Compensation Discussion and Analysis

Compensation Discussion and Analysis

Message from the Compensation Committee

Dear eBay Stockholder,

2016 represented eBay’s first full year as a standalone company following the 2015 Spin-Off of PayPal. During the year, under the leadership of CEO Devin Wenig, the Company made solid progress against its long-term strategic plan as it began to deliver on its commitment to drive the best choice, the most relevance and the most powerful selling platform.

At the same time, Mr. Wenig and his leadership team focused on building a values-based culture that is inventive, bold, courageous, diverse and inclusive. Our commitment to being a great company and a great place to work enables us to attract and retain talent.

We believe we are off to a good start. While there is still much work ahead of us, we are very pleased with the progress eBay made over the past year.

As the Compensation Committee of your Board of Directors, we remain committed to ensuring that the Company’s executive compensation program serves the long-term interests of our stockholders and is highly performance-based. The cornerstone of our program is pay-for-performance, and we believe that the executive compensation program ensures that our executives’ compensation is clearly tied to delivering results that align with the Company’s business strategy and objectives.

The Company regularly engages with stockholders to exchange views and, importantly, solicit feedback on our compensation approach. In 2016, some of us had the opportunity to participate in these discussions, which provided helpful insights as we consider the progression of our compensation program. Following our internal analysis and stockholder feedback, we believe that eBay’s executive compensation program continues to be appropriate and effective in driving strategy and aligning pay with performance.

The Compensation Discussion and Analysis, which follows, provides additional details about the Company’s compensation approach and decisions for 2016. We believe that our 2016 programs created the proper incentives and rewards for our executive officers while creating long-term value for our stockholders. We look forward to continuing to serve you in 2017 and encourage you to contact us with any questions or feedback.

Screen Shot 2017-04-02 at 12.08.40 PM Screen Shot 2017-04-02 at 12.09.20 PM Screen Shot 2017-04-02 at 12.09.56 PM Screen Shot 2017-04-02 at 12.10.29 PM Screen Shot 2017-04-02 at 12.10.59 PM
Edward W. Barnholt Anthony J. Bates Bonnie S. Hammer Kathleen C. Mitic  Thomas J. Tierney

Executive Summary

Following the 2015 Spin-Off of PayPal, we conducted an extensive review of the Company’s compensation philosophy and executive compensation program for 2016 to determine whether they continued to be properly aligned with our business goals, culture, and importantly, stockholder interests. Following this review, the Compensation Committee and our CEO remained committed to our existing executive compensation program, which is designed to align with our business goals and culture, serves the long-term interests of our stockholders and is highly performance based. We believe that our pay-for-performance driven executive compensation program ensures that our executives’ compensation is tied to delivering results that support the Company’s business strategy and objectives.

Our Compensation Program

The goals of our executive compensation program are to:

  • align compensation with our business objectives, performance and stockholder interests,
  • motivate executive officers to enhance short-term results and long-term stockholder value,
  • position us competitively among the companies against which we recruit and compete for talent, and
  • enable us to attract, reward and retain executive officers and other key employees who contribute to our long-term success.

 

How We Pay Our Executive Officers

We achieve these objectives primarily by employing the following elements of pay for our executive officers:

  • long-term equity compensation,
  • an annual cash incentive, and
  • base salary.

Our executive officers also participate in our broad-based retirement savings and benefit programs and receive limited perquisites.

For 2016, we chose to continue to use a mix of equity and cash compensation vehicles to compensate our executive officers. We also decided to increase the weight of performance-based restricted stock units (“PBRSUs”) and eliminate the use of stock options. Our incentive compensation is dependent on financial targets that the Compensation Committee believes correlate with operating performance over one- and multi-year performance periods and long-term stock performance.

The following chart shows the breakdown of 2016 compensation for our CEO, Devin Wenig, and illustrates the predominance of equity incentives and performance-based components in our executive compensation program.

wenig-comp

Our 2016 Company Performance

As discussed above, our compensation program is highly performance-based, with payouts for elements under the program dependent on meeting financial targets over one- and multi-year performance periods. For 2016, we selected financial metrics and targets that the Compensation Committee believes incentivize our management team to achieve our strategic objectives and drive the Company’s financial performance and long-term stock performance, including FX-neutral revenue, non-GAAP operating margin dollars, return on invested capital and non-GAAP net income.

In 2016, we made great progress against our key strategic priorities to drive the best choice, the most relevance, and the most powerful selling platform. To drive the best choice for our consumers, we actively managed inventory, marketed around key retail moments, and launched integrations with partners to help enable small- and medium-sized merchants scale their businesses on eBay. We developed and began to roll out new consumer experiences to deliver a relevant shopping experience that is built on our structured data re-platforming effort. We also made a number of platform improvements that are designed to build the most powerful selling platform, including launching our Seller Hub product, releasing a revamped set of seller APIs, and improving our listing flows.

The following charts show the Company’s 2016 financial results that impacted the Company’s executive compensation program.

2015-2016 Performance-Based Restricted Stock Unit (“PBRSU”) Program

  • Awards were earned at 126% of target based on Company performance:

Screen Shot 2017-04-02 at 12.16.31 PM

2016 Annual Cash Incentive Award (the eBay Incentive Plan (eIP))

  • Company performance component paid at 112% of target based on the following performance:

fx-neutral rev

Our Compensation Practices

We believe our compensation practices align with and support the goals of our executive compensation program and demonstrate our commitment to sound compensation and governance practices.

What We DoWhat We Don't Do
We align executive compensation with the interests of our stockholders
  • Emphasize pay-for-performance alignment

  • Deliver a majority of total compensation opportunity through performance-based compensation: PBRSUs and annual cash incentives

  • Set meaningful stock ownership requirements for executive officers
Tax gross-ups for change in control benefits
We avoid excessive risk-taking
  • Maintain a clawback policy

  • Use multiple performance measures, caps on incentive payments, and overlapping two-year performance periods for PBRSU awards
Automatic “single trigger” acceleration of equity upon a change in control
We adhere to compensation best practices
  • Retain an independent compensation consultant for the Compensation Committee

  • Prohibit hedging and pledging transactions by executive officers and directors

  • Provide only limited perquisites to executive officers that are not available to all employees
Repricing or buyout of underwater stock options without stockholder approval

Introduction

This Compensation Discussion and Analysis is presented as follows:

  1. Elements of Our Executive Compensation Program provides a description of our executive compensation practices, programs, and processes.
  2. Compensation Decisions for 2016 explains executive compensation decisions made for 2016.
  3. 2016 Business Results highlights results that affected executive compensation.
  4. Severance and Change in Control Arrangements with Executive Officers and Clawbacks discusses the Company’s severance and change in control plans and other arrangements with executive officers.
  5. Further Considerations for Setting Executive Compensation discusses the role of the Company’s compensation consultant, peer group considerations, and the impact of accounting and tax requirements on compensation.

This Compensation Discussion and Analysis describes the compensation of our “named executive officers” (“NEOs”) for 2016:

  • Devin Wenig, President and Chief Executive Officer (“CEO”)
  • Scott Schenkel, Senior Vice President, Finance and Chief Financial Officer (“CFO”)
  • Stephen Fisher, Senior Vice President, Chief Technology Officer
  • Harry Lawton, Senior Vice President, North America
  • Raymond Pittman, Senior Vice President, Chief Product Officer

 

Review of Elements of Executive Compensation Program; 2016 “Say on Pay” Vote and Investor Feedback

We conducted an extensive review of the Company’s compensation philosophy and executive compensation program for 2016 to assess whether they continued to be properly aligned with our business goals, culture and, importantly, stockholder interests. After conducting this review and considering the feedback received during the Company’s regular engagement with stockholders by management of the Company and members of the Board, we determined that the Company’s executive compensation philosophy, compensation objectives, and overall program continued to be appropriate. In addition, we decided to increase the weight of PBRSUs and eliminate stock options from the mix of equity for our executive officers.

In 2016, our stockholders once again overwhelmingly approved our executive compensation program through the “say on pay” vote, with 93% of the votes cast in favor. As a result, the Compensation Committee did not make any specific changes to the Company’s executive compensation program in response to the 2016 “say on pay” vote.

1. Elements of Our Executive Compensation Program

The goals of our executive compensation program are to:

  • align compensation with our business objectives, performance, and stockholder interests,
  • motivate executive officers to enhance short-term results and long-term stockholder value,
  • position us competitively among the companies against which we recruit and compete for talent, and
  • enable us to attract, reward, and retain executive officers and other key employees who contribute to our long-term success.

To achieve these goals, we have three principal components of our executive compensation program: equity compensation, an annual cash incentive, and base salary. We seek to ensure that total compensation for our executive officers is heavily weighted to variable, performance-based compensation by delivering a majority of compensation in the form of PBRSUs and annual cash incentives.

The Compensation Dashboard below provides a snapshot of the key elements of our 2016 executive compensation program and describes why each element is provided. Additional information about these key elements is included in the sections following the dashboard.

compensation dashboard

Short-Term IncentivesLong-Term IncentivesBenefits
CashEquity
Base SalaryAnnual Cash Incentive Awards
  • Aligns executive incentives with the long-term interests of our stockholders

  • Positions award guidelines at target level with the median of the market levels paid to peer group executives

  • Recognizes individual executive’s recent performance and potential future contributions

  • Retains executives for the long term

  • Provides a total compensation opportunity with payouts varying based on our operating and stock price performance
  • Health and welfare benefit plans

  • Employee stock purchase plan

  • Retirement savings plans

  • Deferred compensation plan

  • Limited personal use of the corporate airplane with reimbursement required (CEO and CFO only)

  • Certain other limited perquisites
  • Rewards individuals’ current contributions
    to the Company

  • Reflects the scope of their roles and responsibilities

  • Compensates for expected day-to-day performance
  • Aligns executive compensation with annual Company and individual performance

  • Motivates executives to enhance annual results

 We chose a mix of equity and cash compensation vehicles to compensate executive officers based on long-term value drivers of Company performance over one- and multi-year periods and individual contributions to the Company. Our executive officers also were eligible to participate in our broad-based retirement savings (which include a 401(k) program open to all employees in the United States and an unmatched deferred compensation program available to vice presidents and above in the United States) and benefit programs and received limited perquisites.

Equity Incentive Awards

Beginning in 2016, we decided to increase the weight of PBRSUs and eliminate stock options from the mix of equity for our executive officers.

For 2016, once the value of the annual equity incentive awards has been set for each executive officer, the formula used to allocate the annual equity awards is as follows:

equity incentive awards

Annual Equity Awards: Value
The value of annual equity awards is determined within guidelines that the Compensation Committee approves on an annual basis for each position. These guidelines are based on our desired pay positioning relative to companies with which we compete for talent. The midpoint of the guidelines, or the median target award, reflects the 50th percentile of the competitive market.

In 2016, the Compensation Committee approved equity award guidelines by position based on the following:

  • equity compensation practices of technology companies in our peer group, as disclosed in their public filings (see page 57 for our 2016 peer group), and
  • equity compensation practices for comparable technology companies that are included in proprietary third-party surveys.

The Compensation Committee is also cognizant of dilution resulting from equity compensation, and so it carefully considers share usage each year and sets an upper limit on the number of shares that can be used for equity compensation, including awards to executive officers and the overall employee population.

Each executive officer’s individual contribution and impact, projected level of contribution and impact in the future, and competitive positioning are considered when determining individual awards. The retention value of current year awards and the total value of unvested equity from previous awards are also considered. The individual awards can be higher or lower than the median target award by an amount ranging from zero to three times the median target award. The Compensation Committee limits the use of special equity-related compensation for executive officers to extraordinary circumstances only. In 2016, none of our NEOs received equity-related compensation beyond the standard annual equity award.

PBRSU Program
Plan Design and Performance Periods. The PBRSU Program is a key component of the annual equity compensation for each executive officer. At the beginning of each performance period, executive officers receive PBRSU grants that are subject to performance- and time-based vesting requirements.

Each PBRSU cycle has a two-year performance period. The performance goals for each cycle are approved by the Compensation Committee at the beginning of the performance period. Each executive officer is awarded a target number of shares subject to the PBRSU award at the beginning of the performance period.

If the Company’s actual performance exceeds or falls short of the target performance goals, the actual number of shares subject to the PBRSU award will be increased or decreased formulaically.

Under the PBRSU program, 100% of any PBRSU awards granted to our CEO and CFO will vest, if at all, 14 months following the end of the applicable two-year performance period. This provision subjects 100% of the CEO and CFO PBRSU awards to a full three years of stock price volatility before the shares vest. For all executive officers other than the CEO and CFO, one-half of the PBRSUs vest in March following the end of the applicable performance period, and the other half of the award vests in March of the following year, more than one full year following the completion of the performance period. The Compensation Committee believes that the post-performance period vesting feature of the PBRSUs provides an important mechanism that helps to retain executive officers and align their interests with long-term stockholder value.

PBRSU TIMELINE

pbrsu timeline

Performance Measures and Rationale. As discussed above, the number of shares subject to a target PBRSU award are adjusted based on whether the Company’s actual performance exceeds or falls short of the target performance goals for the applicable performance period.

The following table outlines the performance measures for the 2015-2016 and 2016-2017 performance periods and the rationale for their selection:

Performance MeasuresFX-neutral revenue(1)

Non-GAAP operating margin dollars(2)

Return on invested capital (modifier)
RationaleThe Compensation Committee believes these measures are key drivers of our long-term business success and stockholder value, and are directly affected by the decisions of the Company’s management.

Both FX-neutral revenue and non-GAAP operating margin dollars measures are used to help ensure that leaders are accountable for driving profitable growth, and making appropriate tradeoffs between investments that increase operating expense and future growth in revenue.

The return on invested capital modifier is used to hold leaders accountable for the efficient use of capital.

(1) Calculated on a fixed foreign exchange basis (referred to as FX-neutral).
(2) Non-GAAP operating margin dollars excludes certain items, primarily stock-based compensation expense and related employer payroll taxes, amortization of acquired intangible assets, impairment of goodwill, separation expenses, and certain one-time gains, losses and/or expenses.

Plan Mechanics and Targets. The two-year performance targets are generally set in a manner consistent with the current year budget and multi-year strategic plan. To receive any shares subject to a PBRSU award, at least one of the FX-neutral revenue or non-GAAP operating margin dollars minimum performance thresholds must be met. Each of the minimum performance thresholds are independent and, if any of the FX-neutral revenue or non-GAAP operating margin dollar performance thresholds are met, the award is adjusted with respect to that performance measure in accordance with the percentages outlined in the illustration below. If the minimum performance threshold for either FX-neutral revenue or non-GAAP operating margin dollars is not met, then no shares are awarded for that performance measure. At the time the performance targets were set, the target goals were designed to be achievable with strong management performance, while the maximum goals were designed to be very difficult to achieve.

The following chart shows the minimum, target, and maximum payout percentage for FX-neutral revenue and non-GAAP operating margin dollars:

fx-neutral-rev

The number of shares awarded is determined by comparing our actual performance for FX-neutral revenue and non-GAAP operating margin dollars over the performance period against the minimum, target, and maximum performance levels and converting the result into a payout percentage. The FX-neutral revenue and non-GAAP operating margin dollars measures are then added together and this total is multiplied by the third measure, return on invested capital, with the modification multiplier determined in accordance with the table below:

roic

The target award is multiplied by the percentage resulting from this calculation to determine the actual number of PBRSUs awarded. The Compensation Committee may approve adjustments to the calculations of the performance measures due to material events not contemplated at the time the targets were set (such as major acquisitions) and the Compensation Committee may apply negative discretion to reduce the payout levels of the awards. Shares that vest under PBRSU awards are 0% to 240% of the initial grant, based on eBay’s FX-neutral revenue, non-GAAP operating margin dollars, and return on invested capital for the two-year performance period.

shares earned graphic

Time-based RSUs

As discussed above, each executive officer receives a portion of his or her equity award as a grant of RSUs that vest over a four-year period subject to continued employment. Beginning with awards granted on or after February 15, 2016, we moved from annual vesting over four years to quarterly vesting over four years. For newly hired executive officers, 25% of the initial grant of time-based RSUs vest on the first anniversary of the date of grant and the remainder vest on the quarterly schedule. This change is aligned with the current market practices of many companies in our peer group and will help enable the Company to remain competitive in attracting talent.

Annual Cash Incentive Awards (the eBay Incentive Plan (eIP))

Plan Design and Performance Period. The eBay Incentive Plan (“eIP”) is a broad-based short-term cash incentive plan. The Compensation Committee has set an annual performance period under the plan.

The plan is designed to support a tight link between Company performance and any incentive payouts. The annual cash incentives payable for 2016 had both a FX-neutral revenue threshold and a non-GAAP net income minimum performance threshold. Unless both of these minimum performance thresholds are met, there is no incentive payout. If both minimum performance thresholds are met, the Company uses total non-GAAP net income to determine the payout percentage of the Company financial performance component of the annual cash incentive.

Additionally, if the minimum performance thresholds are met, 75% of executive officers’ payouts under the plan are based on the Company’s performance as described above. To facilitate differentiation based on individual performance, the remaining 25% of awards are based on individual performance. As discussed in more detail below, the Compensation Committee considers many factors in determining the CEO’s individual performance, but does not assign specific weighting to these factors. The CEO partners with the Compensation Committee to similarly assess the individual performance of the other executive officers. In circumstances where the Company’s financial performance is above its minimum performance threshold but below the target performance threshold, a modifier is applied to the individual performance component to reduce it proportionately based on the Company financial performance component. For example, if the Company exceeded the FX-neutral revenue minimum performance threshold but total non-GAAP net income was 90% of the target performance threshold, then the individual performance component would be calculated as follows: target incentive amount x 25% x individual performance score x 90%. The maximum payout for both the Company financial performance and the individual performance components of the annual incentive plan is 200% of target.

Performance Measures and Rationale. The following table provides information on the Company performance measures set in 2016 and rationale for their selection:

Performance Measures(1)Rationale
Company financial performance measure
FX-neutral revenue (threshold)The Compensation Committee believes that a minimum revenue threshold should be met before any cash incentive is paid. Once the minimum revenue threshold has been met, the Company financial performance component of the annual cash incentive payment is paid based on results in relation to the Non-GAAP net income goal.
Non-GAAP net income(2)Non-GAAP net income is the key measure of short- and intermediate-term results for the Company given that it can be directly affected by the decisions of the Company’s management and provides the most widely followed measure of financial performance.
Individual measure
Individual performanceThe Compensation Committee believes that a portion of the compensation payable under this plan should be differentiated based on individual performance for which a review is conducted at the end of the year.
(1) Both minimum FX-neutral revenue and minimum non-GAAP net income performance thresholds must be met in order for there to be any incentive payout based on Company performance or individual performance, with the payout level for Company financial performance component based on the amount of non-GAAP net income.
(2) Non-GAAP net income excludes certain items, primarily stock-based compensation expense and related employer payroll taxes, amortization or impairment of acquired intangible assets, impairment of goodwill, amortization of the deferred tax asset associated with the realignment of its legal structure and related foreign exchange effects, significant gains or losses and transaction expenses from the acquisition or disposal of a business and certain gains or losses on investments. Non-GAAP net income is calculated quarterly, is publicly disclosed as part of our quarterly earnings releases, and is a basis of third-party analysts’ estimates of the Company’s results.

Plan Mechanics and Targets. In the first quarter of the year, the Compensation Committee approves Company performance measures based on business criteria and target levels of performance. Targets are set based primarily on the Company’s Board-approved budget for the year.

The Compensation Committee also assesses annual cash incentive award opportunities against data from public filings of our peer group companies and general industry data for comparable technology companies that are included in proprietary third-party surveys, and it approves target annual cash incentive opportunities for our NEOs at approximately the 50th percentile based on that data. We review market data annually, but only periodically adjust incentive opportunities.

After the end of each year, the Compensation Committee approves the actual performance against the Company financial performance measures to determine the payout percentage for that portion of the annual cash incentive plan. With respect to individual performance, our CEO presents the Compensation Committee with his assessment of the individual performance of the executive officers who are his direct reports and recommends a bonus payout percentage for the individual performance component of the annual incentive plan based on his assessment. The Compensation Committee reviews his assessments and payout recommendations and makes a subjective determination of the level of individual performance and payouts for each of those executive officers. In addition, the Compensation Committee (with input from the Chairman of the Board and other independent members of the Board) makes a subjective determination of the individual performance of the CEO. In making its determination of the individual performance of each executive officer, the Compensation Committee does not give any specific weighting to individual goals.

Base Salary

Assessment and Target Positioning Strategy. We review market data and approve each executive officer’s base salary for the year. Increases generally become effective on or around April 1st of the year. We assess competitive market data on base salaries from public filings of our peer group companies and general industry data for comparable technology companies that are included in proprietary third-party surveys. When considering the competitive market data, we also recognize that the data is historical and does not necessarily reflect those companies’ current pay practices. We assess each executive officer’s base salary against the 50th percentile of the salaries paid to comparable executives at peer group companies and also consider individual performance, levels of responsibility, expertise, and prior experience in our evaluation of base salary adjustments.

Perquisites

We provide certain executive officers with limited perquisites and other personal benefits not available to all employees that we believe are reasonable and consistent with our overall compensation program and philosophy. These benefits are provided to enable the Company to attract and retain these executive officers. We periodically review the levels of these benefits provided to our executive officers.

Mr. Wenig and Mr. Schenkel have access to the corporate airplane for up to 50 hours and 20 hours of personal use, respectively, subject to Mr. Wenig and Mr. Schenkel fully reimbursing the Company for the incremental costs associated with such use. The Company does not grant bonuses to cover, reimburse, or otherwise “gross-up” any income tax owed for personal travel on the corporate airplane.

2. Compensation Decisions for 2016

When making compensation decisions for our NEOs, the Compensation Committee evaluated each individual based on his or her leadership, competencies, innovation, and both past and expected future contributions toward the Company’s financial, strategic, and other priorities. Under the leadership of
Mr. Wenig, the Company made solid progress during the year against its long-term strategic plan as it began to deliver on its commitment to drive the best choice, the most relevance, and the most powerful selling platform. At the same time, Mr. Wenig and his leadership team focused on building a values-based culture that is inventive, bold, courageous, diverse and inclusive.

In addition, the Compensation Committee considered retention concerns as well as the total value of each NEO’s unvested equity awards. Based on its assessment, the Compensation Committee approved individual compensation arrangements for each NEO based on the factors and guidelines described above and in this section.

Determining 2016 Target Compensation for our CEO

The Compensation Committee takes a multi-year view of Mr. Wenig’s total compensation, with the objective of rewarding his leadership of the Company and tying his compensation to Company results and stock price performance. In doing so, the Compensation Committee has sought to focus Mr. Wenig’s attention on the longer-term performance of the Company.

The Compensation Committee considered many factors in setting the various components of Mr. Wenig’s compensation, including the factors set forth below. In evaluating performance against these factors, the Compensation Committee assigned no specific weighting to these factors and it evaluated individual performance in a holistic manner.

  • Providing leadership and vision to improve eBay’s position as a leading ecommerce player
  • Execution against the Company’s long-term strategic plan to drive the best choice, the most relevance, and the most powerful selling platform
  • Driving innovation and execution across eBay
  • Performance against target financial goals and operating goals including initiatives related to structured data, the shopping experience, mobile applications, and shipping
  • Building an excellent executive management team and a values-based culture that is inventive, bold, courageous, diverse, and inclusive to enable eBay to attract and retain top talent

The Compensation Committee also reviewed and approved the salary, target annual cash incentive award, and target value of equity awards for our CEO considering available market data as well as Company and individual performance.

The Compensation Committee determined that Mr. Wenig’s base salary and target annual cash incentive award remained competitive without an increase and that his overall cash compensation was consistent with creating an ownership culture by focusing his compensation mix on equity rather than cash.

In determining Mr. Wenig’s 2016 equity award, the Compensation Committee recognized the strength of Mr. Wenig’s leadership team, his focus on shaping eBay’s culture to embrace innovation, risk-taking and diversity in the workforce and the marketplace, the over-delivery of financial results against targets, the execution against the long-term strategic plan to drive future growth, and engagement with current and potential investors. They also considered the year-over-year increase in the value of equity grants awarded in the prior year to CEOs of other large, public companies in the Internet and technology space.

The following table outlines Mr. Wenig’s 2016 compensation:

base-salary-yoy

* Allocated in accordance with the Company’s 2016 allocation: 60% PBRSUs and 40% RSUs. For the PBRSU portion of the award, if performance targets are met, the achieved portion of the award will vest 100% on March 15, 2019.

Breakdown of 2016 Compensation for our CEO

The following chart shows the breakdown of reported 2016 compensation for Mr. Wenig. This chart illustrates the predominance of equity incentives and performance-based components in our executive compensation program.

wenig-comp

Summary of Target Value of Equity Awards, Target Cash Incentive Award, and Salary for other NEOs

The Compensation Committee considered many factors in approving the various components of the other NEOs’ compensation, including the factors set forth below. In evaluating performance against these factors, the Compensation Committee assigned no specific weighting to these factors and it evaluated individual performance in a holistic manner.

  • Performance against target financial results for the NEO’s business unit or function
  • Defining business unit or function strategy and executing against relevant goals
  • Recognition of the interconnection between the eBay business units and functions and the degree to which each executive supported and drove the success of other business units or functions and the overall business
  • Organization development, including hiring, developing, and retaining the senior leadership team of the business unit or function
  • Achievement of strategic or operational objectives, including control of costs
  • Driving innovation and execution for the business unit or function

The Compensation Committee reviewed and approved the target value of equity awards, target annual cash incentive award, and salary for our NEOs based on available market data as well as Company and individual performance.

The Compensation Committee determined that the target annual cash incentive award and base salary for our other NEOs remained competitive without an increase and that their overall cash compensation was consistent with creating an ownership culture by focusing the compensation mix on equity rather than cash. The Committee determined equity awards based on delivery against business metrics, financial targets and Company-level leadership. The decreases in the total target value of 2016 equity awards compared to 2015 equity awards for Mr. Schenkel and Mr. Lawton reflect the fact that each received equity awards in 2015 that recognized either a new position in the Company or a new hire grant.

The following chart shows the compensation arrangements for our other NEOs:

neo-comp

* Allocated in accordance with the Company’s 2016 allocation: 60% PBRSUs and 40% RSUs.
** For the PBRSU portion of the award, if performance targets are met, 100% of achieved portion of the award will vest on March 15, 2019.
*** For the PBRSU portion of the award, if performance targets are met, 50% of the achieved portion of the award will vest on March 15, 2018 and the remaining 50% of achieved portion of the award will vest on March 15, 2019.
**** Mr. Fisher had recently joined the Company at the time of his 2015 grant. As a result, Mr. Fisher’s 2015 grant was lower than typical due to the timing of this grant and his hire date. The target value of Mr. Fisher’s equity awards for 2016 reflects a full year of employment.

3. 2016 Business Results

The following is a summary of the business results that directly affected 2016 executive compensation, including performance-based equity awards and annual cash incentive awards.

PBRSUs

2015-2016 PBRSU Award

The following graphs show the goals and results achieved for the 2015-2016 performance period:

2015-16 PBRSUs

The performance goals for the 2015-2016 performance period were set in early 2015, before the impact of the completion of the Spin-Off of PayPal and the sale of eBay Enterprise were known. In early 2016, the Committee modified the performance goals for the 2015 component of the 2015-2016 performance period because the Committee determined that it was appropriate to adjust the performance goals to reflect the impact of the eBay Enterprise sale. The Committee also modified the non-GAAP operating margin performance goal, which was partially based on the Company’s pre-Spin-Off hedging strategy for the combined entity, to account for foreign-exchange rate impact and certain costs related to the Spin-Off of PayPal.

The targets for the 2015-2016 performance period were lower than the Company’s actual results for the 2014-2015 performance period. This is because the actual results for the 2014-2015 performance period included the performance of eBay, PayPal, and Enterprise for 2014, whereas the 2015-2016 targets were based solely on the performance of eBay.

Following the end of the performance period, as part of its review of the Company’s financial performance against the PBRSU targets and in accordance with its authority under the plan, the Committee considered whether the impact of any significant corporate events not contemplated at the time the targets were set should lead to an adjustment of any of the performance result. The Committee determined that it was appropriate to adjust the calculation of return on invested capital for 2016 to remove the impact of a non-cash deferred tax asset related to a legal structure realignment.

Actual awards under the PBRSU plan could range from 0% to 240% of the target awards. Based on the Company’s financial performance during the 2015-2016 performance period, the actual PBRSU awards were 126% of target and our NEOs received the following awards:

neo-target-vesting

Annual Cash Incentive Awards

2016 Annual Cash Incentive Goals and Plan Performance.

The following graphs show the goals and results achieved for the 2016 performance period:

Screen Shot 2017-04-02 at 5.39.07 PM

The performance goals for the 2016 performance period were set in early 2016 based primarily on the Company’s budget for the year. The performance goal for FX-neutral revenue is a minimum revenue threshold that must be met for the annual cash incentive payment to be paid based on actual results in relation to the Non-GAAP net income performance goals. The target for Non-GAAP net income for 2016 was lower than the actual results for Non-GAAP net income in 2015 because the 2016 target reflected the anticipated foreign-exchange rate impact of a stronger U.S. dollar and certain Spin-Off related costs.

In early 2017, as part of its review of the Company’s financial performance against the annual cash incentive plan targets and in accordance with its authority under the plan, the Compensation Committee considered whether the impact of any significant corporate events not contemplated at the time the targets were set should lead to an adjustment of any of the performance results. The Compensation Committee determined that it was appropriate to adjust non-GAAP net income to remove the impact of incremental interest expense from the Company’s 2016 offering of institutional and retail bonds and to eliminate the gain realized from de-designation of certain foreign exchange hedges related to the realignment of our legal structure in 2016.

In addition, the Compensation Committee reviewed Mr. Wenig’s performance for the purpose of determining the individual portion of his 2016 annual cash incentive award, with input from the entire Board. The Compensation Committee did not assign fixed weightings to specific individual goals or performance criteria. Instead, it took a holistic view of performance during the year and the Company’s positioning for the future. The Compensation Committee considered the strong financial results in 2016 and the solid positioning of the core eBay business, StubHub and Classifieds. As a result, the individual performance component of Mr. Wenig’s annual cash incentive award was established at 150% of target, and his total earned annual incentive award for 2016 was 121.5% of target.

The payout level under the annual cash incentive plan could range from 0%-200% of target. The Company performance component (75%) of the annual cash incentive plan was based on the Company’s non-GAAP net income for 2016 (and the achievement of the FX-neutral revenue threshold) and paid at 112% of target. The individual performance component (25%) was based on each NEO’s individual performance score and the total earned annual incentive award for 2016 for each of our NEOs were paid at between 105.3% and 121.5% of target as follows:

annual-cash-incentive

4. Severance and Change In Control Arrangements with Executive Officers and Clawbacks

Our objective in creating the severance and change in control arrangements described below was to provide fair and reasonable severance that would also serve as a retention incentive for those impacted by a change in control or similar transactions. We believe that these protections help the Company attract and retain highly talented executive officers.

In advance of the Spin-Off of PayPal in 2015, we adopted the eBay Inc. SVP and Above Standard Severance Plan and Summary Plan Description (the “Standard Severance Plan”) and the eBay Inc. Change in Control Severance Plan for Key Employees and Summary Plan Description (the “Change in Control Severance Plan”). In considering the protections included in these plans, we conducted a comprehensive review of protections provided to senior executives of our peer group and took into account the information about candidates’ expectations learned in the course of recruiting efforts in 2015 for talented senior leaders to complete our leadership team. When considering whether to enter into arrangements outside these plans, the Compensation Committee was also mindful that newly recruited executives were either leaving relatively secure employment arrangements or turning down attractive alternative offers and determined that these protections should be extended to certain, then-current executives in order to maintain internal alignment.

Severance Arrangements Outside a Change in Control

The Company’s Standard Severance Plan provides severance protection outside of a change in control period if a participant is terminated without cause and signs and does not revoke a waiver of claims against the Company. Mr. Fisher and Mr. Pittman participate in the Standard Severance Plan.

Mr. Wenig, Mr. Schenkel and Mr. Lawton do not participate in the Standard Severance Plan. Mr. Wenig and Mr. Schenkel entered into offer letters with the Company in 2014 in connection with their appointment to their current roles at the Company, which provided for severance arrangements if they are respectively terminated without cause or resign for good reason not in connection with a change in control, and sign and do not revoke a waiver of claims against the Company. Mr. Lawton, who was hired a few months before the Spin-Off of PayPal, does not participate in the Standard Severance Plan because his offer letter provided severance arrangements if he is terminated without cause or resigns for good reason not in connection with a change in control, and he signs and does not revoke a waiver of claims against the Company.

The following chart describes the severance benefits that each of our NEOs would receive if terminated outside of a change in control.

CIC-CDA-1

(1) Mr. Lawton’s severance payment is equal to one and half times salary and one and half times target cash incentive award if his termination is after the one-year anniversary but before the second anniversary of the commencement of his employment. If his termination is after the second anniversary of the commencement of his employment, then his severance payment is equal to one times salary and one times target cash incentive award.
(2) For Mr. Wenig and Mr. Schenkel and Mr. Lawton, based only on actual performance with respect to the Company performance element for the full year. For Standard Severance Plan Participants, based on actual performance with respect to the Company performance element for the full year and target performance with respect to the Individual performance element.
(3) For Mr. Wenig, Mr. Schenkel and Mr. Lawton, the Company shall pay cash in lieu of accelerated vesting. For Standard Severance Plan Participants, the Company can elect to pay cash in lieu of accelerated vesting. The cash value of such unvested equity is determined using the average closing price of the Company’s common stock for the ten consecutive trading days ending on and including the trading day immediately prior to his or her termination date.
(4) For Standard Severance Plan Participants, this includes the actual amount of shares that would have been granted with respect to PBRSUs for performance periods completing on or before the first anniversary of the date of his or her termination.
(5) For Mr. Wenig, Mr. Schenkel and Mr. Lawton, this includes the target amount of shares with respect to PBRSUs for performance periods for which achievement has not yet been determined.

Severance Arrangements in connection with a Change in Control

The Company has not entered into any arrangements with any of its executive officers to provide “single trigger” severance payments upon a change in control.

The Company’s equity incentive plans generally provide for the acceleration of vesting of awards granted under the plans upon a change in control only if the acquiring entity does not agree to assume or continue the awards. These provisions generally apply to all holders of awards under the equity incentive plans.

The Company’s Change in Control Severance Plan provides severance protection in connection with a change in control if a participant is terminated without cause or resigns for good reason and signs and does not revoke a waiver of claims against the Company. Mr. Fisher and Mr. Pittman participate in the Change in Control Severance Plan.

Mr. Wenig, Mr. Schenkel, and Mr. Lawton do not participate in the Change in Control Severance Plan. Mr. Wenig and Mr. Schenkel entered into offer letters with the Company in 2014 in connection with their appointment to their current roles at the Company, which provided for change in control arrangements if they are respectively terminated without cause or resign for good reason in connection with a change in control, and sign and do not revoke a waiver of claims against the Company. Mr. Lawton, who was hired a few months before the Spin-Off of PayPal, does not participate in the Change in Control Severance Plan because his offer letter provided change in control arrangements if he is terminated without cause or resigns for good reason in connection with a change in control, and signs and does not revoke a waiver of claims against the Company.

The following chart describes the severance benefits that each of our NEOs would receive if they are terminated in connection with a change in control.

CIC-CDA-2

(1) For Mr. Wenig and Mr. Schenkel and Mr. Lawton, based only on actual performance with respect to the Company performance element for the full year. For Change in Control Severance Plan Participants, based on target performance with respect to both the Company performance element and the Individual performance element.
(2) For Mr. Wenig, Mr. Schenkel and Mr. Lawton, the Company shall pay cash in lieu of accelerated vesting. For Change in Control Severance Plan Participants, the Company can elect to pay cash in lieu of accelerated vesting. The cash value of such unvested equity is determined using the average closing price of the Company’s common stock for the ten consecutive trading days ending on and including the trading day immediately prior to his or her termination date.
(3) This payment includes the target amount of shares subject to PBRSUs for performance periods for which achievement has not yet been determined.

Clawbacks

The Compensation Committee has adopted a clawback policy that covers each officer employed as a vice president or in a more senior position, and applies to incentive compensation, which includes any cash incentive award, equity award, or equity-based award paid or awarded to any covered employee during the period in which he or she is designated as a covered employee. For all covered employees, the occurrence of either of the following events is covered: (a) an action or omission by the covered employee that constitutes a material violation of the Company’s Code of Business Conduct or (b) an action or omission by the covered employee that results in material financial or reputational harm to the Company. In addition, for covered employees that are employed as a senior vice president or in a more senior position or a vice president who is a member of the finance function, the following event is also covered: a material restatement of all or a portion of the Company’s financial statements that is the result of a supervisory or other failure by the covered employee.

Under the clawback policy, the Compensation Committee has the authority and discretion to determine whether an event covered by the policy has occurred and, depending on the facts and circumstances, may (but need not) require the full or partial forfeiture and/or repayment of any incentive compensation covered by the policy that was paid or awarded to a covered employee. The forfeiture and/or repayment may include all or any portion of the following:

  • Any incentive compensation that is greater than the amount that would have been paid to the covered employee had the covered event been known;
  • Any outstanding or unpaid incentive compensation, whether vested or unvested, that was awarded to the covered employee; and
  • Any incentive compensation that was paid to or received by the covered employee (including gains realized through the exercise of stock options) during the twelve-month period preceding the date on which the Company had actual knowledge of the covered event or the full impact of the covered event was known, or such longer period of time as may be required by any applicable statute or government regulation.

 

5. Further Considerations for Setting Executive Compensation

Role of Consultants in Compensation Decisions

Pay Governance serves as the Compensation Committee’s independent compensation consultant. It provides the Compensation Committee with advice and resources to help the Compensation Committee assess the effectiveness of the Company’s executive compensation strategy and programs. Pay Governance reports directly to the Compensation Committee, and the Compensation Committee has the sole power to terminate or replace Pay Governance at any time.

As part of its engagement, the Compensation Committee has directed Pay Governance to work with our Senior Vice President, Chief People Officer and other members of management to obtain information necessary for Pay Governance to form recommendations and evaluate management’s recommendations to the Compensation Committee. Pay Governance also meets with the Compensation Committee during its regular meetings, in executive session (where no members of management are present), and with the Compensation Committee chair and other members of the Compensation Committee outside of the Compensation Committee’s regular meetings. As part of its engagement in 2016, Pay Governance provided an environmental scan of executive compensation, evaluated the Company’s peer group composition, evaluated compensation levels at the peer group companies, assessed and proposed equity and cash compensation guidelines for various executive job levels, assessed compensation for the Company’s executive officers, advised on the framework for the Company’s long-term incentive awards, and assessed Board compensation. Pay Governance does not provide any other services to the Company.

Compensation Consultant Conflict of Interest Assessment

The Compensation Committee recognizes that it is essential to receive objective advice from its compensation advisors. To that end, the Compensation Committee closely examines the procedures and safeguards that its compensation advisor takes to ensure that its services are objective. The Compensation Committee has assessed the independence of Pay Governance pursuant to SEC rules and concluded that Pay Governance’s work for the Compensation Committee does not raise any conflict of interest.

Peer Group Considerations

To set total compensation guidelines, we review market data of companies that are comparable to eBay and that we believe compete with eBay for executive talent, business, and capital. We review both specific data from peer group companies’ public filings and general industry data for comparable technology companies that are included in proprietary third party surveys. We believe that it is necessary to consider this market data in making compensation decisions to attract and retain talent. We also recognize that, at the executive level, we compete for talent against larger global companies, as well as smaller, non-public companies.

To assess whether the peer group continues to reflect the markets in which we compete for executive talent, the Compensation Committee reviews and approves the peer group each year with the assistance of its compensation consultant. In deciding whether a company should be included in the peer group, the Compensation Committee generally considers the following screening criteria:

  • revenue;
  • market value;
  • historical growth rates;
  • primary line of business;
  • whether the company has a recognizable and well-regarded brand; and
  • whether we compete with the company for talent.

For each member of the peer group, one or more of the factors listed above was relevant to the reason for inclusion in the group, and, similarly, one or more of these factors may not have been relevant to the reason for inclusion in the group.

A part of its annual review following the Spin-Off of PayPal, the Compensation Committee determined that several financial services companies were no longer relevant for eBay as a stand-alone company and added several technology companies that it believed were relevant following the Spin-Off based on the peer group selection criteria noted above. The companies removed from the peer group were American Express Company, Capital One Financial Corp., Charles Schwab & Co., Inc., MasterCard Incorporated and Visa Inc. The companies added to peer group were Electronic Arts Inc., LinkedIn Corporation, Netflix, Inc., PayPal Holdings, Inc., salesforce.com, inc., The Priceline Group Inc., and Twitter, Inc. As a result of these changes, the peer group consisted of the following companies for 2016:

Adobe Systems Incorporated Alphabet Inc.
Amazon.com, Inc.
Cisco Systems, Inc.
Electronic Arts Inc.
Facebook, Inc.
Intel Corporation
Intuit Inc.
LinkedIn Corporation
Microsoft Corporation Netflix, Inc.
PayPal Holdings, Inc.
salesforce.com, inc.
Symantec Corporation
The Priceline Group Inc.
Twitter, Inc.
Yahoo! Inc.

Impact of Accounting and Tax Requirements on Compensation

We are limited by Section 162(m) of the Code to a deduction for federal income tax purposes of up to $1 million of compensation paid to our CEO and any of our other three most highly compensated executive officers, other than our CFO, in a taxable year. Compensation above $1 million may be deducted if, by meeting certain technical requirements, it can be classified as “performance-based compensation.” The annual cash incentive program was last approved by our stockholders in 2015. Under the annual cash incentive program, the portion of the awards attributable to Company performance is intended to qualify as “performance-based compensation” under Section 162(m). Certain grants under the 2008 Equity Incentive Award Plan, which was last approved by our stockholders in 2016, are also intended to qualify as “performance-based compensation.” Although the Compensation Committee uses the requirements of Section 162(m) as a guideline, deductibility is not the sole factor it considers in assessing the appropriate levels and types of executive compensation. The Compensation Committee expressly retains the full discretion to forgo deductibility when the Compensation Committee believes it to be in the interests of the Company and our stockholders.

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