed, as it signaled a gap in the perspectives of the Board and stockholders on the most effective approach to this issue. Because our annual meeting was in July 2015 and the Board made forward-looking executive compensation decisions in March 2015, much of the compensation program that is discussed in this Compensation Discussion and Analysis reflects decisions that were made before stockholder feedback was obtained and before the 2015 Annual Meeting.
In response to the stockholder vote and after obtaining stockholder feedback, we have been engaging in renewed shareholder outreach to provide the Board with necessary insight to better align Board action and stockholder sentiment. Based on those discussions, the Board was able to develop a clear understanding of stockholder views and take appropriate actions as described below:
Highlights of our Compensation Program
Our discussions with investors confirmed that many of our longstanding practices regarding compensation continue to align with our investors preferred approach. The following table highlights key features of our executive compensation program:
Alignment of Pay with Performance
•Continuing Commitment to Performance-Based Compensation. In FY16, the Committee maintained its emphasis on performance-based compensation for both our former Chief Executive Officer and our other senior executives in connection with the annual equity awards made to our senior executives. From FY15 through FY16, the percentage of our former Chief Executive Officer's annual equity award that is performance-based remained unchanged at 75%. From FY15 through FY16, the percentage of our other named executive officers’ annual equity award that is performance-based remained unchanged at 50% (excluding the one-time special 1-year grant of time-based restricted shares made to our CFO at the time of his appointment as Interim CEO at the end of FY16). These trends reflect the Company’s increasing focus on pay for performance and placing greater emphasis on long-term at-risk pay, in order to create strong alignment with stockholder interests and drive long-term performance and retention.
•Majority of Performance-Based Awards Are Contingent on Multi-Year TSR Performance Compared to Russell 2000 Index. As part of the Company’s commitment to greater use of performance-based compensation, for FY16 the Committee maintained the portion of equity granted with performance-based vesting requirements at 75% for our former Chief Executive Officer and at 50% for our other named executive officers. The performance-based awards become fully earned if TiVo’s total shareholder return (“TSR”) is at least 120% of the cumulative TSR for the Russell 2000 Index over the four year period beginning February 1, 2015. There is an opportunity for early vesting if the performance goal is achieved earlier, during the fourth year of the performance period. The performance metric is a relative performance measure and no shares will vest if the performance metric is not achieved. The Board selected this measure based on the determination that many investors evaluate potential investment in TiVo as part of a strategy focused on building a portfolio of issuers in the Russell 2000 index. This level of performance is difficult to achieve because it is an absolute metric and it measures our performance against a broad based, but disparate, group of companies with different underlying fundamentals. The time-based awards will generally vest in three equal installments on each anniversary of the date of grant. Consistent with the Committee’s pay-for-performance philosophy, the FY16 grants made by the Committee to our executive officers adopted the same 75/25% and 50/50% performance split for our former CEO and named executive officers, respectively, and once again adopted the same stock price performance goal as FY15 (120% of the cumulative TSR for the Russell 2000 Index). The value delivered to our named executive officers from our FY16 restricted stock awards will be directly tied to our relative TSR performance. See discussion under “Equity Compensation-Fiscal Year 2016 Annual Equity Award Program Changes and Annual Grants.”
•Multiyear Performance Measurement Period Included in Performance-Based Vesting Awards in FY16. The Committee recognizes the importance of measuring long-term equity award vesting over a multiyear performance period. Accordingly, the FY16 performance-based criteria is structured such that it will vest only upon achievement of the performance goals at least three years from grant. Our commitment to performance vesting equity awards strengthens the link between our executives’ pay and the Company’s performance and thereby our stockholders’ interests.
•Increasingly Challenging Performance Criteria in FY16 Bonus Plan Goals. In FY16, the Committee substantially increased two targets for the payment of incentive performance-based cash compensation. Specifically, the Committee raised target Service and Software & Technology Revenue from $359M in FY15 to $390M in FY16, and raised target Adjusted EBITDA from $108M in FY15 to $119M in FY16.
Metrics in FY15 included Retail Subscriptions, Key Engineering and Innovation milestones, MSO Strategic, Strategic Evaluations and Capital Allocation Goals. The Committee established these goals to motivate and reward achievement of certain non-financial objectives, focused largely on execution in the Company’s retail and MSO business, signing new distribution deals, and efficient deployment of litigation proceeds earned in prior years (which included both direct R&D investment in the business and returns to shareholders through an expanded repurchase program). Achievement of these objectives was deemed critical to delivering further growth in revenue, income, and shareholder value. There was not a pre-defined formula for determining actual bonuses for all goals to allow Committee discretion in evaluating the overall quality of achievements
Metrics in FY16 included Service and Software & Technology Revenue, Adjusted EBITDA, Subscription Growth and an Individual performance Goal intended to capture factors such as Individual and Team Performance, Key Engineering and Innovation milestones, and Strategic objectives. Achievement of these objectives was deemed critical to delivering further growth in revenue, income, and shareholder value. When making final bonus payout
determinations the Committee considered performance against other pre-determined corporate performance measures and individual performance goals in determining each named executive officer’s actual annual incentive award amount. Our Company’s performance remained strong and our former Chief Executive Officer’s achievement of target goals moved from 93.5% achievement in FY15 to 96.5% achievement of his target goals in FY16.
Compensation: Philosophy and Market Practices
2016 Named Executive Officers
The Company's named executive officers for FY16 are:
Goals and Objectives of the Program
Our Committee designs and implements the executive compensation program to:
The focus on corporate goals deemphasizes individual performance per se (there is some use of individual goals) in order to foster a common purpose, goal and objective. With all of our leaders working together to reach the same objectives within their departments and the firm as a whole, the Committee believes the Company will benefit and, therefore, shareholder value will be maximized.
The Committee has responsibility for establishing and monitoring adherence with the Company's compensation philosophy. The Committee reviews and recommends for approval by the Company's Board all compensation, both cash and equity, to be paid to our Chief Executive Officer and reviews and approves all compensation, both cash and equity, to be paid to our other named executive officers. The Committee is tasked with ensuring that the total compensation paid to its named executive officers is fair as well as competitive.
Use of Independent Compensation Consultant
The Committee leverages external expert advice from an Independent Compensation Consultant to assist it in fulfilling its responsibilities. The Committee directly engaged Frederic W. Cook & Co. (“FW Cook”), an independent consulting firm providing executive compensation advisory services, to review and provide recommendations on all components of the Company’s executive compensation program. FW Cook performs services solely on behalf of the Committee and has no relationship with the Company or management except as it relates to performing those services. FW Cook assists the Committee in defining the peer companies used for evaluating our executive compensation levels and practices.
The Committee is satisfied with the qualifications, performance and independence of FW Cook. TiVo pays the cost for FW Cook’s services. After review and consultation with FW Cook, the Committee determined that FW Cook is independent and there is no conflict of interest resulting from retaining FW Cook currently or during the year ended January 31, 2016. In reaching these conclusions, the Committee considered the factors set forth in relevant SEC rules and NASDAQ listing standards.
Comparison to Market Practices
During the process of compensation setting, FW Cook and the Committee reviewed relevant market data, including data from the public filings of the Company’s select peer groups and from a Radford Executive Survey covering a broad set of high-technology companies.
In making compensation decisions, the Committee compares each element of total compensation against a select peer group of publicly-traded media and technology companies, which is reviewed and approved by the Committee.
Fiscal Year 2016 Peer Group
For FY16, our peer group included 18 technology and media companies within a reasonable size range of the Company based on revenues and market capitalization. Although other bases for peer group selection were considered, the Committee believes market capitalization best reflects the value of TiVo’s business because it reflects the market’s value of both TiVo’s advanced television business and its intellectual property (the latter of which may not be captured in comparisons based solely on annual revenue) and also reflects the competitive environment in which TiVo operates and competes for talent. The following represents the select peer group of technology and media companies used for FY16:
(1) Peer acquired prior to January 31, 2016.
The companies in the peer group for Fiscal Year 2016 had the following profile:
At the beginning of our fiscal year when salary, target bonus and equity award decisions were made, TiVo ranked below the median of the peer group in terms of both market capitalization and total revenue. We believe that it is important to include in our peer group our perceived primary competitors for engineering and executive talent as well as across different software, hardware, services and media industries, rather than only selecting peer companies on the basis of standardized industry classifications or a more narrow market capitalization band. The Committee believes it is appropriate to evaluate executive pay practices beyond our GICS industry because there are only a very select few companies that match our unique mix of software and hardware development, media, and intellectual property.
Fiscal Year 2017 Peer Group
In response to stockholder feedback during the fourth quarter of FY16, the Committee directed to its independent consultant to evaluate the peer group for ongoing appropriateness in market comparisons of executive compensation. FW Cook completed a detailed review of the peer group, taking into consideration the size of each
company (based on revenues and market capitalization similar to the Company’s), industry (focused on other consumer facing technology businesses), and location (focused on the San Francisco Bay Area and other major metropolitan markets).
Following this review, based on FW Cook’s recommendations, the Committee approved changes to the peer group to reposition TiVo near the median by revenue and market capitalization. The following 17-company peer group will be used in determining FY17 compensation for our named executive officers. There is limited overlap in the FY17 and FY16 peer group because 1) four of the old peers were acquired and 2) companies with lower revenues and market capitalization values were added in place of companies with greater revenues and market capitalization values in order to move TiVo close to the peer group median.
The companies in the peer group for Fiscal Year 2017 have the following profile:
Role of Executive Officers in Compensation Decisions
The Committee makes all recommendations to the Board regarding salary, bonus, and equity awards for the Chief Executive Officer and reviews and approves salary, bonus, and equity awards for all other executive officers of the Company, including the named executive officers. The Chief Executive Officer and the Vice President of Human Resource annually review the performance of each named executive officer (other than the Chief Executive Officer, whose performance the Committee and the Board review) with the Committee. The conclusions reached and recommendations made based on these reviews, including with respect to salary adjustments and annual cash incentive and equity award amounts, are presented to the Committee. Following the presentation of such conclusions and recommendations, the Committee has discretion to modify salary, bonus, and equity awards with regard to the named executive officers other than with respect to the Chief Executive Officer, for whom the Board retains such discretion.
Discussion of Compensation Program Components
The components of compensation for named executive officers are:
•cash incentive compensation in the form of annual performance bonus;
•post-termination severance payments in connection with limited events; and
•benefit plan participation at the same levels provide to employees generally.
Base Salary Compensation
We provide our named executive officers and other employees with competitive base salaries to compensate them for services rendered during the fiscal year. The Committee has adopted a general approach of compensating the Company’s named executive officers with base salaries reflective of individual role, experience, and performance. The Committee’s foregoing approach reflects consideration of the Company’s stockholders’ interests in paying what is necessary, but not significantly more than necessary, to remain competitive with salaries offered by companies targeting the same pool of talented employees.
Base salary levels are typically reviewed annually as part of the Company’s performance review process as well as upon a promotion or other change in job responsibility. The Committee reviews competitive salary levels within our peer group, but does not target salaries for our named executive officers at a specific position versus market. For FY16, effective May 1, 2015, each named executive officer received the Company-wide budgeted salary increase of 2%, except our former Chief Executive Officer, Mr. Rogers, who did not receive a salary increase.
Cash Incentive Compensation - Our Annual Performance Bonus Plan
Each year the Committee approves a cash incentive compensation plan to motivate and reward performance by our named executive officers and other executives. The Board sets the incentive bonus opportunity for individuals to reflect the executive’s level within the Company for the current fiscal year (e.g., Senior Vice President or Vice President). Our named executive officers’ FY16 target incentive opportunities remained at the same levels as FY15 for Messrs. Rogers, Klugman, Phillips, and Zinn (each, 100% of salary). While keeping Mr. Chopra's overall bonus opportunity the same from FY15 to FY16, the Committee responded to stockholder feedback to simplify CFO bonus structure and eliminated the numerous milestone opportunities from his bonus plan. The Committee changed Mr. Chopra's bonus opportunity from 50% in FY15 to 100% of his base salary in FY16 to be consistent with other named executive officer bonus structures. To offset this increase in bonus opportunity, the Committee reduced the number of separate milestone bonus opportunities such that the effective bonus opportunity target remained the same or lower than in prior years. Detailed discussion of executives’ performance goals is presented below.
Under the FY16 bonus plan, no bonuses were payable unless the Company achieved at least 6.0 million cumulative subscriptions, which represented a 24% increase from the approximately 5.5 million cumulative subscriptions the Company had achieved by the end of FY15 and a 62% increase from the approximately 4.2 million cumulative subscriptions the Company had achieved by the end of FY14. The Company obtained 6.8 million cumulative subscriptions and thus each named executive officer was eligible for his maximum respective award. However, when making final payout determinations the Committee also considered performance against other pre-determined corporate performance measures and individual performance
goals in determining each named executive officer’s actual annual incentive award amount. This process was intended to permit the entire amount of the annual incentive award to be considered performance-based and tax deductible under Section 162(m) of the Internal Revenue Code.
Our FY16 target Adjusted EBITDA goal of $119M, which the Company missed by approximately $1.6M, represented a 10% increase from the prior year's operating plan. Our target Service and Software & Technology Revenues goal of $390M, which the Company exceeded by about $1.5M, represented a 9% increase from FY15’s target of $359M. While the Company did not provide annual financial guidance to stockholders for FY16, we did set rigorous performance bonus targets for our named executive officers that were the same or exceeded the Company’s internal budgets (which we did not achieve in all areas, such as our Adjusted EBITDA target below).
Further, final bonus determinations were also based on the Committee’s assessment of performance in critical strategic performance areas as described below. The mix of goals approved by the Committee is intended to balance achievement of near term financial results with product development milestones that will support future growth. We use both goals with pre-defined targets and others with discretionary evaluation so that the Committee can reward meeting and exceeding our targets, while also considering the quality of our results and other factors that may be deemed relevant at the end of the year. For example, the Committee has and continues to evaluate alignment of incentives in the compensation program with the Board-approved strategy plan.
Cash Incentive Compensation - Former Chief Executive Officer
Our former Chief Executive Officer’s performance goals comprised a variety of performance measures that the Committee determined collectively would reflect the Company’s overall performance. The former Chief Executive Officer’s target bonus comprised the same performance goals as the Company’s other named executive officers, though weighted differently to reflect his overall responsibility for the Company. The relative weight of each of our former Chief Executive Officer’s annual cash incentive bonus opportunity factors is listed in in the following table. The goals consisted of specific financial and operational targets consistent with the Company’s internal budgets (such as Service and Software & Technology Revenue, Adjusted EBITDA and Subscription (Retail and MSO) goals) and a discretionary goal related to the Individual and Company’s performance with factors such as performance of individual and team goals, driving internal engineering and product innovation, strategic goals focused on the Company’s MSO customer relationships, M&A opportunities, and new businesses as well as the development and successful launch of new retail product. The discretionary goal was assessed by the Committee in its review of overall performance factors when determining actual bonus amounts, including factors not anticipated at the beginning of the year. While the exact targets for certain objectives are not disclosed because the Company considers each of these individual targets to be confidential, competitively harmful if disclosed, the following is a description of the nature of each goal and our former Chief Executive Officer’s achievement of them:
* Adjusted EBITDA is a non-GAAP metric and is defined as income before interest expense, provision for income taxes and depreciation, amortization, and stock-based compensation expense, as adjusted for certain items, including acquisition related charges for retention earn-outs payable to former shareholders of acquired businesses and changes in fair value of acquired business' performance related earn-outs; transition and restructuring charges; pre-tax, stock-based compensation; certain litigation expenses associated with litigation matters (whether or not initiated by us) which have the potential to result in revenue generation and litigation proceeds attributable to past damage awards, but including litigation proceeds recognized as technology licensing revenue. For FY16, adjustments were made to actual Service and Software & Technology Revenues to exclude over-performance of royalty pass through revenues and FY16 actual Adjusted EBITDA was adjusted to exclude litigation expenses related to Samsung Electronics, Inc.
(5) FY16 Engineering Upsides Goal Payout is dependent upon achievement of the following: Corporate AEBITDA goal achieves Threshold or better AND other specified Engineering and Innovation goals achieve Target or better. For FY16 there was no payout as this criteria was not met in regards to the Engineering and Innovation goals
We achieved strong over-performance for several pre-established goals in FY16, such as Service and Software & Technology Revenue and Retail and MSO Subscriptions. Our former Chief Executive Officer, along with other Named Executives as discussed below, was eligible for an additional 5.0% milestone bonus payment for achievement of additional specified engineering upside objectives, which were not achieved resulting in no added compensation.
Year over year, the Committee continues to focus on the rigor of its performance goals to support its pay-for-performance compensation philosophy. In FY16, while our former Chief Executive Officer’s performance remained strong relative to our internal operating plan, performance relative to the goals set for FY16 was slightly higher than the degree of performance of the previous year’s results, which positively affected our former Chief Executive Officer’s (and other named executive officers’) FY16 compensation. The achievement of certain performance goals above target were reflected in a 3% increase in our former Chief Executive Officer’s bonus achievement, from 93.5% of his target bonus in FY15 to 96.5% of his target bonus in FY16, and a corresponding $34,133 (3% of his base salary or 3.2% of his FY15 actual performance bonus) increase in our former Chief Executive Officer’s cash incentive compensation in FY16 relative to FY15.
Cash Incentive Compensation - Other Named Executive Officers (including Interim Chief Executive Officer)
The other named executive officers’ FY16 performance awards were based on the same Company-wide goals as our former Chief Executive Officer’s awards, albeit weighted differently per executive and supplemented by individual performance goals, in each case as the Committee believed would best benefit the Company and its shareholders. Again, for each individual the Committee used negative discretion in determining goal
achievement. Additionally, individuals who had a discretionary goal component of their individual plan (Chopra, Klugman, Phillips, and Zinn) were awarded 0% by the Compensation Committee. The Committee selected the corporate performance, engineering, and individual goals for the Company’s named executive officers because the Committee determined they are important indicators of furthering the Company’s strategic objectives and translating its objectives into increased stockholder value. In keeping with its past practices, the Committee established objectives at levels which the Board believed required significant performance by executives, were not easily achieved, but if achieved would be the best indicator of stockholder value creation. The Committee and the Board established and weighted each named executive officer’s performance goals based on the objectives the Board determined would most effectively measure the contribution of each named executive officer to the overall performance of the Company. Thus, while we do not use individual goals in most cases, the Committee believes this construct best captures:
The Board retains the discretion to exclude the effects of extraordinary, unusual or infrequently occurring events, changes in accounting principles or significant changes in the Company’s strategic plan during the fiscal year. The relative goal weighting and achievement data for each named executive officer is presented below:
(1) Including payments attributable to individual performance goals, as discussed below.
Individual Performance Goals & Achievement
Naveen Chopra, Chief Financial Officer. Sixty percent (60%) of Mr. Chopra’s bonus opportunity was based on Company-wide goals; the remaining amount was based on individual goals in the form of milestone opportunities, mostly relating to new distribution deals. Mr. Chopra’s individual goals pertained to corporate and business development areas that he manages, including, domestic and international distribution deals with qualifying operators, acquisitions, and strategic financing transactions. Related to these goals, Mr. Chopra received a payout of approximately $280K based on his milestone opportunities for securing distribution deals in addition to $359K for attainment of Company-wide goals. Mr. Chopra’s total bonus in FY16 was an increase from his FY15 total bonus of $596,113 largely due to his increased bonus target incentive of 100% of base salary for FY16 from 50% in FY15.
Matthew Zinn, SVP, General Counsel, Corporate Secretary and Chief Privacy Officer. Mr. Zinn’s individual goal payout of $25,000 was the result of a rollover goal from prior years for additional AT&T payments made to the Company in Fiscal Year 2016, above contractual minimums that could not be determined when the agreement was originally executed in 2012.
The Company provides its named executive officers and other employees with equity award grants as core elements of an employee’s total compensation opportunity. Multi-year vesting schedules and performance-based vesting requirements support the Committee’s emphasis on tying compensation to long-term, sustainable growth in shareholder value. The Committee typically targets an individual’s opportunity to earn compensation through equity awards at the peer group median.
We typically make annual awards of performance-based and service-based restricted stock, to our named executive officers, executives, and other continuing employees on an annual basis in the spring. The Committee’s intent in making these awards is to meaningfully address near and longer term retention of named executive officers and better align the interests of the Company’s named executive officers with long-term stockholder value creation. With respect to equity compensation, the Committee also typically evaluates internal pay fairness between the Company’s senior executive team to motivate and incentivize performance across the senior executive team while also encouraging collaboration and a shared responsibility for executing on the Company’s strategic plan. We also typically make awards of restricted stock to certain newly hired or promoted executives. Additionally, at other times during the year, we may periodically make grants to certain continuing employees for incentive or retention purposes. Newly hired or promoted executives and employees receive their equity awards typically on the 7th or 21st of the month following the later of their start date (for newly hired employees) or approval of the grant by the CEO for non-executive employees, by the Committee for executive-level employees other than the CEO, and by the Board for the CEO. Options are awarded at the NASDAQ’s closing price of our common stock on the date of grant.
Fiscal Year 2016 Annual Equity Award Program Changes and Annual Equity Grants
In FY16, the Committee maintained its emphasis on performance-based compensation for both our former Chief Executive Officer and our other senior executives in connection with the annual equity awards made to our senior executives. The Committee granted the FY16 restricted stock awards in April 2015 as shown in the table below. As of our fiscal year end, we reviewed the performance-based awards granted in April 2015 and determined that performance to date indicated a decreased probability that the performance metric would be achieved by the end of the performance period. As a result, the intrinsic value of the aggregate of service-based and performance-based awards was 18% of the initial grant value for the former CEO and 36% of the initial grant value for the other named executive officers, respectively.
Events Occurring After Fiscal Year End
Effective as of February 1, 2016, pursuant to Mr. Rogers’ Transition Agreement, the Board of Directors appointed Mr. Rogers as non-executive Chairman of the Board. Consistent with the Company's Corporate Governance Guidelines, Mr. Rogers shall serve for a term commencing upon his election by the Board and ending on the nearest regularly scheduled meeting of the Board preceding the annual meeting of the stockholders of the Company.
Effective as of March 1, 2016, Jeff Klugman separated from the Company. The Company entered into a separation agreement with Mr. Klugman, pursuant to which Mr. Klugman received or will receive the following compensation and benefits: (i) a lump sum payment of $468,180 and reimbursement for continued health benefit coverage from March 1, 2016 to February 28, 2017 (the "Transition Period"); (ii) a payment equal to actual bonus achievement of his FY16 bonus at the time we pay such bonuses in our normal course of business; and (iii) continued vesting and exercisability of Mr. Klugman's time-based restricted stock awards through April 1, 2016 and accelerated vesting of Mr. Klugman's time-based restricted stock award that would otherwise vest in April 2017. Mr. Klugman has agreed not to solicit our employees for 12 months after his separation date and to release any claims
he may have against the Company. In addition, Mr. Klugman forfeited 115,000 performance shares that remained outstanding as of the date of his separation.
On March 1, 2016, related to the CEO transition and in efforts to provide business continuity and ensure financial performance during the selection process as well as for retention purposes, we entered into employment agreements with each of Messrs. Phillips and Zinn. Pursuant to the agreements, in the event the Company terminates either executive's employment other than for "cause," or such executive terminates his employment for "good reason" (each term as defined in the employment agreements) on or prior to March 1, 2017, such executive will receive the following compensation and benefits: (i) a lump-sum payment equal to 1.25 times such executive's annual salary; (ii) fifteen months' continued benefits coverage; and (iii) acceleration of unvested time-based equity awards that would have vested by their terms through April 2017 (but for such executive's separation from service). In the event of a change of control of the Company, Messrs. Phillips and Zinn would receive the greater of either the benefits they would be eligible for under their existing Senior Vice President Change of Control Agreement or the benefits under their employment agreements described in this paragraph.
Severance and Change of Control Payments
Each of the Company’s named executive officers has executed a change of control severance agreement with us as discussed in this proxy under the section “Employment, Severance and Change of Control Agreements”. The Board determined to provide these change of control severance agreements in order to mitigate some of the risk that exists for executives working in a small technology company. These arrangements are intended to attract and retain qualified executives that have alternatives that may appear to them to be less risky absent these arrangements, and to mitigate any potential disincentive to consideration and execution of any acquisition, particularly where the services of these executives may not be required by the acquirer.
Transition Agreement with Mr. Rogers. We entered into a Transition Agreement with Mr. Rogers effective November 13, 2015 (the “Transition Agreement”). Pursuant to the Transition Agreement, Mr. Rogers received the separation benefits which he was entitled to in connection with the termination of his Employment Agreement, including (i) a cash payment of $2,300,000, which is equal to two times his annual base salary as provided under his employment agreement, (ii) a further cash amount equal to $2,300,000, (iii) a pro-rated bonus upon attainment of applicable performance criteria as provided under Mr. Rogers’s employment agreement, (iv) accelerated vesting of all equity awards held by Mr. Rogers, and (v) continued health and welfare coverage for up to 24 months, as provided under his employment agreement. Mr. Rogers has agreed not to solicit our employees for 18 months after his resignation date and to release any claims he may have against the Company.
Employment Agreement with Mr. Chopra. We entered into an employment agreement with Mr. Chopra, effective January 30, 2016, in connection with his appointment as interim Chief Executive Officer. Pursuant to his employment agreement, in connection with his continuing role as chief financial officer and Senior Vice President, Corporate Development and Strategy, Mr. Chopra is entitled to: (i) base salary of $459,000, (ii) an annual performance bonus up to 100% of Mr. Chopra’s base salary, and (iii) a one-time annual time-based vesting stock award of no fewer than 75,000 shares. In addition, during the period that Mr. Chopra serves as the Company’s interim chief executive officer, he is entitled to receive: (i) a one-time $750,000 restricted stock award grant that will vest in full on the one-year anniversary of the grant date (due to the short-term nature of the interim role) and (ii) supplemental cash payments of $23,000 per month while serving as interim CEO. Mr. Chopra’s interim employment agreement also provides that in the event his employment is terminated by the Company other than for “cause” or Mr. Chopra terminates his employment for “good reason” (as such terms are defined under the interim employment agreement) and notice of such termination occurs by the later of (a) January 1, 2017 and (b) 60 days following the date the Company appoints someone other than Mr. Chopra as non-interim CEO, then Mr. Chopra will be entitled to receive the following benefits, provided that such termination does not constitute a “payment termination” as defined under Mr. Chopra’s Change of Control Terms and Conditions Agreement: (i) two times his annual base salary, (ii) 18 months’ continued health and welfare benefits coverage for Mr. Chopra and his eligible dependents and (iii) full acceleration upon termination of the $750,000 restricted stock award described above plus eighteen months’ acceleration of all other unvested, time-based restricted stock awards and restricted stock unit awards.
Anti-Hedging and Anti-Pledging Policies. The Company’s insider trading policy has for many years prohibited the pledging of Company stock as collateral or security by employees, directors, and consultants. In FY14, the Company amended its insider trading policy to further prohibit all employees, directors, and consultants from engaging in any transaction intended to hedge against a drop in the price of the Company’s stock.
Clawbacks: Recovery of Incentive Compensation Policy. In FY14, the Company instituted an incentive compensation “clawback” policy with regard to incentive compensation, including cash performance bonuses and equity grants applicable to TiVo’s executive officers. This policy authorizes TiVo’s board of directors to recoup any cash and equity incentive compensation that the board determines was improperly paid to an executive officer in connection with such executive officer’s improper acts or omissions and such acts or omissions ultimately related to a future restatement of the Company’s financial reports within 3 years, generally.
Executive Ownership Policy. The Company instituted an equity ownership policy effective February 1, 2014 for its senior executives. The policy requires that the Chief Executive Officer and senior executives hold Company stock with a value equal to three times and one times base salary, respectively.
For purposes of calculating ownership under the policy, we only count actual owned, vested shares, so that the policy requires our senior executives to hold Company stock beyond the service- and performance-based vesting schedules of their equity awards. We do not include unearned or unvested awards in our ownership calculation. The Committee believes this policy is more rigorous than a guideline set at a higher multiple of salary that counts unvested performance or restricted awards or unexercised stock options as ownership since the Committee believes actual owned, vested shares better aligns the interests of management and our stockholders. All of our named executive officers have met and currently exceed these ownership guidelines.
The named executive officers and other executives are eligible to participate in all of the Company’s employee benefit plans, such as medical, dental, vision, group life, disability, and accidental death and dismemberment insurance, and the Company’s 401(k) plan, in each case on the same basis as other employees.
Tax and Accounting Implications
Deductibility of Executive Compensation
Under Section 162(m) of the Internal Revenue Code, we may not receive a federal income tax deduction for compensation that is not performance-based (as defined in the Section 162(m) rules) paid to our Chief Executive Officer and the next three most highly compensated executive officers (other than our Chief Financial Officer) to the extent that any of these persons receives more than $1,000,000 in non-performance-based compensation in any one year. While the Committee considers the deductibility of awards as one factor in determining our executive compensation, it also looks at other factors in making its executive compensation decisions and retains the flexibility to grant awards or pay compensation the Committee determines to be consistent with its goals for TiVo’s executive compensation program, even if the awards are not deductible by us for tax purposes.
With regard to our annual incentive awards, once a predetermined cumulative subscriptions metric is met or exceeded, each named executive officer becomes eligible to receive up to his maximum potential annual incentive award. When making final payout determinations, the Committee may exercise negative discretion to award less than the maximum potential award based on the attainment of the pre-determined corporate performance measures and individual performance goals to determine each named executive officer’s actual annual incentive award amount.
Accounting for Stock-Based Compensation
Beginning on February 1, 2006, the Company began accounting for stock-based payments in accordance with the requirements of FASB Statement 123(R), which has been codified as FASB Accounting Standards Codification Topic 718 (“ASC Topic 718”). The Company's accounting for stock-based compensation is not a material factor in how we design the Company's executive compensation programs.
COMPENSATION COMMITTEE REPORT
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION
The information contained in this section shall not be deemed to be “soliciting material” or “filed” with the SEC or subject to the liabilities of Section 18 of the Securities Exchange Act, except to the extent that we specifically incorporate it by reference into a document under the Securities Act or the Securities Exchange Act.
The Compensation Committee of the Company has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.
William P. Cella (Chair)
Peter D. Aquino
EXECUTIVE COMPENSATION AND OTHER INFORMATION
1)Each of Messrs. Chopra, Klugman, Phillips, and Zinn received a 2% salary increase effective May 1, 2015. FY 2016 amounts are comprised of base salary and a one-time vacation accrual payout as follows:
a.For Mr. Rogers, $1,150,000 in base salary and $172,493 in vacation payout.
b.For Mr. Chopra, $456,750 in base salary and $60,575 in vacation payout.
c.For Mr. Klugman, $465,885 in base salary and $49,429 in vacation payout.
d.For Mr. Phillips, $465,885 in base salary and $63,551 in vacation payout.
e.For Mr. Zinn, $446,760 in base salary and $67,082 in vacation payout.
2)The amounts included in this column represent the grant date fair value of restricted stock awards computed in accordance with FASB ASC Topic 718, which on April 15, 2015 was $11.11 per share and on January 30, 2016 was $7.98 per share. For each named executive officer, the amounts included in this column comprise (i) shares of restricted stock granted in FY16 and vesting in the next four years upon achievement of a performance metric which provides for 100% vesting beginning after a minimum of three years if TiVo’s TSR is 120% of the cumulative TSR for the Russell 2000 Index, in each case, subject to the named executive officer’s continued employment with the Company through each applicable vesting date (each, a “market-based award”) and (ii) shares of restricted stock granted in FY16 and vesting as to one-third of such grant on each anniversary of such grant (each, a "restricted stock award”). The composition of
each named executive officer’s awards under this column (e) is further described in the Grants of Plan-based Awards table below. Additional information with respect to the outstanding market-based awards, restricted stock awards and other stock-based awards is set forth in the Grants of Plan-based Awards and Outstanding Equity Awards at Fiscal Year End tables below. For more information regarding the valuation assumptions used in determining the amounts in this column (e), refer to footnote 12 in our Annual Report on Form 10-K. Note that amounts relating to FY 2015 grants have been updated from our proxy dated May 29, 2015 to represent the grant date fair value in accordance with FASB ASC Topic 718.
3)The amounts included in column (g) are composed entirely of cash bonuses awarded under each fiscal year’s executive incentive bonus plans with respect to performance during those periods. For FY14 and, with regard to Mr. Zinn only, FY15 and FY16, the amounts also include additional incentives tied to, in the case of Mr. Chopra, operator distribution and development deals, mergers and acquisitions, and litigation settlements with operators and, in the case of Mr. Zinn, damages awarded at trial or agreed to in litigation settlements as well as other designated procedural litigation milestones. For additional information regarding these incentives, see above under the heading “Compensation Discussion and Analysis-Cash Incentive Compensation-Other Named Executive Officers.”
4)Column (i) includes a severance payment made to Mr. Rogers of $4.6 million.
(1)Type of Award:
RSA Restricted Stock Award
PSA Performance Stock Award
STI Short-Term Incentive Plan
(2)The amounts set forth in this column are the full grant date fair value of the awards reported in the previous columns determined pursuant to FAS 123(R). For more information, including assumptions made in calculating the FAS 123(R) value of the awards, refer to footnote 12 in our Annual Report on Form 10-K. Material terms of plan-based awards, including criteria used in determining
amounts payable and vesting of awards, are further discussed under “Compensation Discussion and Analysis” above.
(3)This restricted stock award vests in three equal annual installments beginning on 4/15/2016.
(4)This performance stock award vests based upon the achievement of certain market and/or performance-based criteria. As further discussed in the Compensation Discussion and Analysis-Chief Executive Officer Equity Compensation section, the performance metric provides for 100% vesting beginning after a minimum of 3 years if TiVo’s TSR is 120% of the cumulative TSR for the Russell 2000 Index.
(5)These amounts represent the threshold, target, and maximum amounts that could have been earned for FY16 pursuant to the cash incentive bonus awards provided under the Company’s FY16 incentive plan. Actual amounts earned for FY16 are included in column (g) of the Summary Compensation Table above. For additional information regarding plan-based cash incentive awards granted to our named executive officers, see above under the heading “Compensation Discussion and Analysis.”
(6)This restricted stock award vests in three equal annual installments beginning on 4/1/2016.
(7)This restricted stock awards vests in one installment on 1/30/2017.
(8)This restricted stock awards vests in one installment on 3/31/2016.
Outstanding Equity Awards at Fiscal Year-End