Compensation Discussion and Analysis

Compensation Discussion and Analysis

Message from the Compensation Committee
Dear eBay Stockholder,

In 2017, the Company made solid progress executing its strategy of delivering the best choice, most relevance and most powerful selling platform for buyers and sellers. The Company remained focused on its most important stakeholders – its customers, stockholders and employees – as it accelerated its product innovation to improve the customer experience and delivered strong financial results.

At the same time, the leadership team continued to foster a culture wedded to the Company’s purpose of creating a better, more sustainable form of commerce and rooted in the core values of being inventive, bold, courageous, diverse and inclusive. We are proud of the Company’s continued progress in this respect as it published its first Global Impact summary and Diversity and Inclusion report.

We are very pleased with the Company’s momentum during the year. We believe the Company has set the foundation for continuing growth and is on the right trajectory. We are excited about the opportunity to improve the Company’s customer experience by intermediating payments on its Marketplace platform.

In our executive compensation program, we remain committed to a performance-based compensation program that strongly supports the Company’s business objectives while aligning pay for performance with stockholder interests. We believe that the Company’s executive compensation approach creates the proper incentives and rewards for creating long-term value for our stockholders. Importantly, with approximately 93% of the Company’s stockholders supporting eBay’s Say on Pay vote last year, our investors let us know that they support our approach as well.

The Company continued its regular practice of stockholder engagement and participated in investor discussions during the spring and fall of 2017. This engagement provided us the opportunity to discuss our approach to executive compensation, address timely themes around compensation and hear feedback from a set of critical stakeholders.

As the Compensation Committee of your Board of Directors, we want to thank you for being valued stockholders, and we welcome your feedback on our 2017 compensation programs which are detailed in the following pages.

Compensation Discussion and Analysis

Executive Summary

In 2017, eBay made solid progress executing its strategy of delivering the best choice, most relevance and most powerful selling platform for buyers and sellers. The Company accelerated its product innovation to improve the customer experience for buyers and sellers and delivered strong financial results. At the same time, the leadership team continued to foster a culture wedded to the Company’s purpose of creating a better, more sustainable form of commerce and rooted in the core values of being inventive, bold, courageous, diverse and inclusive. 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
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

Our executive officers also participate in our broad-based retirement savings and benefit programs and receive limited perquisites that are not available to all employees.

For 2017, we chose to continue to use a mix of equity and cash compensation vehicles to compensate our executive officers. 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 2017 compensation for our CEO, Devin Wenig, and illustrates the predominance of equity incentives and performance-based components in our executive compensation program.

Our 2017 Company Performance

As discussed above, our executive 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 2017, 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 foreign exchange neutral (FX-neutral) revenue, non-GAAP operating margin dollars, return on invested capital and non-GAAP net income.

In 2017, we believe we made great progress against our key strategic priorities to drive the best choice, the most relevance, and the most powerful selling platform. We drive the best choice by attracting and retaining sellers and brands that bring differentiated inventory to eBay and providing our consumers with great selection and value. To help deliver the most relevance, we have undertaken a multi-year initiative, which we call structured data, to better understand, organize and leverage the inventory on eBay. Structured data has provided us with the foundation on which to create shopping experiences that are tailored to each user’s interests, passions and shopping history. In 2017, our structured data efforts enabled us to deliver more personalized, discovery-based user experiences and made it easier for customers to find inventory both on and off eBay. Finally, we focus on offering the most powerful selling platform for our business and consumer sellers. During the year, we continued to expand the adoption of our Seller Hub product, while adding new capabilities to enable sellers to more effectively manage their eBay businesses.

The following charts show the Company’s 2017 financial results that impacted the Company’s executive compensation program.

2016-2017 Performance-Based Restricted Stock Unit (“PBRSU”) Cycle

Awards under the 2016-2017 PBRSU cycle were earned at 117% of target based on Company performance. This payout percentage reflects the Company’s performance at 130% of FX-Neutral revenue target (based on a straight line interpolation between Target at 50% and Maximum at 100%) and 104% of Non-GAAP operating margin (based on a straight line interpolation between Target at 50% and Maximum at 100%), averaged together with equal weight, and multiplied by 100% as the Return for Invested Capital modifier.

2017 Annual Cash Incentive Award (the eBay Incentive Plan (eIP))

Payouts under the plan are based 75% on the Company’s performance and, in order to facilitate differentiation based on individual performance, the remaining 25% is based on individual performance. The Company performance component paid at 122% of target based on the following Company performance. The performance thresholds for FX-Neutral revenue and Non-GAAP net income were met. The Company portion of the eIP payout was based on actual non-GAAP net income performance based on a straight line interpolation between Target at 100% and Maximum at 200%.

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 2017 explains executive compensation decisions made for 2017.
  3. 2017 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 2017:

  • Devin Wenig, President and Chief Executive Officer (“CEO”)
  • Scott Schenkel, Senior Vice President, Finance and Chief Financial Officer (“CFO”)
  • Scott Cutler, Senior Vice President, Americas
  • Stephen Fisher, Senior Vice President, Chief Technology Officer
  • Jae Hyun Lee, Senior Vice President, EMEA
Review of Elements of Executive Compensation Program; 2017 “Say on Pay” Vote and Investor Feedback

We regularly review the Company’s compensation philosophy and executive compensation program to assess whether they continue to be properly aligned with our business goals, culture and, importantly, stockholder interests. We also regularly engage with our stockholders at least twice a year to solicit feedback on our compensation philosophy and executive compensation program. 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. The Compensation Committee determined for 2017 that the elements of our Executive Compensation Program should remain in place. In 2018 and beyond, we will adapt our executive compensation program to reflect the Company’s intention to further improve its customer experience by intermediating payments on its Marketplace platform.

In 2017, our stockholders once again overwhelmingly approved our executive compensation program through the “say on pay” vote, with approximately 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 2017 “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 2017 executive compensation program and describes why each element is provided. Additional information about these key elements is included in the sections following the dashboard.

Short-Term IncentivesLong-Term IncentivesBenefits
CashEquity
Base SalaryAnnual Cash Incentive Awards
  • Aligns executive incentives with the longterm 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

For 2017, 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:

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 2017, 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 65 for our 2017 peer group), and
  • equity compensation practices for comparable technology companies that are included in proprietary third-party

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 2017, our NEOs received equity- related compensation as part of the Company’s standard annual equity award. In addition to the annual awards, two of our executives, Scott Cutler and Jae Hyun Lee, received promotion awards in connection with their promotions to new roles. Both promotion awards were granted using the Company’s standard equity mix of 60% PBRSUs and 40% time-vested restricted stock units.

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.

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 2016-2017 and 2017-2018 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.
(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:

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:

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.

Plan Revisions for the 2018-2019 PBRSU Cycle. In recognition of the importance of our strategic decision to improve customer experience by intermediating payments on our Marketplace platform, we have adjusted the PBRSU plan for the 2018-2019 PBRSU cycle to tie our senior executives’ compensation to the degree of achievement of Payments intermediation. Beginning with the 2018-2019 PBRSU cycle, we have added a Payments component to the modifier element of the PBRSU plan design. The Payments modifier will be based on the percentage of Gross Merchandise Volume (GMV) of payments that the Company intermediates in 2018 and 2019. With the combination of the return on invested capital and Payments modifiers, the total shares earned can be adjusted down 45% or up 70%. Shares that vest under the PBRSU awards can be 0% to 340% of the initial grant, based on the degree of achievement of the Company’s FX- Neutral revenue and non-GAAP operating margin dollars goals, as adjusted by the return on invested capital and Payments measures for the two-year performance period.

Time-based RSUs

As discussed above, each executive officer receives a portion of his or her annual equity award as a grant of RSUs that vest on a quarterly basis over a four-year period subject to continued employment. 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 vesting schedule is aligned with market practice and helps 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 2017 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.

The following chart shows the threshold, target, and maximum payout percentage for non-GAAP net income:

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 2017 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 the Company’s 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.

Prior to September 2017, Mr. Wenig had access to the corporate airplane for up to 50 hours of personal travel, subject to Mr. Wenig fully reimbursing the Company for the incremental costs associated with such use. Beginning in September 2017, the Compensation Committee encouraged Mr. Wenig to use the corporate airplane for personal travel where relevant to reduce possible security concerns. Mr. Wenig’s use of the corporate airplane is subject to on-going oversight by the Compensation Committee. Mr. Schenkel has access to the corporate airplane for up to 20 hours of personal use, subject to 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.

Mr. Lee is eligible to receive expatriate benefits, including housing and cost of living allowances, shipment expenses, a transportation allowance and benefits under our Global Tax Equalization Policy in connection with his temporary assignment from Singapore to Switzerland in 2018. These benefits are consistent with our global relocation program and are intended to facilitate any Company-required temporary assignment of our employees and to ensure that these employees are kept whole as compared to their home location during a Company-required temporary assignment. Because the expenses associated with Mr. Lee’s relocation were incurred in 2018, no amounts are reported in the 2017 Summary Compensation Table with respect to these benefits.

2. Compensation Decisions for 2017

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 2017 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 that is environmentally and socially responsible
  • 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 2017 equity award, the Compensation Committee recognized the strength of Mr. Wenig’s leadership, his focus on executing the Company’s strategy, creating a culture of diversity and inclusion that reflects the marketplace, delivering innovative products, the over-delivery of financial results against targets, the execution against the long-term strategic plan to drive future growth while remaining environmentally and socially responsible, 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 2017 compensation:

Breakdown of 2017 Compensation for our CEO

The following chart shows the breakdown of reported 2017 compensation for Mr. Wenig. This chart illustrates the predominance of equity incentives and performance-based components in our executive compensation program.

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 in an environmentally and socially responsible manner
  • 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 approved salary increases for Mr. Schenkel and Mr. Fisher in order to remain competitive with current market conditions. Mr. Cutler and Mr. Lee received salary increases in connection with their promotions. The Compensation Committee determined that the other NEO’s target annual cash incentive award 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 following chart shows the compensation arrangements for our other NEOs:

* For Mr. Schenkel and Mr. Fisher, allocated in accordance with the Company’s 2017 allocation of 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, 2020.
*** 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, 2019 and the remaining 50% of achieved portion of the award will vest on March 15, 2020.
**** Mr. Cutler received his annual focal award of $3.0 million in RSUs (in accordance with the standard approach for Vice Presidents). In addition, he received a $4.0 million award on September 15, 2017 in connection with his promotion; allocated in accordance with the Company’s 2017 allocation: 60% PBRSUs and 40% RSUs.
***** Mr. Lee received his annual focal award of $4.0 million. In addition, he received a $3.0 million award on September 15, 2017 in connection with his promotion; both awards were allocated in accordance with the Company’s 2017 allocation of 60% PBRSUs and 40% RSUs.
****** Mr. Lee’s base salary was converted from Singapore dollars to U.S. dollars based on the closing exchange rate reported by Reuters on December 29, 2017.

3. 2017 Business Results

The following is a summary of the business results that directly affected 2017 executive compensation, including performance-based equity awards and annual cash incentive awards.

PBRSUs

2016-2017 PBRSU Award

The following graphs show the goals and results achieved for the 2016-2017 performance period:

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 that should lead to an adjustment of any of the performance results. The Committee determined that it was appropriate to adjust the calculation of Return on Invested Capital (ROIC) for 2017 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 2016-2017 perfor

* Mr. Cutler did not receive a PBRSU award for the 2016-2017 Performance Cycle.
Annual Cash Incentive Awards

2017 Annual Cash Incentive Goals and Plan Performance

The following graphs show the goals and results achieved for the 2017 performance period:

The performance goals for the 2017 performance period were set in early 2017 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.

In early 2018, 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 net interest income/ expense related to the Company’s offering of institutional bonds in the second quarter of 2017.

In addition, the Compensation Committee reviewed Mr. Wenig’s performance for the purpose of determining the individual portion of his 2017 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 2017 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 consists of two components. The first, Company Performance, makes up 75% of the incentive award. For 2017, the Company performance paid 122% of target. The second component, individual performance, makes up 25% of the incentive award. For 2017, Mr. Wenig’s individual component was established at 150% of target. Mr. Wenig’s total earned annual incentive award for 2017 was 129.0% of target.

The Company performance component was paid at 122% for all NEOs. The individual performance component was based on each NEO’s individual performance score and the total earned annual incentive award for 2017 for each of our NEOs were paid at between 112.8% and 135.3% of target as follows:

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

The objective of our 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 considering the protections included in our severance and change in control arrangements, 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 for talented senior leaders. When considering whether to enter into arrangements outside our severance and change in control arrangements, 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. Cutler, Mr. Fisher and Mr. Lee participate in the Standard Severance Plan.

Mr. Wenig and Mr. Schenkel 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.

Under the terms of Mr. Lee’s offer letter entered into in connection with his promotion to his current role, Mr. Lee is entitled to receive a separation payment in the event he terminates his employment with the Company. This separation payment is intended to replicate benefits offered under a retirement program in which Mr. Lee formerly participated when he was employed with the Company in Korea. The benefit is equal to three times his average monthly salary multiplied by his years of service since January 1, 2013. In contrast, should the Company terminate Mr. Lee’s employment for reason other than cause, Mr. Lee is entitled to benefits under the Standard Severance Plan. Mr. Lee’s offer letter also includes a non-competition restrictive covenant for 12-months post termination of employment.

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

  Standard Severance Plan ParticipantsMr. Wenig and Mr. Schenkel
Cash ElementsSeverance1x salary and 1x target cash incentive award2x salary and 2x target cash incentive award
eIPProrated payment for year in which termination occurs(1)
Health Premium2x the cost of 12 months of health insurance coverageNo payment
Make Good AwardPayment of any unpaid cash “make good” awardsn/a
Equity ElementsOptions and RSUs100% acceleration of awards that would have otherwise vested within 12 months of termination date (2)
PBRSUs100% acceleration of awards that would have otherwise vested within 12 months of termination date (2)
(1) For Mr. Wenig and Mr. Schenkel, 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.
(2) For Mr. Wenig and Mr. Schenkel, 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.
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. Cutler, Mr. Fisher and Mr. Lee participate in the Change in Control Severance Plan.

Mr. Wenig and Mr. Schenkel 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.

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.

  Change in Control Severance Plan ParticipantsMr. Wenig and Mr. Schenkel
Cash ElementsSeverance2x salary and 2x target cash incentive award
eIP1x target cash incentive award(1)Prorated payment for year in which termination occurs(1)
Health Premium2x the cost of 24 months of health insurance coverageNo payment
Make Good AwardPayment of any unpaid cash “make good” awardsn/a
Equity ElementsOptions and RSUs100% acceleration of awards(2)
PBRSUs100% acceleration of awards(2)(3)
(1) For Mr. Wenig and Mr. Schenkel, 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 component and the individual performance component.
(2) For Mr. Wenig and Mr. Schenkel, 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 2017, 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.

The Compensation Committee evaluates the Company’s peer group on an annual basis. As a result of their recent acquisitions, LinkedIn Corporation and Yahoo! Inc. were removed from the Company’s peer group. In addition, the Compensation Committee determined that Expedia, Inc. should be added to the Company’s peer group as it met the screening criteria discussed above. As a result of these changes, the peer group consisted of the following companies for 2017:

Adobe Systems Incorporated
Alphabet Inc.
Amazon.com, Inc.
Cisco Systems, Inc.
Electronic Arts Inc.
Expedia, Inc.
Facebook, Inc.
Intel Corporation
Intuit Inc.
Microsoft Corporation
Netflix, Inc.
PayPal Holdings, Inc.
salesforce.com, inc.
Symantec Corporation
The Priceline Group Inc.
Twitter, 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 certain of our other executive officers in a taxable year. Historically, compensation above $1 million could be deducted if, by meeting certain technical requirements, it could be classified as “performance-based compensation.” The Committee has historically attempted to structure its compensation arrangements to achieve deductibility under Section 162(m), unless the benefit of such deductibility was considered outweighed by the Committee based on the need for flexibility or the attainment of other objectives. 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. Thus, deductibility will be one of many factors considered by the Committee in ascertaining appropriate levels or modes of compensation.

The Tax Cuts and Jobs Act, which was enacted on December 22, 2017, eliminated the exception for “performance-based compensation” and expanded the number of executives to which the 162(m) limit may apply. As a result, except to the extent provided in limited transition relief, beginning in 2018, the Committee expects compensation over $1 million paid to any named executive officer will no longer be deductible under Section 162(m) of the Code.

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