VRTX » Topics » Executive Summary

This excerpt taken from the VRTX DEF 14A filed Apr 8, 2009.

Executive Summary

        Compensation Objectives and Philosophy:    The objective of our executive compensation program is to attract, retain and motivate talented, experienced leaders responsible for executing our business plan. We regularly review our compensation philosophy, elements and amounts, and make adjustments as changing circumstances require. Our philosophy is that the compensation paid to executives should:

    reward desired performance and behaviors;

    be competitive in amount relative to compensation paid by the companies that compete with us for executive talent; and

    reflect a balance of elements so that a significant portion is bonus or equity-based and therefore "at-risk," to better align the executives' financial interests with the interests of our stockholders.

        Compensation Elements:    The elements of our annual executive compensation program are:

    base salary;

    annual cash bonus;

    stock option grants;

    restricted stock grants; and

    health and other benefits available to all our employees, including matching payments under our 401(k) plan and payment of life insurance premiums.

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        We set target levels for cash bonuses and equity awards at amounts designed to make us competitive for talent. Each executive's annual cash bonus and equity awards are adjusted from target levels on the basis of company and individual performance for the prior year. The application of these "performance-multipliers" can result in compensation that is significantly lower or higher than target levels, which we believe provides a significant performance incentive.

        We also occasionally make supplemental grants of restricted stock or stock options to our current executive officers, as business needs dictate. When we hire new executives, we typically pay sign-on bonuses, award new hire-grants of restricted stock and stock options and reimburse moving expenses. We also have entered into employment contracts with severance and change of control payments with each of the members of our executive team, including all of the named executive officers, because we believe that they are a fair and effective way to maintain focus on our business in the face of market and other volatility in our industry.

        Compensation Decision-Making Process:    The MDCC oversees the design, development and implementation of the compensation program for all of our executive officers. Compensation decisions generally are made on an annual basis. The board of directors sets performance goals and salaries early each year, usually at its first meeting in the year, and assigns performance ratings and awards bonuses and equity grants shortly after completion of the year, in each case at a regularly-scheduled meeting. The MDCC consults with members of our human resources department, particularly our vice president of compensation and benefits, and engages independent consultants to advise it on specific matters when it deems it appropriate. The MDCC reviews and may adjust compensation elements or amounts throughout the year. In 2008, the MDCC engaged Hewitt Associates to conduct a review of available compensation data from comparator group companies to consider whether or not adjustments to the salaries, target levels of cash and equity compensation, or performance-based adjustment factors used in our compensation program was warranted. In early 2009, the MDCC also engaged Hewitt to advise generally with respect to an employment arrangement with Matthew W. Emmens. Mr. Emmens began employment with us as our president in February 2009, and will become our president, chairman and chief executive officer on May 23, 2009, when the employment of our current chief executive officer, Dr. Joshua Boger, terminates. This engagement included advice with respect to CEO compensation generally, as well as proposed revisions to the composition of our comparator company group, as discussed more fully under the heading Compensation Decision-Making Process—Analysis of Compensation Practices of Comparator Companies.

        The materials that management provides to the MDCC often include recommendations with respect to compensation levels and performance ratings, which the MDCC considers but does not view as determinative. Final compensation decisions are approved by our full board of directors, after discussion of the MDCC's recommendations. Dr. Boger, our chief executive officer, discusses his performance with the MDCC, but does not participate in board decisions regarding his own compensation. Mr. Emmens, who has been a member of our board since 2004, did not participate in board discussions or decisions regarding his employment agreement or 2009 compensation.

        2008 Compensation of Named Executive Officers Compared to 2007:    We did not make any significant changes to the elements of our compensation program during 2008. Our company performance rating for 2008 was "Leading," and the executive bonus pool factor was 150% of target levels, compared to a company performance rating for 2007 of "Strong," with the executive bonus pool factor of 86% of target levels. This resulted in significantly higher annual bonus awards to the named executive officers for 2008

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performance as compared to 2007 performance. In general, 2008 individual ratings for our named executive officers were higher than for 2007, which also resulted in higher average equity grant amounts for 2008 performance than 2007 performance. The salaries of our executive officers, which are adjusted only for market-based factors, were increased by 3% in the first quarter of 2008, which was comparable to our 2007 increase. Additionally, in connection with the MDCC's annual review of comparator group data that took place in July 2008, Mr. Smith's base salary was increased by 6% to $450,000 and Dr. Boger's base salary was increased by 14% to $725,000, in both cases effective retroactively to February 2008. Compensation paid to the named executive officers for 2006 through 2008 and information regarding cash bonuses and equity awards based on our performance and the executives' performances in 2006 through 2008 are detailed below under the heading Compensation and Equity Tables—Summary Compensation Table.

This excerpt taken from the VRTX DEF 14A filed Apr 8, 2008.

Executive Summary

        Compensation Objectives and Philosophy:    The objective of our executive compensation program is to attract, retain and motivate talented, experienced leaders responsible for executing our business plan. We regularly review our compensation philosophy, elements and amounts, and make adjustments as changing circumstances require. Our philosophy is that the compensation paid to executives should:

    reward desired performance and behaviors;

    be awarded in amounts that are competitive relative to compensation paid by the companies that compete with us for executive talent; and

    reflect a balance of elements so that a significant portion is bonus or equity-based and therefore "at-risk," to better align the executives' financial interests with the interests of our stockholders.

        Compensation Elements:    The elements of our annual executive compensation program are:

    base salary;

    annual cash bonus;

    stock option grants;

24


    restricted stock grants; and

    health and other benefits available to all our employees, including matching payments under our 401(k) plan and payment of life insurance premiums.

        We set target levels for cash bonuses and equity awards at amounts designed to make us competitive for talent. Each executive's annual cash bonus and equity awards are adjusted from target levels on the basis of company and individual performance for the prior year. The application of these "performance-multipliers" can result in compensation that is significantly lower or higher than target levels, which we believe provides a significant performance incentive.

        We also occasionally make supplemental grants of restricted stock or stock options to our current executive officers, as business needs dictate. When we hire new executives, we typically pay sign-on bonuses, award new hire grants of restricted stock and stock options and reimburse moving expenses. We also have entered into employment contracts with severance and change of control payments with each of the eight members of our executive team, including all of the named executive officers, because we believe that they are a fair and effective way to maintain focus on our business in the face of market and other volatility in our industry.

        Compensation Decision Making Process:    The MDCC oversees the design, development and implementation of the compensation program for all of our executive officers. Compensation decisions generally are made on an annual basis. The board of directors sets performance goals and salaries for each year at its first meeting in the year, and assigns performance ratings and awards bonuses and equity grants shortly after completion of the year, in each case at a regularly-scheduled meeting. The MDCC consults with members of our human resources department, particularly our director of compensation, and engages independent consultants to advise it on specific matters when it deems it appropriate. The MDCC reviews and may adjust compensation elements or amounts throughout the year. In 2007, the MDCC engaged Hewitt Associates to conduct a review of available compensation data from comparator group companies to consider whether or not adjustments to the salaries, target levels of cash and equity compensation, or performance-based adjustment factors of our compensation program was warranted. The materials that management provides to the MDCC often include recommendations with respect to compensation levels and performance ratings, which the MDCC considers but does not give undue weight. Final compensation decisions are approved by our full board of directors, after discussion of the MDCC's recommendations. Dr. Boger, our president and chief executive officer, discusses his compensation with the MDCC, but does not participate in board decisions regarding his own compensation.

        2007 Compensation of Named Executive Officers Compared to 2006:    We did not make any significant changes to the elements of our compensation program during 2007. Our company performance rating for 2007 was "Strong," and the executive bonus pool factor was 86% of target levels, compared to a company performance rating for 2006 of "Leading," with an executive bonus pool factor of 140%, resulting in significantly lower annual bonus awards to the named executive officers for 2007 performance as compared to 2006 performance. In general, 2007 individual ratings for our named executive officers were lower than for 2006, which resulted in lower average equity grant amounts for 2007 performance than 2006 performance. The salaries of our executive officers, which are adjusted only for market-based factors, were increased by 3% in both the first quarter of 2007 and the first quarter of 2008. Compensation paid to the named executive officers for 2006 and 2007 and information regarding cash bonuses and equity awards based on our performance in 2006 and 2007 are detailed below under the heading Compensation and Equity Tables—Summary Compensation Table.

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