2018 was a transitional year for us. We introduced two new initiatives, focused on advertising and our new payment intermediation system, as part of our strategy to ensure the long-term competitiveness of our platform. We believe these initiatives will be fundamental to our future success, and reflect our commitment to evolving as a business to meet our customers’ evolving needs. In connection with these changes and mindful that any benefit of the new initiatives will not immediately be realized, we lowered revenue and gross merchandise volume (“GMV”) expectations for 2018.
Compensation Decisions for 2018. Within our executive compensation program, we strive to align the interests of our stockholders and our executives. We also believe in creating incentives that reflect our performance, both in periods of success and during years where our financial performance falls short of our targets. In our view, our compensation practices, including incentive compensation, play an important role in reinforcing our performance-driven culture. In support of this philosophy, our NEOs received 2018 bonus payouts below target because the Company’s actual performance fell short of the target on the non-GAAP net income metric, and the 2017-2018 PBRSU cycle also paid out at below target.
Updates to our Compensation Program. We view the outcomes of our program for 2018 as indicative that our compensation program works consistently with its stated goals. Accordingly, our Compensation Committee and CEO remain committed to the program generally; however, at least annually we evaluate its design to determine any refinements that might further those goals. As a result of our most recent evaluation, we determined to make a change to our PBRSU program. Beginning with the 2018-2019 PBRSU cycle, we have added a Payments component to the modifiers that determine payout of the PBRSUs. This Payments modifier, which is designed to reward growth on the payment intermediation system we introduced in connection with the Payment initiative, reflects the goal of our compensation program to motivate our senior leadership in areas we believe are critical to achieving our then-applicable business objectives.
Pay-For-Performance. 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, and fosters innovation for the benefit of stockholders, customers, and employees.
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.
In 2018, we continued 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.
In recognition of the importance of our strategic decision to improve customer experience by intermediating payments on our Marketplace platform (our “Payments” initiative), we have adjusted the PBRSU Program for the 2018-2019 PBRSU cycle to tie our senior executives’ compensation to the degree of achievement of Payments intermediation through the use of a Payments achievement modifier component to the design.
CEO Compensation Mix
The following graphic shows the breakdown of 2018 compensation for our CEO, Devin Wenig, and illustrates the predominance of equity incentives and performance-based components in our executive compensation program.
As discussed above, our executive compensation program is highly performance-based, with payouts under the program dependent on meeting financial and operational targets over designated performance periods. For 2018, 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, payment intermediation usage and non-GAAP net income. The specific results for 2018 are described under 2018 Business Results on page 65.
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.
This Compensation Discussion and Analysis is presented as follows:
- Elements of Our Executive Compensation Program provides a description of our executive compensation practices, programs, and processes.
- Compensation Decisions for 2018 explains executive compensation decisions made for 2018.
- 2018 Business Results highlights results that affected executive compensation.
- 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.
- 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 2018:
- 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(1)
- Wendy Jones, Senior Vice President, Global Customer Experience & Operations
- Jae Hyun “Jay” Lee, Senior Vice President, General Manager, eBay Markets(2)
- Raymond J. Pittman, Former Senior Vice President, Chief Product Officer(3)
- Mr. Fisher served in the capacity of Senior Vice President, Chief Technology Officer for the majority of 2018. He began the year in that role but, effective June 18, 2018, transitioned to the role of Senior Vice President, Payments in order to focus on a personal matter. Effective November 5, 2018, Mr. Fisher resumed his role as Senior Vice President, Chief Technology Officer.
- During 2018, Mr. Lee served as Senior Vice President, EMEA. Mr. Lee began serving in his current position effective February 18, 2019.
- Mr. Pittman’s employment with the Company was terminated on July 2, 2018.
1. Elements of Our Executive Compensation Program
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 engage with our stockholders at least twice a year to solicit feedback on our compensation philosophy and executive compensation program. In 2018, we engaged with holders of approximately 33% of outstanding shares on a variety of topics, including compensation. After conducting this review and considering the feedback received during the Company’s regular engagement with stockholders by members of the Board and management of the Company, we determined that the Company’s executive compensation philosophy, compensation objectives, and overall program continue to be appropriate. The Compensation Committee determined for 2018 that the elements of our executive compensation program should remain in place.
Say-On-Pay Support. In 2018, 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. This is consistent with the high stockholder support our executive compensation program received in both 2017 and 2016, each time with approximately 93% of the votes case in favor.
To achieve our executive compensation 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 2018 executive compensation program and describes why each element is provided. Additional information about these key elements is included in the sections following the dashboard.
We chose a mix of equity and cash compensation vehicles to compensate executive officers based on sustainable long-term value drivers of Company performance over one- and multi-year periods and individual contributions to the Company.
Our executive officers were also eligible to receive a comprehensive set of benefits:
- Health and welfare benefits plans;
- Employee stock purchase plan;
- Limited use of the corporate airplane (CEO and CFO only; with reimbursement required by the CFO and voluntarily provided by the CEO)
- Broad-based 401(k) retirement savings plan and a VP and above deferred compensation plan (each plan is available to U.S.-based employees only); and
- Certain other limited perquisites.
Equity Incentive Awards
For 2018, 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 2018, 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 71 for our 2018 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 2018, our NEOs received equity-related compensation as part of the Company’s standard annual equity award. Additionally, the Company granted Ms. Jones a retention equity award in 2018, discussed in more detail at page 64. In 2019, Mr. Fisher will not receive an annual equity award. In lieu of such equity award, Mr. Fisher will be eligible to receive a supplemental cash bonus of $500,000 (less deductions and applicable taxes) paid on or around December 15, 2019, subject to Mr. Fisher’s continued employment by the Company through the payment date.
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, more than 14 months following the end of the applicable two-year performance period. This provision subjects 100% of the CEO and CFO PBRSU awards to at least 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 14 months 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 2017-2018 and 2018-2019 performance periods and the rationale for their selection:
Calculated on a fixed foreign exchange basis.
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.
Applicable only to the 2018-2019 PBRSUs. Measures the percentage of the GMV intermediated in the United States and a second market during the applicable fiscal year on an absolute basis and as compared to the prior fiscal year.
Changes for 2018. Beginning with the 2018-2019 PBRSU cycle, we have added a Payments component to the modifier element of the PBRSU Program design. This Payments modifier incentivizes the senior leadership team to work cross-functionally on a critical growth initiative and profit driver that impacts multiple areas of the business. Given the importance of the success of the Payment initiative to the Company’s success more generally, as well as the priority placed on this initiative in the Company’s operational strategy for 2018 and 2019, our Compensation Committee determined that payout of PBRSUs for the 2018-2019 cycle should be subject to achievement in growing use of our intermediation platform, as well as our existing Company financial performance metrics.
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 table 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 first 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. Achievement is
linearly interpolated between the percentages set forth in the table above based on actual results
For the 2017-2018 performance period, the FX-neutral revenue and non-GAAP operating margin dollars
measures are 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:
For the 2018-2019 performance period, the calculation set forth above will be further adjusted by the
multiplication of a fourth measure, Payments. This modifier measures the extent to which the GMV in the
United States and a second market in a given fiscal year is processed through our Payments intermediation
platform, expressed as a percentage of GMV. If the percentage is below the target percentage, the awards
will be adjusted downward and if the percentage exceeds the target percentage, it will be adjusted upward,
with the modification multiplier determined in accordance with the table below:
The target award is then multiplied by the percentage resulting from the relevant calculation, as described above, 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 or unusual or extraordinary corporate transactions, events, or developments) and the Compensation Committee may apply negative discretion to reduce the payout levels of the awards.
2017-2018 PBRSU Cycle. Shares that vested under the 2017-2018 PBRSU awards could have been from 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, with the calculation as set forth below:
2018-2019 PBRSU Cycle. Shares that vest under the 2018-2019 PBRSU awards reflect the potential impact of the Payments modifier. The shares that vest will be 0% to 340% of the initial grant, based on eBay’s FX-neutral revenue, non-GAAP operating margin dollars, and return on invested capital and Payments modifiers, with the calculation as set forth below:
2019-2020 PBRSU Cycle. For the 2019-2020 PBRSU cycle, the awards were granted again using a Payments modifier tied to the percent of payments intermediated.
Time-based RSUs (“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 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 2018 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 table 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 generally 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. Consistent with our commitment to aligning executive compensation with Company performance, in circumstances (such as 2018) where the Company’s financial performance is above its minimum performance threshold and 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 and 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 2018 and rationale for their selection:
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.
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, and periodically adjust incentive opportunities to the extent necessary where our practices are inconsistent with such market data.
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. In addition, as described above, when the Company fails to achieve target performance, the Compensation Committee applies a downward modifier to individual performance regardless of individual goal achievement in order to take a more holistic approach to assessing performance.
Assessment and Target Positioning Strategy. We review market data annually and approve each executive officer’s base salary for the year. Increases, if any, 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.
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.
The Compensation Committee has encouraged Mr. Wenig to use the corporate airplane for personal travel to reduce possible security concerns where relevant. 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 received 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 assuming a new role in Switzerland in 2018. These benefits are consistent with our global expatriate program.
2. Compensation Decisions for 2018
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. In 2018, the Company lowered revenue and GMV expectations while continuing to make foundational investments in the long-term competitiveness of our platform and launching new initiatives to set the stage for future growth and profitability. The Company’s performance was reflected in our executive compensation program, as it holds leadership accountable for company performance.
The Compensation Committee also 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 2018 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 link Mr. Wenig’s compensation with the sustainable long-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.
- Execution against the Company’s long-term strategic plan to drive the best choice, the most relevant, and the most powerful selling platform
- Performance against target financial goals and operating goals including initiatives related to customer experience, buyer growth, payments, and advertising
- Driving innovation and execution across eBay
- 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
- Providing leadership and vision to improve eBay’s position as a leading ecommerce player that is environmentally and socially responsible
The Compensation Committee 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 compensation mix was consistent with creating an ownership culture.
In determining Mr. Wenig’s 2018 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 2017 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. The Compensation Committee 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 2018 compensation:
Breakdown of 2018 Compensation for our CEO
The following graphic shows the breakdown of reported 2018 compensation for Mr. Wenig. This graphic 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
- Driving innovation and execution for the business unit or function
- 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
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. Based on exceptional Company performance in 2017, each of our NEOs received increases in the target value of equity awards for 2018.
The Compensation Committee approved salary increases for Mr. Schenkel, Mr. Fisher and Ms. Jones in order to remain competitive with current market conditions. The Compensation Committee determined that the other NEOs’ target annual cash incentive awards 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 annual equity awards based on delivery against business metrics, financial targets and Company-level leadership. In addition to the annual awards, one of our NEOs, Ms. Jones, received a retention award. Ms. Jones plays a valuable role within our leadership, and there is considerable competition in the market for her skill set. The award was granted in recognition of Ms. Jones’ significant contributions to the Company as well as her key role in the Company’s future. To promote her retention while also upholding our view that incentives to our executives align with the long-term interests of our stockholders, the award was granted using the Company’s standard equity mix of 60% PBRSUs and 40% RSUs.
The following table shows the compensation arrangements for our other NEOs:
Allocated in accordance with the Company’s 2018 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, 2021.
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, 2020 and the remaining 50% of the achieved portion of the award will vest on March 15, 2021.
Ms. Jones received her annual award of $3.0 million, allocated in accordance with the Company’s 2018 allocation: 60% PBRSUs and 40% RSUs. In addition, as discussed above, she received an $8.0 million retention award on July 15, 2018, which was allocated in accordance with the Company’s 2018 allocation: 60% PBRSUs and 40% RSUs.
Mr. Lee’s base salary is reported in U.S. dollars on an FX-neutral basis.
Mr. Pittman’s employment with the Company was terminated on July 2, 2018. The actual amount of base salary paid to Mr. Pittman for services through his termination date is reflected in the Base Salary column of the 2018 Summary Compensation Table below. In addition, Mr. Pittman’s 2018 base salary was relevant to his severance entitlement pursuant to the Company’s SVP and Above Standard Severance Plan (the “Standard Severance Plan”) and the separation agreement entered into between Mr. Pittman and the Company on June 29, 2018 (the “Pittman Separation Agreement”). See pages 67-68, 75 and 83-87 for a discussion of these severance arrangements and the amounts payable to Mr. Pittman thereunder, respectively.
Mr. Pittman was not a NEO for fiscal year 2017.
3. 2018 Business Results
The following is a summary of the business results that directly affected 2018 executive compensation, including performance-based equity awards and annual cash incentive awards.
2017-2018 PBRSU Award
The following graphs show the goals and results achieved for the 2017-2018 performance period:
(FX-neutral) revenue ($ billions)
Non-GAAP operating margin
dollars ($ billions)
Return on Invested Capital (%)
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 our equity plan, the Committee considered whether the impact of any significant corporate events or change in accounting principles not contemplated at the time the targets were set should lead to an adjustment of any of the performance results. The Committee determined that it was appropriate to adjust the FX-neutral revenue target to remove the impact of a change in the revenue recognition accounting standard.
Actual awards under the PBRSU Program could range from 0% to 240% of the target awards. Based on the Company’s financial performance during the 2017-2018 performance period, the actual PBRSU awards were 86% of target and our NEOs received the following awards(1):
Mr. Pittman separated prior to the completion of the 2017-2018 performance period, and therefore forfeited a portion of his 2017-2018 PBRSU award. Pursuant to the Standard Severance Plan and the Pittman Separation Agreement, Mr. Pittman became entitled to a lump-sum cash payment equal to the value of 42,620 shares, representing 50% of the number of 2017-2018 PBRSUs that were eligible to vest based on actual performance of the applicable targets. See pages 67-68, 75 and 83-87 for a discussion of these severance arrangements and the amounts payable to Mr. Pittman thereunder, respectively.
Annual Cash Incentive Awards
2018 Annual Cash Incentive Goals and Plan Performance
The following graphs show the goals and results achieved for the 2018 performance period:
Non-GAAP net income
The performance goals for the 2018 performance period were set in early 2018 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 2019, 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 cash incentive 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 for certain tax impacts resulting from the realignment of our legal structure, interest on the Company’s accelerated share
repurchases and effects of recent acquisitions, which, on a net basis, resulted in a downward adjustment to the net income achievement. The Company finance performance component was paid at 78% of target for all participants, including all NEOs.
The Compensation Committee reviewed Mr. Wenig’s performance for the purpose of determining the individual portion of his 2018 annual cash incentive award, with input from the entire Board. The Compensation Committee considered the factors listed above when assessing Mr. Wenig’s individual performance. Based on the Company’s financial results in 2018 being below expectations, balanced with strategic investments in payment and advertising as well as the Company’s continuing foundational investments in the long-term competitiveness of its platform, Mr. Wenig’s individual component of the annual cash incentive was established at 85% of target. In accordance with the formula described above under “Annual Cash Incentive Awards”, the individual performance component was adjusted by the Company financial performance result of 78% . Mr. Wenig’s total earned annual incentive award for 2018, including the Company financial component and the individual component, was 75.1% of target.
For the other NEOs, the individual performance component was recommended by Mr. Wenig based on his assessment of each person’s performance using the factors described above, and was reviewed and approved by the Compensation Committee. The total earned annual incentive award for 2018 for each of our NEOs were paid at between 75.1% and 78% of target as follows:
Mr. Pittman’s employment with the Company terminated on July 2, 2018, and, under the terms of the Pittman Separation Agreement, Mr. Pittman received a prorated portion of the bonus payable under the annual cash incentive plan (representing his employment in 2018 from January 1, 2018 to July 2, 2018), based on actual Company performance for the full year and his target individual performance.
4. Severance and Change In Control Arrangements with Executive Officers and Clawbacks
The objective of our severance and change in control arrangements described below is to provide fair and reasonable severance that will 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.
Severance Arrangements Outside a Change in Control
The Company’s SVP and Above Standard Severance Plan (“Standard Severance Plan”), which covers each officer employed as a senior vice president or in a more senior position, 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. Ms. Jones, Mr. Fisher, and Mr. Lee participate in the Standard Severance Plan.
Solely for Mr. Fisher, if he continues in his current role as Senior Vice President, Chief Technology Officer through December 31, 2019, he will be eligible to receive benefits under the Standard Severance Plan even in the event that Mr. Fisher voluntarily terminates his employment with the Company. In addition, Mr. Fisher is entitled to access to medical benefits under the program or programs available to similarly situated executives of the Company through October 31, 2024 (through COBRA or a program with equivalent terms, as applicable, in the case of a termination for any reason).
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, each of which provides for certain severance benefits if the applicable executive is terminated without cause or resigns for good reason not in connection with a change in control, and signs and does 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 role of Senior Vice President, EMEA, Mr. Lee is entitled to receive a separation payment in the event he voluntarily 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. 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.
On July 2, 2018, one of our NEOs, Mr. Pittman, departed the Company and was eligible to receive severance as a participant in the Company’s Standard Severance Plan. The Company and Mr. Pittman entered into the Pittman Separation Agreement in connection with his departure. Under the terms of the Standard Severance Plan and the Pittman Separation Agreement, the Company paid the following severance benefits to Mr. Pittman: one year of his base salary; one year of his target annual incentive cash award; a pro rata bonus for 2018 for the period of time in 2018 during which he was employed; two times the cost of 12 months of health care coverage; and a cash payment in lieu of full acceleration of his equity awards which would have otherwise vested within 12 months of his termination date.
Please see the “Compensation Tables—Potential Payments Upon Termination or Change in Control” section of this Proxy Statement for further information regarding the Company’s Standard Severance Plan, including amounts received by Mr. Pittman in connection with his departure, and the treatment of awards upon qualifying termination events or a change in control.
The following table describes the severance benefits (other than certain accrued benefits which are paid (such as earned but unpaid bonuses, payment of unreimbursed expenses, etc.)) that each of our NEOs would receive if terminated outside of a change in control.
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.
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 for executives at the level of vice president or in a more senior position 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, Ms. Jones 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, each of which provides for certain severance benefits respectively if the executive 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 table describes the severance benefits that each of our NEOs would receive if they are terminated in connection with a change in control.
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.
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.
This payment includes the target amount of shares subject to PBRSUs for performance periods for which achievement has not yet been determined.
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 LLC (“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 2018, Pay Governance provided a market overview 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:
- 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. The peer group consisted of the following companies for 2018: