Proposal 2 — Advisory Vote to Approve Named Executive Officer Compensation
In accordance with the requirements of Section 14A of the Exchange Act, we are asking stockholders to approve, on an advisory basis, the compensation of our named executive officers as described in the Compensation Discussion and Analysis, compensation tables, and related narrative discussion of such compensation included in this Proxy Statement.
As discussed in the Compensation Discussion and Analysis, the Compensation Committee of the Board is committed to an executive compensation program that is aligned with our business goals, culture, and stockholder interests. We believe a competitive compensation program that is highly performance-based is key to delivering long-term stockholder returns.
To achieve these objectives, our executive compensation program has three principal components: long-term equity compensation, an annual cash incentive, and base salary. The Compensation Committee seeks to have our named executive officers’ total compensation heavily weighted to variable, performance-based compensation by delivering a majority of compensation in the form of performance-based restricted stock units and annual cash incentives. Performance-based restricted stock units vest based on our achievement of specified financial performance goals over a two-year performance period. Under our annual cash incentive plan, 75% of each named executive officer’s bonus payout for 2018 was based on Company financial performance with the remaining 25% based on individual performance; there is no payout for individual performance unless thresholds for Company performance are met, and there is a reduced payout for individual performance if Company performance is below target. We also granted time-based restricted stock units, the value of which depends on the performance of the Company’s stock.
The Compensation Committee believes that the goals of our executive compensation program are appropriate and that the program is properly structured to achieve those goals, particularly in light of our annual evaluation of, and periodic refinements to, the program. We have engaged in ongoing discussions with our investors, who generally support those goals and the program, and we believe our stockholders as a whole should support them as well.
We are asking our stockholders to indicate their support for the compensation of our named executive officers as described in this Proxy Statement. This proposal, commonly known as a “say-on-pay” proposal, gives our stockholders the opportunity to express their views on the compensation of our named executive officers. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers and the philosophy, policies, and practices described in this Proxy Statement. Accordingly, we ask our stockholders to vote “FOR” the following resolution at the Annual Meeting:
“RESOLVED, that the Company’s stockholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed in the Company’s Proxy Statement for the 2019 Annual Meeting of Stockholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the 2018 Summary Compensation Table, and the other related tables and disclosures.”
While the say-on-pay vote is advisory, and therefore not binding on the Company, the Board and the Compensation Committee value the opinions of our stockholders and will take into account the outcome of this vote in considering future compensation arrangements. It is expected that the next say-on-pay vote will occur at the 2020 Annual Meeting.
Proposal 3 — Ratification of Appointment of Independent Auditors
The Audit Committee is responsible for the appointment, compensation, retention, and oversight of the independent auditors retained to audit our consolidated financial statements. We have appointed PricewaterhouseCoopers LLP (“PwC”) as our independent auditors for the fiscal year ending December 31, 2019. PwC has served as our auditors since 1997. In order to assure continuing auditor independence, the Audit Committee periodically considers whether there should be a regular rotation of the independent audit firm. Further, in conjunction with the mandated rotation of the independent audit firm’s lead engagement partner, the Audit Committee will continue to be directly involved in the selection and evaluation of PwC’s lead engagement partner. The Board and the Audit Committee believe that the continued retention of PwC to serve as our independent auditors is in the best interests of eBay and our stockholders. We expect that representatives of PwC will be present at the Annual Meeting, will have an opportunity to make a statement if they wish, and will be available to respond to appropriate questions.
Our bylaws do not require the stockholders to ratify the appointment of PwC as our independent auditors. However, we are submitting the appointment of PwC to our stockholders for ratification as a matter of good corporate practice. If the stockholders do not ratify the appointment, the Audit Committee will reconsider whether or not to retain PwC. Even if the appointment is ratified, the Audit Committee, in its discretion, may change the appointment at any time during the year if it determines that such a change would be in the best interests of eBay and our stockholders.
Audit and Other Professional Fees
During the fiscal years ended December 31, 2017 and December 31, 2018, fees for services provided by PwC were as follows (in thousands):
For 2017 and 2018, includes approximately $0.4 million, for each year, of lease payments to PwC Russia for office space in Russia pursuant to a sublease arrangement negotiated on an arm’s-length basis.
“Audit Fees” consist of fees incurred for services rendered for the audit of eBay’s annual financial statements, review of financial statements included in eBay’s quarterly reports on Form 10-Q, other services normally provided in connection with statutory and regulatory filings, for attestation services related to compliance with the Sarbanes-Oxley Act of 2002, and services rendered in connection with securities offerings. “Audit-Related Fees” consist of fees incurred for due diligence procedures in connection with acquisitions and divestitures and consultation regarding financial accounting and reporting matters. “Tax Fees” consist of fees incurred for transfer pricing consulting services, tax planning and advisory services, and tax compliance services. “All Other Fees” consist of fees incurred for permitted services not included in the category descriptions provided above with respect to “Audit Fees,” “Audit-Related Fees,” and “Tax Fees,” and include fees for consulting services, compliance-related services, and software licenses, as well as the lease payments described above.
The Audit Committee has determined that the non-audit services rendered by PwC were compatible with maintaining its independence. All such non-audit services were pre-approved by the Audit Committee pursuant to the pre-approval policy set forth below.
Audit Committee Pre-Approval Policy
The Audit Committee has adopted a policy requiring the pre-approval of any non-audit engagement of PwC. In the event that we wish to engage PwC to perform accounting, technical, diligence, or other permitted services not related to the services performed by PwC as our independent registered public accounting firm, our internal finance personnel will prepare a summary of the proposed engagement, detailing the nature of the engagement, the reasons why PwC is the preferred provider of such services, and the estimated duration and cost of the engagement. This information will be provided to our Audit Committee or a designated Audit Committee member, who will evaluate whether the proposed engagement will interfere with the independence of PwC in the performance of its auditing services and decide whether the engagement will be permitted.
On an interim basis, any non-audit engagement may be presented to the Chair of the Audit Committee for approval and to the full Audit Committee at its next regularly scheduled meeting.
Audit Committee Report
We constitute the Audit Committee of the Board. The Audit Committee’s responsibility is to provide assistance and guidance to the Board in fulfilling its oversight responsibilities to eBay’s stockholders with respect to:
- eBay’s corporate accounting and reporting practices;
- eBay’s compliance with legal and regulatory requirements;
- The independent auditors’ qualifications and independence;
- The performance of eBay’s internal audit function and independent auditors;
- The quality and integrity of eBay’s financial statements and reports;
- Reviewing and approving all audit engagement fees and terms, as well as all non-audit engagements with the independent auditors; and
- Producing this report.
The Audit Committee members are not professional accountants or auditors, and these functions are not intended to replace or duplicate the activities of management or the independent auditors. Management has primary responsibility for preparing the financial statements and designing and assessing the effectiveness of internal control over financial reporting. Management and the internal audit function are responsible for maintaining appropriate accounting and financial reporting principles and policies and internal controls and procedures that provide for compliance with accounting standards and applicable laws and regulations.
PwC, eBay’s independent auditors, is responsible for planning and carrying out an audit of eBay’s financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”) and eBay’s internal control over financial reporting, expressing an opinion on the conformity of eBay’s audited financial statements with generally accepted accounting principles (“GAAP”) as well as the effectiveness of eBay’s internal control over financial reporting, reviewing eBay’s quarterly financial statements prior to the filing of each quarterly report on Form 10-Q, and other procedures.
During 2018 and in early 2019, in connection with the preparation of eBay’s Annual Report on Form 10-K for the year ended December 31, 2018, and in fulfillment of our oversight responsibilities, we did the following, among other things:
- Discussed with PwC the overall scope of and plans for their audit;
- Reviewed, upon completion of the audit, the financial statements to be included in the Form 10-K and management’s report on internal control over financial reporting and discussed the audited financial statements and eBay’s internal control over financial reporting with senior management;
- Conferred with PwC and senior management of eBay regarding the scope, adequacy, and effectiveness of internal accounting and financial reporting controls (including eBay’s internal control over financial reporting) in effect;
- Instructed PwC that the independent auditors are ultimately accountable to the Board and the Audit Committee, as representatives of the stockholders;
- Discussed with PwC, both during and after completion of their audit processes, the results of their audit, including PwC’s assessment of the quality and appropriateness, not just acceptability, of the accounting principles applied by eBay, the reasonableness of significant judgments, the nature of significant risks and exposures, the adequacy of the disclosures in the financial statements, as well as other matters required to be communicated under generally accepted auditing standards, including the matters required by applicable accounting standards; and
- Obtained from PwC, in connection with the audit, a timely report relating to eBay’s annual audited financial statements describing all critical accounting policies and practices used, all alternative treatments of financial information within GAAP that were discussed with management, ramifications of the use of such alternative disclosures and treatments, the treatment preferred by PwC, and any material written communications between PwC and management.
Our Audit Committee held ten meetings in 2018. Throughout the year, we conferred with PwC, eBay’s internal audit function, and senior management in separate executive sessions to discuss any matters that the Audit Committee, PwC, the internal audit function, or senior management believed should be discussed privately with the Audit Committee. We have direct and private access to both the internal and external auditors of eBay.
We have discussed with PwC the matters required to be discussed by the applicable requirements of the PCAOB and the SEC. The Audit Committee received written disclosures and a letter from PwC required by the applicable PCAOB requirements for independent accountant communications with audit committees concerning auditor independence, and discussed the independence of PwC with that firm. We concluded that PwC’s provision to eBay and its affiliates of the non-audit services reflected under “Audit-Related Fees,” “Tax Fees,” and “All Other Fees” above is compatible with PwC’s obligation to remain independent.
We have also established procedures for the receipt, retention, and treatment of complaints received by eBay regarding accounting, internal accounting controls, or auditing matters and for the confidential anonymous submission by eBay employees of concerns regarding questionable accounting or auditing matters.
After reviewing the qualifications of the current members of the Audit Committee, and any relationships they may have with eBay that might affect their independence from eBay, the Board determined that each member of the Audit Committee meets the independence requirements of The Nasdaq Stock Market and of Section 10A of the Exchange Act, that each member is able to read and understand fundamental financial statements, and that Mr. Anderson qualifies as an “audit committee financial expert” under the applicable rules promulgated pursuant to the Exchange Act. The Audit Committee operates under a written charter adopted by the Board. The current Audit Committee Charter is available on the corporate governance section of eBay’s investor relations website at https://investors.ebayinc.com/corporate-governance/governance-documents/. Any future changes in the Audit Committee Charter will also be reflected on the website.
Based on the reviews and discussions described above, we recommended to the Board, and the Board approved, the inclusion of the audited financial statements in eBay’s Annual Report on Form 10-K for the year ended December 31, 2018, which eBay filed with the SEC on January 30, 2019. We have also approved the appointment of PwC as our independent auditors for the fiscal year ending December 31, 2019.
Proposal 4 – Management Proposal to Amend Special Meeting Provisions in the Company’s Certificate of Incorporation and Bylaws
After careful consideration, the Board recommends that stockholders vote “FOR” the proposal to amend certain provisions of our charter and bylaws that grant stockholders who own at least 25% of the Company’s outstanding shares of capital stock and satisfy other requirements the ability to direct the Company to call a special meeting of stockholders (the “Special Meeting Threshold” and together with the related provisions the “Special Meeting Provisions”). This amendment would lower the threshold for stock ownership to permit stockholders who own at least 20% of our outstanding capital stock in the aggregate to call a special meeting of stockholders.
Existing Special Meeting Provisions
The Special Meeting Provisions, which are set forth in Article VI, Section E of the charter and Article I, Section 1.3 of the bylaws, may be summarized as follows:
- One or more stockholders of record that together have continuously held (for their own account or on behalf of others) beneficial ownership of at least 25% of the outstanding common stock of the Company for at least 30 days as of the date such request is delivered have the ability to require the Company to call a special meeting of its stockholders.
- Stock ownership is determined under a “net long position” standard to provide assurance that stockholders seeking to call a special meeting possess both (i) full voting and investment rights pertaining to the shares and (ii) the full economic interest in (including the opportunity for profit and risk of loss on) such shares.
- The date of any special meeting requested must be not more than 90 days after the date on which the request is validly delivered to the Company.
The above summary is subject, in all respects, to the Special Meeting Provisions of our charter and bylaws, which are attached to this Proxy Statement as Appendix A and Appendix B, respectively.
Amendment of the Special Meeting Provisions
Pursuant to the proposed amendment to the charter and the corresponding amendment to the bylaws, the Special Meeting Threshold would be reduced from 25% to 20%. No other provisions of the charter or bylaws would be amended in connection with this action. In both Appendix A and Appendix B, additions of text to our charter and bylaws, respectively, are indicated by underlining and deletions of text are indicated by strike-outs.
Board Consideration of Appropriate Stockholder Special Meeting Rights
At the Company’s 2018 Annual Meeting of Stockholders, we proposed that stockholders ratify the Special Meeting Provisions, including amendments we made to expand the circumstances under which stockholders may require eBay to call a special meeting. Of the votes cast, 53% were in favor of ratification of the Special Meeting Provisions. We saw the ratification proposal as a mechanism for facilitating further stockholder engagement, so we continued to solicit input from our stockholders thereafter.
Over the past year, we had productive discussions with many of our stockholders on this matter, engaging with stockholders representing over 33% of outstanding shares. As a result of the feedback we received, the Board determined that eBay’s stockholders generally preferred a slightly lower Special Meeting Threshold and so approved a proposed amendment to the charter to reduce the Special Meeting Threshold to 20% of eBay’s outstanding stock, subject to stockholder approval. In addition, the Board has approved a corresponding amendment to our bylaws, which will become effective if and when the amendment to the charter becomes effective.
The Board is strongly committed to good corporate governance and continues to support the practice of permitting stockholders to request special meetings, provided that the meeting is called by stockholders owning a significant percentage of the shares of eBay. The Board determined that it is consistent with best corporate governance practices and in the best interests of eBay and its stockholders to amend the charter and the bylaws to permit stockholders who hold 20% or more of eBay’s outstanding capital stock to call special meetings, subject to the procedures and other requirements as provided in the bylaws.
Nevertheless, the Board continues to believe that special meetings should only be called to consider extraordinary events that are of interest to a broad base of stockholders that cannot be delayed until the next annual meeting. The Board also believes that a 20% ownership threshold to request a special meeting strikes a reasonable balance between enhancing stockholder rights and protecting against the risk that a small minority of stockholders, including stockholders with special interests, could call one or more special meetings that could result in unnecessary financial expense and disruption to our business. Preparing for a stockholder meeting requires significant attention of our directors, officers and employees, diverting their attention away from performing their primary function of operating eBay’s business in the best interests of our stockholders. Likewise, the Board believes that only stockholders with a true economic and non-transitory interest in eBay should be entitled to utilize the special meeting mechanism.
The proposed amendment to our charter requires the affirmative vote of a majority of the outstanding shares of common stock entitled to vote on the subject matter. If this proposal to amend our charter is approved by our stockholders, the resulting charter will be filed with the Secretary of State of the State of Delaware shortly after the Annual Meeting. The Board has approved the proposed corresponding amendment to the bylaws, which will become effective if and when the amendment to the charter becomes effective. If this proposal to amend our charter is not adopted and approved, the current right of holders of record of at least 25% of the Company’s outstanding capital stock to call a special meeting will remain unchanged.
The Board of Directors Recommends a Vote FOR Proposal 4.
Proposal 5 – Stockholder Proposal Requesting that the Board Require an Independent Chair
John Chevedden has advised the Company that he intends to present the following stockholder proposal at the 2019 Annual Meeting. Mr. Chevedden has indicated that he holds the requisite number of shares of eBay common stock in accordance with Rule 14a-8 requirements. eBay will provide the address of the proponent promptly upon a stockholder’s oral or written request.
The text of the stockholder proposal and supporting statement appear exactly as received by eBay unless otherwise noted. All statements contained in the stockholder proposal and supporting statement are the sole responsibility of the proponent. The stockholder proposal may contain assertions about the Company or other matters that we believe are incorrect, but we have not attempted to refute all of those assertions.
The stockholder proposal will be voted on at the 2019 Annual Meeting only if properly presented by or on behalf of the proponent.
eBay’s Statement of Opposition
The Board has carefully considered this proposal and does not believe that it is in the best interests of eBay and its stockholders. The Board therefore recommends a vote AGAINST this proposal.
eBay Currently Has an Independent Chairman of the Board, and Our Current Corporate Governance Guidelines Provide for Strong, Independent Leadership
Mr. Thomas J. Tierney, by appointment of the Board, has served as the independent Chairman of the Board since July 2015. During his tenure as Chairman, Mr. Tierney has demonstrated strong leadership, independent thinking and a deep understanding of the business, which has been enhanced by his tenure as a director of eBay since 2003. Since being appointed as the independent Chair, Mr. Tierney has worked with the rest of the Board to oversee significant strategic and leadership changes at the Company, including the Company’s refocused corporate and capital allocation strategy and the rigorous search for and appointment of seven new independent members of the Board.
Our Corporate Governance Guidelines also provide for strong, independent leadership of our Board, requiring that our Chairman be separate from our CEO and, if our Chairman of the Board were not independent, our independent directors would designate a Lead Independent Director. The Lead Independent Director has clearly delineated responsibilities, and would be involved in all significant corporate decisions.
Our Board also consists of strong leadership that remains accountable to eBay’s stockholders. Each of our directors is subject to re-election by stockholders annually, and each is subject to a majority voting policy. Our Corporate Governance Guidelines mandate a Board composed of directors with high-level managerial experience and of the utmost character and integrity and provide that our Corporate Governance and Nominating Committee should consider diversity, including gender and race, when evaluating potential directors. Directors are expected to be highly engaged and represent the balanced, best interests of the stockholders as a whole. Stock ownership requirements of our executive officers and directors help align the interests of our leadership with those of our stockholders, as well.
We also highly value the independence of our Board, who provide strong, independent oversight over our business and the execution of our corporate strategy. Fourteen of eBay’s 15 directors are independent, and our Board has been consistently refreshed, with five new directors added to the Board within the last three years. Our Corporate Governance Guidelines also mandate that each of eBay’s Audit Committee, Compensation Committee and Corporate Governance and Nominating Committee must consist solely of independent directors.
eBay’s current Corporate Governance Guidelines and processes ensure that the Board, including the Chairman of the Board, will serve the best interests of and will be held accountable by our stockholders. The Board recognizes the importance of its leadership structure to our stockholders and regularly seeks feedback on the topic through stockholder engagement, which it then uses in its reexamination of its policies on an ongoing basis to make sure that they sufficiently continue to be in the best interests of our stockholders.
The Roles of the Chairman of the Board and CEO are Required to be Separate Under Our Corporate Governance Guidelines
Our Corporate Governance Guidelines also already mandate that the positions of the Chairman of the Board and CEO should be held by separate individuals. The Board has mandated this separation because we believe it aids in the Board’s oversight of management and allows our CEO to focus primarily on his management responsibilities. This separation was thoughtfully designed by the Board to bolster strong, independent leadership of the Board but also to allow the Board to retain a degree of flexibility when choosing a Chairman of the Board.
A Flexible Leadership Structure is the Most Effective for eBay and Our Stockholders
The Board’s current Corporate Governance Guidelines ensure strong independent leadership while still giving the Board flexibility that the adoption of a mandate that the Chairman of the Board be an independent director would not. Such a requirement would limit the Board’s ability to select the style of leadership best suited to meet the needs of eBay and its stockholders based on the relevant facts, circumstances, and criteria as they exist at the time, including a situation where having a Chairman of the Board who is not independent (but is still supported by a Lead Independent Director) would be in the best interests of eBay and its stockholders. The Board must have a certain degree of discretion, and we believe the current approach provides the necessary flexibility in determining eBay’s Board governance structure.
Ensuring flexibility by not mandating the Chairman of the Board be independent is consistent with the practices of many Fortune 100 and S&P 500 companies. As reported in the Spencer Stuart 2018 Board Index, only 30% of all S&P 500 companies have an independent Chairman of the Board. In addition, we do not believe the stockholder proposal advocating for an independent Chairman of the Board policy is based on experience or evidence. While studies have suggested that the separation of the Chairman of the Board and CEO roles as we have done is beneficial, no empirical study supports the argument that a policy requiring the Chairman of the Board to be independent inherently leads to better performance, to the Company’s knowledge. The Board should have the flexibility to permit the Chairman of the Board to be a non-independent director when deemed to be in the best interests of eBay and its stockholders. The proposal’s offer to phase in the mandatory independent Chair policy for the next CEO transition fails to address the importance of maintaining that flexibility.
eBay Has Strong Stockholder Rights and Stockholder Engagement Practices
In addition to our Corporate Governance Guidelines, we also have strong corporate governance policies and practices overall, including the stockholder rights available under our bylaws and charter and our demonstrated commitment to stockholder engagement and responsiveness to stockholder concerns. The following is a list of some corporate governance provisions that demonstrate eBay’s commitment to transparency and accountability, including certain Corporate Governance Guidelines mentioned above:
We regularly engage with our stockholders and seek feedback about our corporate governance policies and practices. Our Board carefully considers the stockholder input it receives and makes changes to our corporate governance policies and practices as appropriate. For example, in response to feedback we received last year from stockholders regarding their special meeting rights, we amended our bylaws to expand the circumstances under which stockholders may require eBay to call a special meeting and are proposing to lower the ownership threshold requirement for when stockholders can call special meetings. Stockholders can also communicate directly with the Board and/or individual directors at the following address: c/o Corporate Secretary, eBay Inc., 2025 Hamilton Avenue, San Jose, California 95125.
In summary, the Board believes the adoption of this proposal is unnecessary because of eBay’s commitment to strong independent leadership, separation of the Chairman of the Board and CEO positions, need of flexibility in determining eBay’s Board governance structure, and meaningful corporate governance and stockholder engagement policies. A vote “FOR” the proposal would upset the careful balance eBay has struck between ensuring the leadership remains accountable to eBay’s stockholders while being best suited to meet their needs. The Board has carefully considered this proposal and does not believe that it is in the best interests of eBay and its stockholders for these reasons.
The Board of Directors Recommends a Vote AGAINST Proposal 5.