ZBRA » Topics » Purpose of Compensation Components

This excerpt taken from the ZBRA DEF 14A filed Apr 22, 2008.
Purpose of Compensation Components. The three principal components of the Company’s compensation program are base salaries, annual cash bonuses, and long-term equity-based incentives. Each component of compensation serves a particular purpose.

     Annual base salaries are intended to compensate an individual’s performance of basic functions and responsibilities of the position and to recognize key skills and competencies of the individual. The Company’s annual cash bonuses are designed to motivate and reward employees for achieving or surpassing targeted results in key performance measures at the Company, business unit, and individual level. In general, the Company establishes such performance targets at levels it considers challenging but achievable.

     The Company grants its Named Officers and certain other employees long-term equity awards to reward successful creation of shareholder value and to motivate and retain top executive talent. The Company’s equity compensation plan allows flexibility in balancing time vested and performance vested grants. Under the Compensation Philosophy, equity awards are approved by the Committee based upon pre-approved equity grant guidelines, with grant levels balancing market median award amounts with actual individual performance.

     Compensation Components

     Consistent with prior years, the three principal components of the Company’s compensation program for executive officers for 2007 consisted of base salaries, annual cash bonuses based on the achievement of financial performance measures and long-term equity-based incentive awards.

     The Committee considered the historical aggregate compensation of each Named Officer and reviewed his compensation for 2007 on an aggregate basis. It determined that each compensation component serves particular objectives and, therefore, is considered independent of the other components. For 2007, the Committee determined each Named Officer’s compensation components, but it did not allocate total compensation among such components or among any other forms of compensation based on a larger compensation policy.

     In addition to the three principal compensation components referenced above, all Named Officers are eligible to participate in various employee benefit plans generally available to the Company’s U.S. salaried employees. See “Participation in Employee Benefits” below.

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     Performance Evaluations

     In determining the Named Officers’ compensation with respect to their salaries and option awards, one factor considered by the Committee is the Named Officers’ respective individual performance evaluations. Individual performance criteria consist of a combination of objective and subjective personal goals.

     Individual performance evaluations for Named Officers, other than the CEO, for their respective performances during 2007, were conducted in accordance with the Company’s annual performance review process applicable to all salaried employees.

     At the beginning of the year, Mr. Kaplan, as the CEO at that time and the supervisor of the other Named Officers (except Mr. Gustafsson, who succeeded Mr. Kaplan), consulted with each other Named Officer and established the Named Officer’s individual performance goals for the year. Shortly after the year end, Mr. Gustafsson, as the CEO and the supervisor of the other Named Officers, evaluated each other Named Officer’s actual performance as measured against such Named Officer’s individual performance goals, taking into consideration various other factors such as the Named Officer’s performance of daily responsibilities, advancement and support of strategic initiatives for the Company or a business unit, and particular or general contributions to the overall management of the Company. The evaluations of the Named Officers, other than the CEO, were conducted on a subjective basis without specific weighting of any particular factors. The evaluations of such Named Officers’ actual individual performances relative to their pre-established performance goals were considered in conjunction with the many other factors discussed below, including experience levels, perceived potential, competitive compensation levels, general labor market conditions and the Company’s overall salary budget, in adjusting such Named Officers’ salaries or annual option awards. See “Base Salaries” and “Equity Awards,” below. At the beginning of 2008, Mr. Gustafsson, as the CEO and the supervisor of the other Named Officers consulted with each other Named Officer and established the Named Officer’s individual performance goals for the year.

     The CEO’s performance is evaluated by the full Board of Directors (“Board”) primarily on the basis of its subjective assessment of the Company’s overall effectiveness in executing its business strategies and delivering desired levels of financial performance and shareholder total return, but without specific weighting of any particular factors. In determining Named Officers’ compensation levels, the Committee feels that it is customary and appropriate that the CEO’s salary, bonus and equity compensation are greater in comparison to that of the other Named Officers. The CEO is the only executive with broad authority over the Company’s full range of operations. The duties and responsibilities of the Company’s CEO encompass all aspects of the Company’s management and operations. They are greater in scope and collectively more significant in nature than those of any other Named Officer, and the Committee believes that it is appropriate that the CEO’s compensation reflect this.

     New Chief Executive Officer Compensation

     Mr. Gustafsson’s compensation was not determined using the same processes that were used for Mr. Kaplan or the other Named Officers. The amount of each component of his compensation was negotiated as part of his employment agreement executed in connection with his being hired as the CEO of the Company effective September 4, 2007 (the “Gustafsson Employment Agreement”). The terms of the Gustafsson Employment Agreement were negotiated and agreed to by Mr. Gustafsson and the Board. The Board participated in and approved the hiring of Mr. Gustafsson and the Gustafsson Employment Agreement. In connection with the approval of the Gustafsson Employment Agreement, the Board considered market data that had been provided by The Delves Group (a compensation consulting firm), the historical compensation package of the Company’s CEO and Mr. Kaplan’s compensation prior to his retirement. In determining Mr. Gustafsson’s compensation, the Board placed special emphasis on tying his long-term incentive compensation to creation of stockholder value.

     Establishing Compensation Component Levels

     In connection with the determination of the Named Officers’ compensation levels for 2007, the Committee retained The Delves Group, a compensation consulting firm. The Delves Group presented market data and analysis to the Committee. The Committee used this information as a reference in making its compensation determinations, as further described below.


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