Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
 
Filed by the Registrant  þ 
 
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Check the appropriate box:
 
 
 
 
 
 
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Preliminary Proxy Statement
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Definitive Proxy Statement
¨
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
¨
Definitive Additional Materials
 
 
¨
Soliciting Material Pursuant to §240.14a-12



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PROS HOLDINGS, INC.
(Name of Registrant as Specified In Its Charter)




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NOTICE OF 2019 ANNUAL MEETING OF STOCKHOLDERS

DATE        Tuesday, May 7, 2019

TIME        8:00 a.m., Central Daylight Time

PLACE    3100 Main Street, 9th Floor, Houston, Texas 77002, +1 (713) 335-5151

AGENDA
1
Elect two Class III directors named in the Proxy Statement to the board of directors of PROS Holdings, Inc. (Board of Directors or Board) each to serve a three-year term until our annual meeting of our stockholders to be held in the year 2022 (2022 Annual Meeting);
2
Advisory vote on named executive officer compensation;
3
Approve proposed amendments to 2017 Equity Incentive Plan;
4
Ratification of appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for 2019; and
5
Transaction of other business that may properly come before the Annual Meeting.

RECORD DATE
Only stockholders of record at the close of business on March 15, 2019 (Record Date) will be entitled to receive notice of, and to vote at, the 2019 annual meeting of our stockholders (Annual Meeting).

MATERIALS TO REVIEW
We are mailing to our stockholders a Notice of Internet Availability of Proxy Materials (Notice), instead of a paper copy of this proxy statement (Proxy Statement) and our Annual Report to Stockholders for the Year Ended December 31, 2018 (2018 Annual Report). The Notice contains instructions on how to access those documents over the Internet. The Notice also contains instructions on how to request a paper copy of our proxy materials, including this Proxy Statement, our 2018 Annual Report and a form of proxy card or voting instruction card.

PROXY VOTING
Please vote your shares promptly to ensure the presence of a quorum at the meeting. Voting your shares now via the Internet, by telephone, or by signing, dating, and returning the accompanying proxy card or voting instruction form will save the expenses and extra work of additional solicitation. If you wish to vote by mail, we have enclosed an addressed envelope, postage prepaid if mailed in the United States. Submitting your proxy now will not prevent you from voting your shares at the meeting, as your proxy is revocable at your option.
By Order of the Board of Directors,

/s/ Damian Olthoff
Damian Olthoff
Secretary
Houston, Texas
March 25, 2019

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Table of Contents 

 
Page
Executive Summary
4

 
 
Proxy Statement
9

Vote Required
9

Voting Instructions
10

 
 
Corporate Governance
12

Role of the Board of Directors
12

Board Committees
12

Independence
13

Risk Oversight
13

Director Nomination
14

Code of Business Conduct and Ethics
14

Communications with Our Board of Directors
15

 
 
Our Board of Directors
16

 
 
Director Compensation
19

 
 
Proposal One - Election of Directors
20

 
 
Executive Officers
21

 
 
Compensation Discussion and Analysis
22

 
 
Proposal Two - Non-Binding Advisory Vote on Executive Compensation
42

 
 
Proposal Three - Proposed Amendments to our 2017 Equity Incentive Plan
43

 
 
Security Ownership
52

 
 
Audit Matters
54

 
 
Proposal Four - Ratification of Independent Registered Public Accounting Firm Appointment
56


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EXECUTIVE SUMMARY

This summary highlights selected information for PROS Holdings, Inc. (together with its consolidated subsidiaries, PROS, the Company, we, us or our) in this Proxy Statement. You should read this entire Proxy Statement carefully before voting.

Voting Matters
Proposal
Board Vote Recommendation
Page #
Elect two Class III directors
FOR 
each director nominee
20
Advisory vote on executive compensation
FOR
42
Approve proposed amendments to 2017 Equity Incentive Plan
FOR
43
Ratification of appointment of PricewaterhouseCoopers LLP for fiscal year 2019
FOR
56

Business Highlights

In 2018, PROS reached new milestones in our cloud transformation efforts, while continuing to enable our customers to leverage our AI-powered solutions that optimize selling in the digital economy. The following highlights some of our accomplishments in 2018:

Continued substantial growth:
Subscription revenue increased 57% year-over-year, Recurring Revenue (Subscription + Maintenance Revenue) grew 23% year-over-year, Annual Recurring Revenue (ARR) (1) grew 18% year-over-year, and total revenue grew 17% year-over-year and surpassed pre-cloud transition total revenue in less than four years;
Cash flow provided by operating activities improved over $30.0 million year-over-year, and Free Cash Flow(2) improved $29.0 million year-over-year;
Total shareholder return grew 19% during 2018, and cumulatively grew 59% from the end of 2017 through March 15, 2019.

Continued to innovate to deliver our solutions faster and with higher gross margins, which in turn drove higher accessibility and faster sales cycles for new customers;

Successfully maintained ISO27001, SOC2 and CSA security certifications, underscoring our commitment to customers by achieving the industry’s most rigorous requirements for cloud security and data privacy, governance, and compliance;

Enhanced capital structure and strengthened our balance sheet by completing a follow-on public offering of 4,370,000 primary shares of common stock generating $142 million in net proceeds; and

Further strengthened our executive team to help us continue scaling our business.

(1)
Annual Recurring Revenue ("ARR") is used to assess the trajectory of our cloud business. ARR means, as of a specified date, the contracted recurring revenue, including contracts with a future start date, together with annualized overage fees incurred above contracted minimum transactions, and excluding perpetual and term license agreements recognized as license revenue in accordance with GAAP. ARR should be viewed independently of revenue and any other GAAP measure.
(2)
Free cash flow is a non-GAAP financial measure which is defined as net cash provided by (used in) operating activities, less capital expenditures (excluding expenditures for PROS new headquarters), purchases of other (non-acquisition-related) intangible assets and capitalized internal-use software development costs.


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CEO Pay and Company Performance
    
In 2018, we continued to successfully execute our multi-year cloud transition, delivering subscription revenue growth of over 50% for the second consecutive fiscal year. Our performance (based on our subscription revenue, ARR, recurring revenue, and stock price) was as follows:
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(1)
Annual Recurring Revenue ("ARR") is used to assess the trajectory of our cloud business. ARR means, as of a specified date, the contracted recurring revenue, including contracts with a future start date, together with annualized overage fees incurred above contracted minimum transactions, and excluding perpetual and term license agreements recognized as license revenue in accordance with GAAP. ARR should be viewed independently of revenue and any other GAAP measure.    

CEO pay was set conservatively, just slightly above expected peer CEO median target compensation levels.  This was despite the Company’s strong financial performance and 23% total shareholder return in 2017.

The Compensation & Leadership Development (CLD) Committee is pleased with the Company’s performance and set target pay in line with competitive market practice of similar peer companies to ensure we retain and reward our CEO for continued strong performance going forward.

Growth in shareholder return has outpaced growth in our CEO’s target pay. Our CEO’s 2018 base salary and target cash incentive remained unchanged from 2017 levels, which is the fourth year in a row with no CEO salary or target cash incentive increase. Our CEO’s total target compensation, including base salary, target cash incentive and target value of long-term equity compensation, was set near the median pay level of our peer CEOs that was expected for 2018, which proved true when reviewing peer CEO compensation levels later in 2018.

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(1) Target equity compensation (a) for RSUs and MSUs represents total target equity compensation determined by the Compensation and Leadership Development Committee divided by the closing price of the Company's Common Stock reported by the NYSE on the grant date, and differs from the accounting grant date fair value included in the "Grants of Plan Based Awards" table on page 39 of this Proxy Statement; and (b) for PRSUs represents the accounting grant date fair value.

Our CEO’s pay continues to be >50% directly “performance-based” (including annual cash incentive and performance-based equity) and >90% at risk (including time-based RSUs).

We set aggressive performance-based goals, with higher target top line growth required to achieve target payout and significantly higher minimum top line growth required to achieve any payout when compared to our peers’ historical averages.

The 2018 annual cash incentive plan resulted in our CEO attaining 138.5% of his annual cash incentive target based strictly on formulaic results vs. predefined targets, with no discretion applied to the outcome.


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CEO 2018 Target Compensation
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For 2018, our CLD Committee decided to leave Mr. Reiner’s base salary and cash incentive target unchanged from 2017, the third year in a row without an increase in target cash compensation. Consistent with the median of our peer group compensation, the CLD Committee decided to increase Mr. Reiner’s performance-based pay in the form of equity-based compensation due to Mr. Reiner’s impact on the Company’s successful operational and financial progress on our cloud transition. As a result, Mr. Reiner's total target compensation increased 9% in 2018-- less than our total shareholder return of 19% in 2018 and 59% cumulative total shareholder return for 2018 through March 15, 2019.
    
CEO Year-End Compensation Decisions 2019 v. 2018
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             For 2019, the CLD Committee decided to leave Mr. Reiner’s base salary and cash incentive target unchanged from 2018, the fourth year in a row without an increase in target cash compensation. Consistent with the median of our peer group, the CLD Committee decided to increase Mr. Reiner’s performance-based pay in the form of equity-based compensation due to Mr. Reiner’s continued impact on the Company’s successful operational and financial progress on our cloud transition and the 19% growth in shareholder return in 2018.

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Governance Highlights
Board Practices
 
Shareholder Matters
ü
All non-employee directors independent
 
ü
Active shareholder outreach program
ü
Independent non-executive chairman
 
ü
Engage with shareholders throughout each year, including at earnings conference calls, investor road shows, investor days, as well as at individual shareholder meetings. We also welcome shareholders to attend our annual OutPerform event for customers and prospects.
ü

Independent Audit, Compensation and Leadership Development, and Nominating and Corporate Governance Committees of the Board (Committees)
 
ü
Regular executive sessions of non-employee and independent directors. Our non-executive chairman of the Board presides at executive sessions.
 
ü

Annual “Say-on-Pay” advisory vote
 
Other Best Practices
ü
Annual Board and Committee evaluations
 
ü
Anti-hedging, anti-short and anti-pledging policies
ü
Regularly attend continuing education related to board governance best practices.
 
ü
Stock ownership guidelines for named executive officers (NEOs)
ü
25% women
 
ü
“Clawback” policy to recover, under applicable law, incentive bonuses awarded to any NEO as a result of that NEO’s fraud or intentional misconduct.
ü
50% under age 60
 
ü
Risk oversight by full Board and Committees
 
ü

Director resignation policy requires director nominees who do not receive at least 50% of the stockholder votes “for” re-election to tender their resignation.
 
 
 

Director Nominees
Name
Age
Director Since
Class
Independent
Other Current Public Company Boards
Andres D. Reiner
48
2010
III
No
Paylocity Holding Corporation
Ronald F. Woestemeyer
73
1985
III
Yes
-

Continuing Directors
Name
Age
Director Since
Class
Independent
AC
CC
NC
Other Current Public Company Boards
Penelope Herscher
58
2018
II
Yes
 
M
M
Faurecia SA; Lumentum Holdings, Inc.; Verint Systems, Inc.
Greg B. Petersen
56
2007
I
Yes
M
C
 
-
Leslie Rechan
57
2015
II
Yes
M
 
M
MicroStrategy Incorporated; Solace Corp.
William Russell
67
2008
II
Yes
 
M
C
Accesso Technology Group PLC
Timothy V. Williams
69
2007
I
Yes
C
 
M
ChannelAdvisor Corporation
Mariette M. Woestemeyer
67
1985
I
Yes
 
 
 
-
AC Audit Committee        CC Compensation & Leadership Development Committee    NC Nominating and Corporate Governance Committee
C Chair                M Member

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PROXY STATEMENT
2019 ANNUAL MEETING OF STOCKHOLDERS
MAY 7, 2019

General

The enclosed proxy is solicited for use at the Annual Meeting to be held May 7, 2019 at 8:00 a.m., local time, at 3100 Main Street, 9th Floor, Houston, Texas 77002, or at any adjournment or postponement thereof, for the purposes set forth herein and in the accompanying Notice of 2019 Annual Meeting of Stockholders.

The purposes of the Annual Meeting are:
1
To elect two Class III directors to the Board of Directors, each to serve for a three-year term until the 2022 Annual Meeting;
2
To conduct an advisory vote on executive compensation;
3
To approve proposed amendments to 2017 Equity Incentive Plan;
4
To ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2019; and
5
To transact such other business as may properly come before the Annual Meeting or any adjournment thereof.

Record Date and Shares Outstanding

Only stockholders of record at the close of business on the Record Date are entitled to vote at the Annual Meeting. As of the Record Date, 37,684,301 shares of Common Stock were outstanding. Each stockholder of record as of the Record Date is entitled to one vote for each share of Common Stock held by such stockholder.

Attending the Annual Meeting

The Annual Meeting will be held at 8:00 a.m., local time, on Tuesday, May 7, 2019, at 3100 Main Street, 9th Floor, Houston, Texas 77002. When you arrive, the receptionist will direct you to the meeting room. Please note that the doors to the meeting room will not be open until 7:50 a.m. You do not need to attend the Annual Meeting to vote. Even if you plan to attend the Annual Meeting, please submit your vote in advance as instructed below.

Vote Required

If a quorum is present, a plurality vote of the holders of our Common Stock entitled to vote and present or represented by proxy at the Annual Meeting is required for the election of a director. This “plurality” standard means the nominees who receive the largest number of “for” votes cast are elected as directors. Thus, the number of shares not voted for the election of a nominee (and the number of “withhold” votes cast with respect to that nominee) will not affect the determination of whether that nominee has received the necessary votes for election under Delaware law. However, the number of “withhold” votes with respect to a nominee will affect whether our Director Resignation Policy will apply to that individual. Our Director Resignation Policy provides that any nominee for director who receives a greater number of votes “withheld” from his or her election than votes “for” such election is required to offer his or her resignation following certification of the stockholder vote. The Nominating and Corporate Governance Committee would then consider the offer of resignation and make a recommendation to our independent directors as to the action to be taken with respect to the offer. This policy does not apply in contested elections.

    

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The affirmative vote of the holders of a majority of the shares of Common Stock present or represented by proxy and voting at the Annual Meeting is required to approve the ratification of the selection of our independent auditors and the advisory vote on executive compensation. We will not count abstentions as either for or against a director, so abstentions have no effect on the election of a director. A properly executed proxy marked “abstain” with respect to any matter is considered entitled to vote, and thus, will have the effect of a vote against a matter, except for the election of directors.

Our bylaws provide that a majority of the outstanding shares of our stock entitled to vote, whether present in person or represented by proxy, shall constitute a quorum for the transaction of business at the Annual Meeting. Votes for and against, abstentions and “broker non-votes” (shares held by a broker or nominee that does not have the authority, either express or discretionary, to vote on a particular matter) will each be counted as present for purposes of determining the presence of a quorum.

Voting Instructions

Stockholders have four ways to votes:

Online. You may vote online by visiting www.proxyvote.com, and entering the control number found in your proxy card. You can vote via the Internet up until 11:59 P.M. Eastern Time on May 6, 2019.
Telephone. You may vote by calling the toll-free number provided on your proxy card, and following the instructions found on your proxy card. You can vote via the telephone up until 11:59 P.M. Eastern Time on May 6, 2019.
Mail. If you received a printed copy of the proxy card, you may vote by filling out the card and returning it in the postage-paid envelope provided. Please promptly mail your proxy card to ensure that it is received prior to the closing of the polls at the Annual Meeting.
In Person. You may vote in person at the Annual Meeting, and any previous votes that you submitted, whether by Internet, telephone or mail, will be superseded by the vote that you cast at the Annual Meeting.

If you are a beneficial owner, or you hold your shares in “street name,” please check your voting instruction card or contact your bank, broker or nominee to determine whether you will be able to vote by Internet or telephone. Even if you plan on attending the Annual Meeting in person, we encourage you to vote in advance via the Internet, by phone, or by mail to ensure that your vote will be represented at the Annual Meeting.

Changing your Vote

You may revoke your proxy and change your vote at any time before the taking of the vote at the Annual Meeting:

Online. Using the online voting method described above, in which case only your latest internet proxy submitted prior to the Annual Meeting will be counted.
By Phone. Using the telephone voting method described above, in which case only your latest telephone proxy submitted prior to the Annual Meeting will be counted.
In Person. By attending the Annual Meeting and voting in person. However, attendance at the Annual Meeting will not in and of itself revoke your proxy unless you properly vote at the Annual Meeting or specifically request that your prior proxy be revoked by delivering a written notice of revocation prior to the Annual Meeting to our Corporate Secretary at or before the taking of the vote at the Annual Meeting.
Mail. By signing and returning a new proxy card dated as of a later date, in which case only your latest proxy card or voting instruction form received prior to the Annual Meeting will be counted.

Any written notice of revocation or subsequent proxy should be delivered to PROS Holdings, Inc. at 3100 Main Street, Suite 900, Houston, Texas 77002, Attention: Corporate Secretary, or hand-delivered to our Corporate Secretary before the taking of the vote at the Annual Meeting.

Effect of Not Casting Your Vote

Banks, brokers and other intermediaries may not vote shares held in their clients’ accounts on elections of directors and other “non-routine” matters unless the client has provided voting instructions. If you hold your shares in street name, you must cast your vote if you want it to count for purposes of Proposals One, Two, and Three.


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Proxy Materials are Available on the Internet

We use the internet as the primary means of furnishing proxy materials to our stockholders. We are mailing to our stockholders a Notice of Internet Availability of Proxy Materials (Notice) that contains instructions on how to access our proxy materials over the Internet, as well as how to request a paper copy of our proxy materials, including this Proxy Statement, our 2018 Annual Report and a form of proxy card or voting instruction card. The Notice was first mailed and those documents were first made available on or about March 25, 2019 to stockholders entitled to vote at the Annual Meeting. We encourage stockholders to take advantage of the availability of the proxy materials on the internet.

Eliminating Duplicate Mailings

Some banks, brokers and other nominee record holders participate in the practice of “householding”, which helps reduces the environmental impact of our annual meetings and reduces our printing and mailing costs, by sending only one copy of the Notice and Proxy Statement to multiple stockholders sharing the same address. If you would prefer to receive separate copies of a proxy statement, please contact our Corporate Secretary by calling 713-335-5151 or by writing to us at 3100 Main Street, Suite 900, Houston, Texas 77002. In addition, stockholders sharing an address and receiving multiple copies can request delivery of a single copy of proxy statements upon written request to our Corporate Secretary at the address stated above.



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CORPORATE GOVERNANCE

Role of the Board of Directors

Our Board of Directors (Board) oversees our CEO and other senior management on a day-to-day basis to assure that the long-term interests of shareholders are being served. Our Board currently consists of eight members, divided into three classes, with each class serving for a staggered three-year term. The term of office of one class of directors expires each year in rotation so that one class is elected at each annual meeting for a full three-year term.

Our Board has adopted formal Corporate Governance Guidelines to ensure that it has the necessary authority and practices in place to review and evaluate our business operations as needed, to make decisions that are independent of our management, and to align the interests of directors and management with the interests of our stockholders. Our key governance documents, including our Corporate Governance Guidelines, are available under the Investor Relations section of our website at ir.pros.com.

Our Board met four times and acted via unanimous written consent three times, the Audit Committee met ten times, the CLD Committee met six times and acted via unanimous written consent three times, and the NCG Committee met three times. Each current director who served as a director in 2018 attended each meeting of our Board and the Committees on which he or she served during 2018. The Board encourages all directors to attend annual meetings of the stockholders. All incumbent directors attended the 2018 meeting of the stockholders.

Board Committees

The Board has standing Audit, Compensation and Leadership Development (CLD) and Nominating and Corporate Governance (NCG) Committees. Each Committee has a written charter, which can be found under the Investor Relations section of our website at ir.pros.com. Our Board has determined that each member of the Audit Committee qualifies as an Audit Committee financial expert within the meaning of the SEC regulations and the rules of the NYSE. Each member of our CLD Committee is a non-employee director, as defined in Rule 16b-3 promulgated under the Securities Exchange Act of 1934 (Exchange Act), and an outside director, as defined pursuant to Section 162(m) of the Internal Revenue Code (Code).

Audit Committee. The Audit Committee assist the Board in oversight and monitoring of:

our accounting and financial reporting processes and the audits of our financial statements:
our independent auditors, including their qualifications, engagement, performance and independence;
the results of the annual audit and the independent auditor’s review of our annual and quarterly financial statements and reports, including discussions with independent auditors without management present;
press releases regarding our financial results and any other financial information and earnings guidance provided;
matters that have a significant impact on our financial statements;
the scope, adequacy and effectiveness of our internal control over financial reporting;
procedures for complaints for employees to submit concerns anonymously about questionable accounting, internal control or auditing matters; and
all material related party transactions that require disclosure.

Compensation and Leadership Development Committee. The CLD Committee discharges the responsibilities of our Board relating to the compensation and benefits for our executive officers and directors, including:

reviewing and approving the compensation arrangements for our executive officers and directors;
reviewing and approving corporate performance goals and objectives relevant to such compensation;
administering our equity incentive plans;
reviewing our compensation discussion and analysis and CLD Committee report required by the rules of the SEC;
engage with a third party independent advisor to assist in evaluating our executive compensation program.
providing oversight on the overall leadership development program throughout the Company; and
overseeing succession planning for executive officers jointly with the NCG Committee.

Nominating and Corporate Governance Committee. The NCG Committee assist the Board in:


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identifying qualified candidates to become directors and considering the nomination of our incumbent directors for reelection;
evaluating stockholder nominations of candidates for election to our Board;
reviewing our general policy relating to selection of director candidates and members of committees of our Board, including an assessment of the performance of our Board; and
reviewing and making recommendations to our Board regarding corporate governance principles and policies.

Independence

The Board has determined that the following directors have no relationships with us that would interfere with the exercise of independent judgment in carrying out his or her responsibilities as a director, and as such are "independent" under NYSE listing standards and federal securities laws as of December 31, 2018: Messrs. Petersen, Rechan, Russell, Williams, and Woestemeyer and Mss. Herscher and Woestemeyer. Our Board previously determined that Ellen Keszler was an independent director prior to her retirement from our Board in at our 2018 annual meeting. Our Audit, CLD and NGC Committees are comprised entirely of independent directors.

Independent Non-Executive Chairman

The Board is led by our independent non-executive chairman, Mr. Russell. The Board’s current preferred governance structure is to have an independent director serve as chairman. We believe the current structure provides strong leadership for our Board, while also positioning our Chief Executive Officer as the leader of the Company. We believe that our current structure helps ensure independent oversight over the Company, while allowing our Chief Executive Officer to focus on management of the Company. As our non-executive chairman, among other responsibilities, Mr. Russell oversees the planning of the annual Board calendar, and, with the Chief Executive Officer, in consultation with the other directors, schedules and sets the agenda for meetings of the Board and leads the discussion at such meetings, serves as a liaison between the CEO and the independent directors, and performs such additional duties and responsibilities as requested by the Board from time to time.

Executive Sessions

Executive sessions of the independent directors of the Board are scheduled during each regularly scheduled in-person Board meeting. These executive sessions are led by our non-executive chairman of the Board. Our non-executive chairman of the Board provides feedback to our CEO, as needed, promptly after the executive session.

Risk Oversight

The Board oversees our risk management process. Management reviews the process, including identification of key risks and steps taken to address them, with the full Board at least on an annual basis. The Audit Committee, the CLD Committee, and the NGC Committee assist the Board in discharging its oversight duties. The CLD Committee reviews risks related to the subject matters enumerated in its charter, including risks associated with our compensation programs. The NGC Committee considers risks related to the subject matters for which it is responsible as identified in its charter, including risks associated with corporate governance. Similarly, the Audit Committee considers risks related to the subject matters enumerated in its charter, including risks relating to internal controls, disclosure, and financial reporting. Accordingly, while each of the three committees contributes to the risk management oversight function by assisting the Board in the manner outlined above, the Board remains responsible for the oversight of our risk management program.


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Director Nomination

The NCG Committee has the responsibility for establishing the criteria for recommending which directors should stand for reelection to our Board and the selection of new directors to serve on our Board. In addition, the NCG Committee is responsible for establishing the procedures for our stockholders to nominate candidates to our Board. Although the NCG Committee has not formulated any specific minimum qualifications for director candidates, it has determined that desirable characteristics include, but are not limited to, business experience, mature judgment, personal and professional ethics, and integrity. The Company does not have a formal policy with respect to consideration of diversity in identifying director nominees; however, in the process of selecting a director nominee, the NCG Committee assesses backgrounds, diversity and expected contributions of the individuals to the Board.

Our bylaws permit any stockholder of record to nominate directors. Stockholders who wish to submit nominees for election at an annual or special meeting of stockholders should follow the procedure described in the "Stockholder Proposals" section on page 60 of this Proxy Statement. The NCG Committee applies the same standards in considering candidates submitted by stockholders as it does in evaluating candidates submitted by members of the Board.

Director Resignation Policy

Our Board has adopted a director resignation policy. Under this policy in an uncontested election of directors, any nominee who receives a greater number of votes “withheld” from his or her election than votes “for” such election must promptly tender his or her resignation to the NCG Committee.     The NCG Committee will promptly consider all relevant factors including, without limitation, (a) the stated reasons why votes were withheld from such director; (b) any alternatives for curing the underlying cause of the withheld votes; (c) the tenure and qualifications of the director; (d) the director’s past and expected future contributions to the Company; (e) our director criteria; (f) our Corporate Governance Guidelines; and (g) the overall composition of the Board, including whether accepting the resignation would cause the Company to fail to meet any applicable SEC or NYSE requirement. The NCG Committee will recommend to the qualified independent directors the action to be taken with respect to such offered resignation, and the qualified independent directors will act on the NCG Committee’s recommendation no later than 90 days following the date of the stockholders’ meeting in which the election occurred. If a majority of the members of the NCG Committee received a greater number of votes “withheld” from their election than votes “for” their election at the same election, then the remaining qualified independent directors on the Board will consider the matter directly or may appoint a committee of the Board amongst themselves solely for the purpose of considering the tendered resignations that will make the recommendation to the Board whether to accept or reject them.

Stock Ownership Guidelines

Our Board has adopted stock ownership guidelines for our NEOs and directors that are designed to align our NEOs’ and directors' interests with our stockholders’ interests by promoting long-term share ownership, which reduces the incentive for excessive short-term risk taking and further increase our NEOs’ and directors' alignment with stockholder interests. These guidelines require our Chief Executive Officer to hold shares of our stock worth six times his annual salary, other NEOs to hold shares of our stock worth two times their annual salary, and each non-employee director to hold shares of our stock worth five times the director's annual retainer. Our NEOs and directors are expected to achieve their ownership thresholds within five years after joining our Board and/or being appointed as a NEO. As of December 31, 2018, each of our NEOs and directors were in compliance with the applicable guidelines.

Prohibition Against Hedging, Short-Sale, Pledging, and Repricing Underwater Stock Options

We have implemented both anti-hedging and anti-pledging policies, as well as a prohibition on participating in short sales of our stock, to ensure that our executives’ stock remains at-risk. Our 2017 Equity Incentive Plan (2017 Plan) also prohibits repricing, repurchase or exchange of underwater stock options without stockholder approval.

Compensation and Leadership Development Committee Interlocks and Insider Participation

No member of our Compensation and Leadership Development Committee and none of our executive officers has any relationships that would constitute an interlocking relationship with executive officers and directors of any other entity.

Code of Business Conduct and Ethics

Our Board has adopted a Code of Business Conduct and Ethics that applies to all of our directors and employees. Our Code of Business Conduct and Ethics is available under Investor Relations section of our website at ir.pros.com.

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Communication with Our Board

Stockholders or interested parties who wish to communicate with members of our Board may send correspondence to them in care of our Corporate Secretary at 3100 Main Street, Suite 900, Houston, TX 77002. Such communication will be forwarded to the intended recipient(s). We currently do not intend to have our Corporate Secretary screen this correspondence, but we may change this policy if directed by our Board due to the nature or volume of the correspondence. Communications that are intended specifically for the non-executive chairman of the Board may also be sent to the street address noted above, to the attention of the non-executive chairman of the Board.

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OUR BOARD OF DIRECTORS

The table below provides ages, positions, current membership, term of office, and other relevant information for each of our directors:
Name
Age
Position(s) with the Company
Director Since
Current Term Expires
Current Class of Director
Audit
Compensation and Leadership Development
Nominating and Corporate Governance
Penelope Herscher
58
Director
2018
2021
II
 
Member1
Member1
Ellen Keszler2
56
Director
-
-
-
Member2
 
Member2
Greg B. Petersen
56
Director
2007
2020
I
Member
Chair
 
Leslie Rechan
57
Director
2015
2021
II
Member3
Member3
Member
Andres D. Reiner
48
President, CEO and Director (Nominee)
2010
2019
III
 
 
 
William Russell
67
Non-Executive Chairman
2008
2018
II
 
Member
Chair
Timothy V. Williams
69
Director
2007
2020
I
Chair
 
Member
Mariette M. Woestemeyer
67
Director
1985
2020
I
 
 
 
Ronald F. Woestemeyer
73
Director (Nominee)
1985
2019
III
 
 
 
Number of meetings in 2018
10
6
3
(1)
Ms. Herscher was appointed to the Compensation and Leadership Development and Nominating and Corporate Governance Committees in May 2018.
(2)
Ms. Keszler retired from our Board in May 2018.
(3)
Mr. Rechan was appointed to the Audit Committee and discontinued serving on the Compensation and Leadership Development Committee in May 2018.
Directors and Director Nominees
penelopeherscher.jpg
Ms. Herscher is a seasoned technology public company board director, executive and entrepreneur, with more than 15 years of experience as a high-tech CEO in Silicon Valley and more than 10 years of experience serving on public company boards of directors. Ms. Herscher currently serves on the boards of Faurecia SA (EPA:EO), Verint (NASD:VRNT), and Lumentum Holdings, Inc. (NASD:LITE).

Ms. Herscher previously served as CEO for FirstRain, a privately held company in the unstructured data analytics space, from December 2004 to November 2015. Prior to leading FirstRain, she was CEO of Simplex Solutions and served in C-level and senior executive positions for a number of software and technology firms, including Cadence Design Systems, Inc.

Ms. Herscher has extensive business and leadership experience in software companies, including experience in software sales, marketing, strategy, governance, compensation planning and mergers and acquisitions.

Penelope Herscher
 
gregbpetersen.jpg
Mr. Petersen serves as the chairman of the Compensation and Leadership Development Committee of the Board. Mr. Petersen has served as president of Brookview Capital Advisors since 2016.
Mr. Petersen also served on the board of directors of Diligent Corporation (2013 to 2016), Piksel, Inc. (2012 to 2017), and Synthesio. Mr. Petersen served as the chairman of the audit committee at Diligent and Piksel, and as an advisory board member at Synthesio. From 2014 to 2015, he served as Executive Vice Chairman at Diligent Corporation. Mr. Petersen previously served as Chief Financial Officer for CBG Holdings, Lombardi Software, Inc. (which was sold to IBM in 2010), and Activant Solutions, Inc. Mr. Petersen previously served in executive roles with Trilogy Software and RailTex. Mr. Petersen began his career with American Airlines, Inc. (NASD:AAL), including serving as managing director of corporate development where he led a project to create Sabre Holdings, Inc. (NASD:SABR) and complete its IPO. Mr. Petersen holds a Bachelor of Arts in Economics from Boston College and a Master of Business Administration from the Fuqua School of Business at Duke University.
Mr. Petersen has business and leadership experience in software companies, merger and acquisition experience, and extensive financial planning, accounting, governance, compensation planning and risk management knowledge.
Greg B. Petersen
 

16



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Mr. Rechan serves as President and Chief Executive Officer and a director of Solace Corp., a cloud-based smart data movement solutions company, a position he has held since September 2017.

Prior to Solace, Mr. Rechan served as President and Chief Executive Officer and a director of Halogen Software (TSX:HGN), a cloud-based talent management software provider (2015 to 2017). Mr. Rechan previously served as General Manager, IBM Business Analytics Division (2011 to 2014), and Vice President, Sales, Solutions and Services, IBM Business Analytics Division (2008 to 2011). Mr. Rechan held several leadership positions at IBM Corp. across field sales, systems engineering, services, solutions, development, and general management in North America, Europe and Asia Pacific. Mr. Rechan has also served in executive roles at Cognos Inc., Oracle Corporation, Seibel Systems, Inc., Cadence Design Systems Inc. and Onyx Software Corp. Mr. Rechan received his B.S. in Electrical Engineering and his B.A. in organizational behavior from Brown University and his M.A. in management from Northwestern University.

Mr. Rechan has extensive business and leadership experience in software companies, including experience in software sales and operations management.
Leslie Rechan
 
andresreiner.jpg
Mr. Reiner serves as our President and Chief Executive Officer, a position he has held since November 2010. Mr. Reiner has also served on the board of directors of Paylocity Holding Corporation (NASD:PCTY) since September 2014, and serves on the compensation and nominating and governance committees for Paylocity.
Mr. Reiner holds a Bachelor of Science in Computer Science with a minor in Mathematics from the University of Houston.
As a result of his 19+ years of experience with the Company, Mr. Reiner has familiarity with all of the Company’s key day to day operations, in-depth experience in and knowledge of the development of our products, services and the markets in which we compete, and has leadership, management and operating experience.
Andres D. Reiner
 
For more information on Mr. Reiner, see “Executive Officers” on page 23 of this Proxy Statement.
billrussell.jpg
Mr. Russell serves as our non-executive chairman of the Board and as chairman of the Nominating and Corporate Governance Committee of the Board. Mr. Russell also serves on the board of directors at Accesso Technology Group PLC (OTCMKTS:LOQPF).
Mr. Russell previously served in a variety of roles in both public and private technology company boards and previously served on the boards of SABA Software, Inc. (from January 2010 to March 2015), webMethods and Cognos. Mr. Russell has held a number of senior-level roles in his more than 20 years at Hewlett-Packard, including Vice President and General Manager of the multi-billion-dollar Enterprise Systems Group. Mr. Russell holds a Bachelor of Science in Computer Science from Edinburgh University and has completed several executive development programs from institutions including Harvard Business School and INSEAD.
Mr. Russell is a National Association of Corporate Directors (NACD) Board Leadership Fellow, demonstrating his commitment to the highest standards of boardroom excellence. NACD Fellowship is a comprehensive and continuous program of study that empowers directors with the latest insights, intelligence, and leading boardroom practices. As a result of leading Hewlett-Packard’s substantial software business, Mr. Russell has broad knowledge of large-scale software operations, including sales, marketing, development, finance, strategic planning and leadership.
William Russell
 
timothyvwilliams.jpg
Mr. Williams serves as the chairman of the Audit Committee of the Board. Mr. Williams has also served on the board of directors and as chairman of the audit committee of ChannelAdvisor Corporation (NYSE:ECOM) since 2012.
Mr. Williams previously served on the board of directors and as chairman of the audit committee of Halogen Software, Inc. (TSE:HGN) (April 2011 to May 2017). Mr. Williams served as Senior Vice President and Chief Financial Officer of Blackbaud, Inc. (NASD:BLKB), a provider of software and services to non-profit organizations, from January 2001 until his retirement in November 2011. Mr. Williams previously served as Executive Vice President and Chief Financial Officer of both Mynd Corporation (now a subsidiary of Computer Sciences Corporation), and Holiday Inn Worldwide, a subsidiary of Bass PLC. Mr. Williams holds a Bachelor of Arts in business from the University of Northern Iowa.
Mr. Williams has extensive financial, business, management and public software company expertise. Through his experience as a chief financial officer, including with three other software and services firms, Mr. Williams’ brings to the Board extensive knowledge of accounting, risk management, general management of software companies, and public company reporting requirements and processes.
Timothy V. Williams
 

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Mrs. Woestemeyer co-founded the Company in 1985 with her husband, Ronald F. Woestemeyer.
Mrs. Woestemeyer was previously the Chief Financial Officer of Metro Networks, a broadcasting company, from 1983 to 1985 and held various financial roles with Continental Airlines and its predecessor, Texas International Airlines, prior to 1983. Mrs. Woestemeyer holds a Bachelor of Business Administration and a Master of Business Administration from the University of Houston.
As co-founder of the Company, Mrs. Woestemeyer brings continuity and history of current and past management and direct relevant industry experience. Mrs. Woestemeyer also has familiarity with all of the Company’s key operations as a result of serving as our director since 1985. Mrs. Woestemeyer also has experience as our Chief Financial Officer for many years and related operational expertise.
Mariette M. Woestemeyer
ronaldwoestemeyer.jpg
Mr. Woestemeyer co-founded the Company in 1985 with his wife, Mariette Woestemeyer.

Mr. Woestemeyer previously served as our Executive Vice President, Strategic Business Planning from 1997 until his retirement in July 2015. From 1985 to 1997, Mr. Woestemeyer served as our Chief Executive Officer. Prior to founding the Company, Mr. Woestemeyer spent 14 years at Texas International Airlines in various management and executive positions with responsibility over sales and marketing. Mr. Woestemeyer holds a Bachelor of Business Administration degree from the University of Houston.

Mr. Woestemeyer brings continuity and direct relevant industry experience to the Board as well as his unique familiarity with the business, structure, culture, history and deep knowledge of our markets.
Ronald F. Woestemeyer

The following table provides a summary view of the experience, expertise and other attributes of our directors and director nominees:
Board Experience, Expertise or Attribute
Penelope Herscher
Greg B. Petersen
Leslie Rechan
Andres D. Reiner
William Russell
Timothy V. Williams
Mariette M. Woestemeyer
Ronald F. Woestemeyer
 
 
 
 
(Nominee)
 
 
 
(Nominee)
Accounting
 
x
 
 
 
x
x
 
Business Operations
x
x
x
x
x
x
x
x
Finance
 
x
x
x
 
x
x
 
International
x
 
x
x
x
 
x
x
Leadership
x
x
x
x
x
x
x
x
M&A
x
x
x
x
x
x
 
 
Public Company/Governance
x
x
x
x
x
x
 
 
Risk Management
x
x
x
 
 
x
 
 
Sales & Marketing
x
 
x
x
x
 
 
x
Software Industry
x
x
x
x
x
x
x
x
Travel Industry
 
x
x
x
 
 
x
x
Cloud Software
x
x
x
x
x
x
 
 

Director Continuing Education

Our directors regularly attend continuing education events related to board governance best practices, including conferences and webinars provided by the NYSE, NACD and Equilar, among others. For example, many of our independent directors have attended the NACD Global Board Leaders' Summit in recent years. In addition, Mr. Russell, our Non-Executive Chairman, has been recognized as an NACD Board Leadership Fellow, the highest credential for corporate directors offered by the NACD.


18



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DIRECTOR COMPENSATION

The Board has approved a compensation structure for non-employee directors consisting of an equity award, annual cash retainer, and for certain positions, a supplemental cash retainer(s). All cash retainers are paid on a quarterly basis. In 2018, each non-employee member of our Board received 5,594 RSUs which vested in full on January 10, 2019, except for 1,875 shares awarded to Ms. Keszler which vested on her retirement from the Board on May 11, 2018 at our 2018 annual meeting. Each non-employee member of our Board received an annual cash retainer of $35,000 in 2018. The non-executive chairman of our Board received a supplemental retainer of $50,000 in 2018. In addition, each non-employee director serving as a chair or member of a standing committee of our Board received the following supplemental cash retainer(s):
Committee Role
 
Audit Committee
 
Compensation and Leadership Development Committee
 
Nominating and Corporate Governance Committee
Member
 
$
15,000

 
$
15,000

 
$
7,500

Chair
 
$
30,000

 
$
20,000

 
$
10,000

 
We also reimburse our directors for reasonable out-of-pocket expenses incurred in connection with (i) their attendance at our Board, committee meetings, and other Company meetings, and (ii) director continuing education programs, including participation in the National Association of Corporate Directors (NACD), of which the Company is a member.

2018 Director Compensation Table

The following table sets forth the compensation paid to our non-employee directors for service on our Board during 2018. Compensation for Andres D. Reiner our President and Chief Executive Officer is set forth in the "Summary Compensation" table on page 38 of this Proxy Statement. Mr. Reiner does not receive any compensation for his services as a director.
Name
 
Fees Earned
or Paid in Cash
($)
 
Restricted
Stock Units
($) (1)
 
Total
($)
Ellen Keszler(2)
 
$
20,844

 
$
50,663

 
$
71,507

Penelope Herscher
 
$
57,500

 
$
151,150

 
$
208,650

Greg B. Petersen
 
$
70,000

 
$
151,150

 
$
221,150

Leslie Rechan
 
$
57,500

 
$
151,150

 
$
208,650

William Russell
 
$
110,000

 
$
151,150

 
$
261,150

Timothy V. Williams
 
$
72,500

 
$
151,150

 
$
223,650

Mariette M. Woestemeyer
 
$
35,000

 
$
151,150

 
$
186,150

Ronald F. Woestemeyer
 
$
35,000

 
$
151,150

 
$
186,150

(1)
Represents the aggregate grant date fair value of equity awards granted for services in 2018 calculated in accordance with GAAP. For additional information about valuation assumptions for equity awards, refer to Note 13 of our financial statements in our Annual Report on Form 10-K for the year ended December 31, 2018. The January 8, 2018 grant of RSUs awarded to all non-employee directors vested in full on January 10, 2019 and had a grant date fair value of $27.02.
(2)
Ms. Keszler retired from our Board on May 11, 2018, the date of our 2018 annual meeting.

The following table presents the aggregate number of outstanding RSUs and stock option awards held by our non-employee directors as of December 31, 2018:
Name
 
Restricted Stock Units
(#) (1)
Penelope Herscher
 

Greg B. Petersen
 
5,594

Leslie Rechan
 
5,594

William Russell
 
5,594

Timothy V. Williams
 
5,594

Mariette M. Woestemeyer
 
5,594

Ronald F. Woestemeyer
 
5,594

(1)
Represents RSUs granted on January 8, 2018, which fully vested on January 10, 2019, under the 2018 director compensation policy, for all non-employee directors. Each RSU represents the contingent right to receive one share of Common Stock.

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PROPOSAL ONE
ELECTION OF DIRECTORS
What am I voting on?
Stockholders are being asked to elect two Class III director nominees to the Board for a three-year term.
Voting Recommendation:
The Board recommends voting “FOR” the election of each of the two Class III director nominees.
Two (2) directors are to be elected at the Annual Meeting. Our Board, upon the recommendation of the Nominating and Corporate Governance Committee, has nominated Andres D. Reiner and Ronald F. Woestemeyer as Class III directors, each to hold office until the 2022 Annual Meeting and until their successor has been duly elected and qualified or until the earlier of their death, resignation or removal.
The Board is also composed of three Class I directors, whose terms expire upon the election and qualification of directors at the annual meeting of our stockholders to be held in 2020, and three Class II directors, whose terms expire upon the election and qualification of directors at the annual meeting of our stockholders to be held in 2021.
The Board knows of no reason why any of the nominees would be unable or unwilling to serve, but if any nominee should for any reason be unable or unwilling to serve, the proxies will be voted for the election of such other person for the office of director as the Board may recommend in the place of such nominee. Unless otherwise instructed, the proxy holders will vote the proxies received by them for the nominees named below.
Vote Required
Directors are elected by a plurality vote of the votes cast by holders of our Common Stock entitled to vote at the Annual Meeting. Abstentions and broker non-votes will not have any effect on this proposal. Accordingly, the two nominees who receive the highest number of properly executed “FOR” votes from the holders of Common Stock will be elected as directors.
In accordance with Delaware law, abstentions will be counted for purposes of determining both whether a quorum is present at the Annual Meeting and the total number of shares represented and voting on this proposal. While broker non-votes will be counted for purposes of determining the presence or absence of a quorum, broker non-votes will not be counted for purposes of determining the number of shares represented and voting with respect to the particular proposal on which the broker has expressly not voted and, accordingly, will not affect the approval of this proposal.
The number of “withhold” votes with respect to a nominee will affect whether our Director Resignation Policy will apply to that individual. In accordance with our Director Resignation Policy, any nominee for director who receives a greater number of votes “withheld” from his or her election than votes “for” such election is required to offer his or her resignation following certification of the stockholder vote. Our Nominating and Corporate Governance Committee of our Board would then consider whether to accept the resignation and make a recommendation to our independent directors as to the action to be taken with respect to the offer. For more information about this policy, see “Corporate Governance - Director Resignation Policy.”
The NYSE broker discretionary rules prohibit banks, brokers and other intermediaries from voting shares held in their clients’ accounts on elections of directors unless the client has provided voting instructions. Therefore, if you hold your shares in street name, it is important that you cast your vote if you want it to count in the election of directors.
THE BOARD UNANIMOUSLY RECOMMENDS VOTING “FOR” THE ELECTION OF EACH OF THE THREE CLASS II DIRECTOR NOMINEES.


20



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EXECUTIVE OFFICERS

The following table sets forth the executive officers and key employees of the Company, their ages, and the positions currently held by each such person with the Company immediately prior to the Annual Meeting:
Name
 
Age
 
Position
Named Executive Officers:
Andres D. Reiner
 
48
 
Chief Executive Officer, President and Director
Stefan B. Schulz
 
52
 
Executive Vice President and Chief Financial Officer
Thomas F. Dziersk
 
56
 
Executive Vice President, Worldwide Sales
Other Significant Employees:
Celia Fleischaker
 
49
 
Chief Marketing Officer
Mike Jahoda
 
39
 
Senior Vice President, Professional Services
Damian Olthoff
 
44
 
General Counsel and Secretary
Rob Reiner
 
57
 
Chief Technology Officer
Jill Sawatsky
 
49
 
Vice President, Customer Success
Wagner Williams
 
40
 
Chief People Officer
Benson Yuen
 
58
 
President, Travel
Craig Zawada
 
48
 
Chief Innovation Officer
andresreiner.jpg
Mr. Reiner serves as a director and as our President and Chief Executive Officer.
Mr. Reiner joined the Company in 1999, prior to his appointment as President and Chief Executive Officer in November 2010, held a series of positions with successively increasing responsibility, including Senior Vice President of Product Development and Executive Vice President of Product and Marketing. Prior to becoming our President and Chief Executive Officer, he was responsible for global marketing and alliances, product management, science research, and development of our next generation software products. Mr. Reiner was also instrumental in our European growth, the expansion of the Company’s sales and marketing efforts worldwide, and our transition to a cloud business. Prior to joining PROS, Mr. Reiner held technical and management positions in technology companies including Platinum Technology, ADAC Healthcare Information Systems, and Kinesix.
Mr. Reiner holds a Bachelor of Science in Computer Science with a minor in Mathematics from the University of Houston.

Andres D. Reiner
 
stefanshulz.jpg
Mr. Schulz serves as our Executive Vice President and Chief Financial Officer.
Mr. Schulz joined PROS and assumed his current position in March 2015. Prior to joining PROS, Mr. Schulz served as Chief Financial Officer for Digital River, Inc., a global provider of cloud-based commerce, payments and marketing services, from July 2011 to February 2015. Mr. Schulz also previously served in various roles, including as Senior Vice President, Chief Financial Officer and Chief Accounting Officer, with Lawson Software, an enterprise resource planning software company, from October 2005 to July 2011; in various finance and accounting roles at BMC Software, from 1993 to 2005, including as Vice President and Corporate Controller; and as an Audit Manager in the Enterprise Group with Arthur Andersen LLP. Mr. Schulz was instrumental our transition to a cloud business.
Mr. Schulz holds a B.B.A. in Accounting from Lamar University.
Stefan B. Schulz
 
thomasfdziersk.jpg
Mr. Dziersk serves as our Executive Vice President, Worldwide Sales.
Mr. Dziersk joined PROS and assumed his current position in October 2017. Prior to joining PROS, Mr. Dziersk served as President for NICE Americas, a provider of enterprise software solutions that empower organizations to make smarter decisions based on advanced analytics, from April 2014 to January 2017. Prior to joining NICE, Mr. Dziersk spent eight years with JDA Software Group, Inc. a supply chain software provider, where he served three years as Executive Vice President, Worldwide Sales and five years as Marketing and Senior Vice President Americas.
Mr. Dziersk holds a B.A. in Economics from the University of Michigan.
Thomas F. Dziersk

21



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COMPENSATION DISCUSSION AND ANALYSIS

In this section, we describe the executive compensation program for our NEOs. We also explain how our Compensation and Leadership Development (CLD) Committee determined the pay of our NEOs and its rationale for specific decisions in 2018. Our NEOs for 2018 were:
Name
Title
Andres D. Reiner
Chief Executive Officer, President and Director
Stefan B. Schulz
Executive Vice President and Chief Financial Officer
Thomas F. Dziersk
Executive Vice President, Worldwide Sales

2018 Business Highlights

In 2018, we continued to successfully execute on our multi-year cloud transition, growing subscription revenue 57% and total revenue 17%, and driving 59% total shareholder return cumulatively in 2018 and 2019 through March 15, 2019. Despite this strong performance, we set our CEO’s target pay only near peer median pay levels while using a highly performance-based compensation program with rigorous goals.

Continued to successfully execute on the multi-year strategy we set when announcing our cloud transition in 2015. To date, the Company has met or exceeded our communicated cloud transition goals, including achieving numerous financial milestones faster than almost every other on-premise software company that has similarly transitioned to a recurring cloud business:
             cloudtransitionchart2.jpg

Delivered strong growth and rapid transformation of our business to the cloud. Our results reflected further success in executing on our cloud transition, with year-over-year growth of 57% in subscription revenue, 18% in ARR, and 23% in Recurring Revenue, while also improving Recurring Revenue Gross Margin.
picture11.jpg
(1)
ARR is used to assess the trajectory of our cloud business. ARR means, as of a specified date, the contracted recurring revenue, including contracts with a future start date, together with annualized overage fees incurred above contracted minimum transactions, and excluding perpetual and term license agreements recognized as license revenue in accordance with GAAP. ARR should be viewed independently of revenue and any other GAAP measure.



22



In connection with our cloud transformation our stock price continued to increase in 2018. Shareholders benefited from a 19% increase in our share price in 2018 and a cumulative 59% increase from the end of 2017 through March 15, 2019.

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2018 Compensation Highlights

In order to promote retention and properly incentivize our NEOs, the CLD Committee focused on a best practices, competitive compensation program as follows:

CEO target pay was set conservatively, increasing 9% for 2018, and remains near peer median pay levels.  This was despite the Company’s strong financial performance and 23% total shareholder return in 2017 levels. Despite the Company's successful cloud transition and >20% shareholder return in 2017, for 2018 our CEO’s base salary and target cash incentive remained unchanged from 2017, and his target equity compensation1 increased to $4.3 million in 2018 from $3.9 million in 2017 to increase target total compensation to the expected 2018 peer median and recognize our >20% shareholder return in 2017. Our CEO’s total target pay, including base salary and target cash incentive and the target value of long-term equity compensation, was set near the expected median of our 2018 peer group, and this expected median was later confirmed to be an accurate forecast.
page26.jpg
(1)
Target equity compensation (a) for RSUs and MSUs represents total target equity compensation determined by the CLD Committee divided by the closing price of the Company's Common Stock reported by the NYSE on the grant date, and differs from the accounting grant date fair value included in the "Grants of Plan Based Awards" table on page 39 of this Proxy Statement; and (b) for 2016 Stock Price PRSUs represents the accounting grant date fair value.

23




Continued emphasis on pay-for-performance. In 2018, our CLD Committee again sought to motivate our NEOs through predominantly performance-basedcash and equity awards. The majority of our CEO’s 2018 target total compensation was directly performance-based, including annual cash incentives tied to pre-established performance targets and MSU equity awards which vary based on the relative performance of our stock compared to the Index over a three-year performance measurement period. Including RSU equity awards, which increase in value based on share price appreciation, >90% of our CEO’s 2018 total target compensation is considered at risk.
a8atriskceo.jpg

(1)
Target equity compensation for RSUs and MSUs represents total target equity compensation determined by the CLD Committee divided by the closing price of the Company's Common Stock reported by the NYSE on the grant date, and differs from the accounting grant date fair value included in the "Grants of Plan Based Awards" table on page 39 of this Proxy Statement.

We set aggressive, performance-based and formulaic 2018 goals based on predefined targets with no discretion. Performance goals that determine annual cash incentive attainment were set aggressively in 2018 with above median performance expectations compared to our peer group. For example, in 2018, our primary growth-oriented performance metric was ARR, and the ARR goal required 19% growth over 2017 to earn a target level award. This was higher than the approximately 17% average top line growth required to achieve target level incentive compensation by our peer CEOs for 2017. Additionally, the threshold for any incentive payment to be earned in 2018 required at least 14% growth over 2017, much higher than the peer average minimum threshold 5% growth required for our peer CEOs to earn any incentive in 2017. The 2018 annual results compared to the cash incentive plan goals resulted in our CEO earning 138.5% of his annual cash incentive target based on formulaic results vs. the original rigorous goals, with no discretion applied.

a9growthtargets.jpg

24




Say-on-Pay Vote.    Each year, our CLD Committee takes into account the result of the say-on-pay vote cast by our stockholders. At our 2018 Annual Meeting of Stockholders, our stockholders had the opportunity to provide an advisory vote on the compensation paid to our NEOs, or a “say-on-pay” vote. More than 85% of the total votes cast were voted in favor of our say-on-pay proposal. As a result, the CLD Committee believes that the results of our say-on-pay vote affirmed stockholder support of our updated approach to executive compensation, following 61% support in the 2017 stockholder vote. While say-on-pay is a key indicator of stockholder sentiment, we also keep an open dialogue with our institutional investors and stockholders throughout the year. We reach out to discuss business topics, seek feedback on our performance and address other matters of importance to our stockholders, such as executive compensation. During 2018, we have actively engaged with a significant majority of our shares outstanding. As a result of this ongoing outreach, the Committee further reevaluated our executive compensation program and made several changes to our pay program for 2019. The following table summarizes our shareholders’ feedback and the Committee’s resulting decisions:
What We Heard
 
What We Did
ü
Mixed level of concern on CEO pay levels.
 
ü
Updated our peer group to ensure an accurate comparison of peer executive compensation practices and pay levels, with CEO 2018 target compensation near the median of the updated peer group.
 
 
 
ü
Set CEO 2019 target compensation near the expected median of our updated peer group.
 
 
 
ü
Continued to set pay based on performance through our bonus plan and equity grants tied to our operational performance.
 
 
 
ü
Continued to set aggressive goals for cash incentive attainment at the beginning of each year tied to our strategic plan. For example, in 2018, our primary growth-oriented performance metric was ARR, and this goal required 12% more growth to earn a target award than the approximate 17% median top line growth required for target level pay by our peers during 2017.
 
 
 
ü
Increased required CEO stock ownership to 6 times annual salary.
ü
Strong support for linking performance-based equity to internal operating measures.
 
ü
Revised the structure of our 2019 performance-based equity grants from performance relative to the Russell 2000 Index, to performance relative to preset internal operating measures which reflect the success of our cloud transition, and aligns with shareholder interests.
ü

Desire for our performance-based goals to be tied to a successful cloud transition.

 
ü
Updated our annual cash incentive performance measures from ARR1, total revenue, and Free Cash Flow2 in 2018 to total revenue and Recurring Revenue Gross Margin in 2019 to ensure focus on the primary measures of top line growth and overall health of our cloud business.
 
 
 
ü
Changed our performance-based equity compensation to incentivize growth in Recurring Revenue, our primary measure of growth for our cloud business.

Key Pay Practices
What We Do
 
What We Do Not Do
ü
Emphasize pay-for-performance where compensation is contingent upon the performance of our business, our stock price and individual performance
 
ü
No hedging or pledging of Company stock, including short sales
ü
Utilize performance-based pay through equity and cash incentive awards that require achievement of pre-established goals with no discretion
 
ü
No excessive perquisites
ü
Maintain “double trigger” change in control agreements
 
ü
No pensions
ü
Maintain a clawback policy
 
ü
No discount from fair market value in setting exercise price of stock options and stock appreciation rights
ü
CLD Committee oversees risks associated with compensation policies and practices
 
ü
No repricing underwater stock options or stock appreciation rights without stockholder approval
ü
CLD Committee retains an independent compensation consultant
 
ü
No equity vesting within less than one year after grant, except for up to 5% of the authorized shares
ü
Expect our CEO to hold stock equal to six times his base salary
 
 
 
ü
Expect each other NEO to hold stock equal to two times their base salary
 
 
 


25



Our Compensation Philosophy

Our executive compensation program is designed to reward achievement of specific corporate goals, align our executives’ interests with those of our stockholders by rewarding performance that meets or exceeds established goals, reward superior performance and to achieve the following overall objectives:
Objective
 
Rationale
Competitive pay
 
Enable the Company to attract and retain high-caliber talent by setting compensation competitive with that being offered to individuals holding comparable positions at other public companies with which we compete for business and talent. The Company does not target a specific percentile and reviews market data to check that compensation is generally in a market range and reflects the individual’s experience, performance, and contribution.
Pay for performance
 
Provide a compensation package that is weighted heavily towards performance-based pay to motivate high performance among our NEOs, with compensation levels reflecting the achievement of short- and long-term performance objectives
Align the interests of our executives with those of our stockholders
 
Directly link rewards to the achievement of measurable financial objectives that build long-term stockholder value

2019 Compensation Highlights
a2019neocompstructure.jpg

Our CLD Committee chose to make the changes set forth below to our NEOs’ compensation for 2019 after reviewing each leader’s tenure and salary history with us, the Company’s and each leader’s 2018 performance, the compensation practices from our updated peer group, each leader’s compensation relative to our updated peer group, and the feedback from shareholder engagement throughout 2018.

Andres Reiner, President and Chief Executive Officer

Mr. Reiner joined the Company in 1999 and has served as our President and Chief Executive Officer since 2010. Mr. Reiner again successfully steered the Company through an accelerated transition to the cloud in 2018. Based on the Company's strong performance in 2018, and shareholder return of 19% in 2018, the CLD Committee increased Mr. Reiner's target pay by 6% to remain in line with the median of our updated peer group. For the fourth year in a row, the CLD Committee did not change Mr. Reiner’s base salary and cash incentive target for 2019. The Committee instead increased Mr. Reiner’s performance-based equity compensation, from $4.3 million in 2018 to $4.65 million in 2019, consistent with the median target equity compensation for our peer CEOs. This decision was based on Mr. Reiner’s continued impact on the Company’s successful operational and financial progress on our cloud transition and the resulting growth in shareholder return since the start of 2016. Together these decisions resulted in Mr. Reiner’s total target compensation approximating the median of peer compensation for 2019, although the target incentive and 50% of the equity award will be forfeited if performance at the end of the performance period does not meet the minimum required performance levels.

26



 
 
            Cash Compensation
 
Target Equity1
Total Target Compensation
 
 
Base Salary
 
Incentive Target
 
Incentive
Earned
 
RSUs
 
MSUs/PRSUs
 
2018
 
$
525,000

 
$
577,500

 
$
799,838

 
$
2,150,012

 
$
2,150,012

 
$
5,402,524

(Decided Jan. 2018)
 
(+0% vs. 2017)

 
(+0% vs. 2017)

 
(138.5% of target)
(+91% vs. 2017)

 
(+11% vs.2017)

 
(+11% vs. 2017)

 
(9% vs. 2017)
(vs. 23% TSR in 2017)

2019
 
$
525,000

 
$
577,500

 
Not Yet Earned
 
$
2,325,001

 
$
2,325,001

 
$
5,752,502

(Decided Jan. 2019)
 
(+0% vs. 2018)

 
(+0% vs. 2018)

 
 
(+8% vs.2018)

 
(+8% vs.2018)

 
(+6% vs. 2018)
(vs. 19% TSR in 2018)

(1)
Target equity reflects target award value approved by the CLD Committee on the date of grant calculated and does not reflect the fair value as reported in the 2018 Summary Compensation Table below in this Proxy Statement.

Stefan Schulz, Executive Vice President and Chief Financial Officer

Mr. Schulz joined the Company in March 2015 as Executive Vice President and Chief Financial Officer. Mr. Schulz's leadership has been integral to the Company’s cloud transition and corresponding shift to a cloud-based financial model. For 2019, the CLD Committee decided to increase Mr. Schulz’s base salary and cash incentive target by 3% from 2018 to $392,000 and $314,000 at target, respectively. The Committee also decided to increase Mr. Schulz’s target equity-based compensation from $1.8 million in 2018 to $2.0 million in 2019 due to Mr. Schulz’s impact on the Company’s successful operational and financial progress on our cloud transition, and the resulting growth in shareholder return in 2018.
 
 
          Cash Compensation
 
Target Equity1
Total Target Compensation
 
 
Base Salary
 
Incentive Target
 
Incentive
Earned
 
RSUs
 
MSUs/PRSUs
 
2018
 
$
380,000

 
$
304,000

 
$
421,040

 
$
1,080,000

 
$
720,000

 
$
2,484,000

(Decided Jan. 2018)
 
(+4% vs. 2017)

 
(+4% vs. 2017)

 
(138.5% of target) (+98% vs. 2018)

 
(+20% vs. 2017)

 
(+20% vs. 2017)

 
(+15% vs. 2017)
(vs. 23% TSR in 2017)

2019
 
$
392,000

 
$
314,000

 
Not Yet Earned
 
$
1,200,000

 
$
800,000

 
$
2,706,000

(Decided Jan. 2019)
 
(+3% vs. 2018)

 
(+3% vs. 2018)

 
 
(+11% vs. 2018)

 
(+11% vs. 2018)

 
(+9% vs. 2018)
(vs. 19% TSR in 2018)

(1)
Target equity reflects target award value approved by the CLD Committee on the date of grant calculated and does not reflect the fair value as reported in the 2018 Summary Compensation Table below in this Proxy Statement.

Thomas F. Dziersk, Executive Vice President, Worldwide Sales

Mr. Dziersk joined the Company in October 2017 as Executive Vice President, Worldwide Sales. Mr. Dziersk is responsible for the Company’s sales results across all geographies and business lines, as well as all sales enablement operations. For 2019, the CLD Committee decided to increase Mr. Dziersk’s base salary and cash incentive target by 2% from 2018 to $383,000 and $383,000 at target, respectively. The Committee also decided to set Mr. Dziersk’s target equity-based compensation at $1.6 million in 2019, a pay level within the market range offered by the Company’s peers for the same type and scope of responsibility.
 
 
          Cash Compensation
 
Target Equity1
Total Target Compensation
 
 
Base Salary
 
Incentive Target
 
Incentive
Earned
 
RSUs
 
MSUs/PRSUs
 
2018
 
$
375,000

 
$
375,000

 
$
519,375

 
$
240,000

 
$
160,000

 
$
1,150,000

(Decided Jan. 2018)
 
(+0% vs. 2017 annualized)

 
(+0% vs. 2017 annualized)

 
(138.5% of target)

 
(Prorated given Oct 2017 grant)

 
(Prorated given Oct 2017 grant)

(Prorated given
Oct 2017 grant)

2019
 
$
383,000

 
$
383,000

 
Not Yet Earned
 
$
960,000

 
$
640,000

 
$
2,366,000

(Decided Jan. 2019)
 
(+2% vs. 2018)

 
(+2% vs. 2018)

 
 
(+0% vs. annualized 2018)

 
(+0% vs. annualized 2018)

 
(+1% vs. annualized 2018)
(vs. 19% TSR in 2018)

(1)
Target equity compensation represents total target equity compensation approved by the CLD Committee on the date of grant and does not reflect the fair value as reported in the 2018 Summary Compensation Table below in this Proxy Statement.


27



Pay Ratio Disclosure

Under Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of Regulation S-K, the Company is required to provide the ratio of the annual total compensation of our Chief Executive Officer to the annual total compensation of the median employee of the Company (Pay Ratio Disclosure). For 2018, the median annual total compensation of all employees of the Company and its subsidiaries other than our CEO, was $91,177. Our CEO's total annual compensation for 2018 for purposes of the Pay Ratio Disclosure was $6,757,227. The ratio of the total annual compensation of our CEO to the median of all other employees was 74:1. As SEC rules permit different methodologies, exemptions, estimates and assumptions for identifying the median employee and calculating pay ratio, our Pay Ratio Disclosure may not be comparable to the pay ratio reported by other companies.

We identified the median employee by examining the 2018 total cash compensation for all individuals, excluding our CEO, who were employed by us during the 2018 calendar year (whether employed on a full-time, part-time, or seasonal basis). For such employees, we did not make any assumptions, adjustments, or estimates with respect to total cash compensation, and we did not annualize the compensation for any full-time employees that were not employed by us for all of 2018.  We used the relevant exchange rate on December 31, 2018.  After identifying the median employee criteria, we calculated annual total compensation for such employee using the same methodology we use for our NEOs as set forth in the 2018 Summary Compensation Table below.
Role of Our Compensation and Leadership Development Committee

The responsibility for establishing, administering and interpreting our policies governing the compensation and benefits for our NEOs, as well as granting any share-based awards to our NEOs, lies with our CLD Committee, which consists entirely of non-employee directors. Our CLD Committee has taken the following steps to ensure that our executive compensation and benefit policies are consistent with both our compensation philosophy and our Corporate Governance Guidelines:

solicited recommendations from an independent executive compensation consultant to evaluate our executive compensation practices and assisted in developing and implementing the executive compensation programs;
established a practice, in accordance with the rules of the NYSE, of reviewing the performance and determining the compensation earned, paid or awarded to our Chief Executive Officer;
established a policy, in accordance with the rules of the NYSE, to review on an annual basis the performance of our other executive officers with assistance from our Chief Executive Officer and determined what we believe to be appropriate total compensation for these executive officers; and
our CLD Committee members attended continuing education related to compensation best practices provided by NYSE, NACD, and Equilar, among others.
Our CLD Committee considers a broad range of facts and circumstances in setting executive compensation. Among the factors considered for our executives generally in 2018, and for the NEOs in particular, are recommendations from our compensation consulting firm, Frederic W. Cook & Co. (FW Cook), advice from our Chief Executive Officer, general economic and market conditions, our financial condition and operating results, our operating plan, our geographic location and the objectives of our executive compensation policies described above. The weight given to each factor differs from year to year and may differ among individual NEOs in any given year.

Our CLD Committee establishes executive compensation programs that the CLD Committee believes, based on the members’ experience, is the most appropriate to achieve the goals described above. Our CLD Committee continues to evaluate our executive compensation programs on a quantitative and qualitative basis on at least a yearly basis or more frequently if circumstances dictate. Our CLD Committee expects to make new awards and adjustments to our executive compensation programs as appropriate.
Role of Management

During 2018, Mr. Reiner reviewed the performance and compensation of the NEOs, other than himself, and made recommendations as to their compensation to the CLD Committee. In making its decisions regarding executive compensation, the CLD Committee meets outside the presence of executive officers when making final decisions about each executive officer. The Chief Executive Officer is periodically present during portions of these deliberations that relate to the compensation for other executive officers. In addition, for share-based grants to employees who are not NEOs, the CLD Committee has delegated to the Chief Executive Officer the authority to make share-based awards within certain limitations on aggregate grants and specific award terms.

28



Role of Our Independent Compensation Consultant

The CLD Committee retained FW Cook to advise the CLD Committee on executive compensation matters for 2018 due to the breadth and depth of FW Cook’s experience with executive compensation matters and their particular expertise in the software industry. During 2018, FW Cook advised the CLD Committee on a variety of subjects such as compensation plan design and trends, pay for performance analytics, benchmarking norms, executive compensation best practices, and other related matters. FW Cook reports directly to the Committee, participates in meetings as requested and communicates with the CLD Committee Chair between meetings as necessary. FW Cook has served as our independent compensation consultant since 2017.

Prior to engaging FW Cook, the CLD Committee reviewed FW Cook's qualifications, as well as their independence and any potential conflicts of interest. The CLD Committee has the sole authority to modify or approve the compensation for FW Cook, determine the nature and scope of their services, evaluate their performance, and terminate their engagement and hire replacement or additional consultants at any time. FW Cook did not perform any services for us in 2018 other than as serving as advisors to the CLD Committee.

Peer Group

To assist the CLD Committee in its deliberations on executive compensation, the Committee each year reviews our peer group with our compensation consultant for appropriateness based on a variety of factors including: similarities in market capitalization, revenue, relevant industries, the overlapping labor market for top management talent, our status as a publicly traded, U.S.-based firm, and various other characteristics. Additionally, in late 2017, the Committee specifically began to focus on reconsidering peers with a founder CEO who did not appear to be paid in a manner that reflects the external pay market.  As a result of this review, the Committee made the following changes to the peer group:
2017 Peer Group (Count = 17)
 
2018 Peer Group (Count = 16)
 
2019 Peer Group (Count = 18)
 
8x8
 
8x8
Aspen Tech
 
Aspen Tech
 
Aspen Tech
Bazaarvoice
 
 
 
Benefitfocus
 
Benefitfocus
Bottomline Tech
 
Bottomline Tech
 
Bottomline Tech
Callidus Software
 
Callidus Software
 
Callidus Software
Cornerstone
 
Cornerstone
 
Cornerstone
 
 
 
 
Coupa Software
 
 
 
 
Ellie Mae
 
 
 
 
Five9
HubSpot
 
 
Imperva
 
Imperva
 
Imperva
LivePerson
 
 
LogMeIn (revenue above range)
 
 
Model N
 
Model N
 
Model N
 
 
 
 
Monotype Imaging
Paylocity
 
Paylocity
 
Paylocity
 
 
 
Q2 Holdings
 
Q2 Holdings
 
 
 
 
Quotient Tech
 
RingCentral
 
RingCentral
SPS Commerce
 
SPS Commerce
 
SPS Commerce
Varonis Systems
 
 
VASCO Data
 
 
 
Workiva
 
Workiva
Removed for 2018 due to acquisition:
 
Removed for 2019 due to acquisition:
 
 
Apigee
 
Bazaarvoice
 
 
Jive Software
 
Broadsoft
 
 
TubeMogul
 
 
 
 


29



With these changes, the CLD Committee examined the compensation practices of these companies, which we believe most closely approximate the size, scope and complexity of our business. The 2018 peer group was set in late 2017 and referenced for setting target compensation for the hiring of Mr. Dziersk, our Executive Vice President, Worldwide Sales, and target compensation levels for NEOs for 2018, among other things. The 2019 peer group was established in late 2018 and referenced for setting target compensation levels for NEOs for 2019, among other things.

FW Cook prepared a compensation analysis using data gathered from publicly available information for these peer groups. The CLD Committee used this data to compare the compensation of our NEOs to similarly positioned persons within the peer group and to determine the relative compensation for each NEO position, based on direct, quantitative comparisons of pay levels.

Components of Executive Compensation

Base Salaries

We use base salaries primarily to compensate and retain our NEOs for their services. Base salaries for our NEOs are reviewed on an annual basis and represent the minimum payment for a satisfactory level of individual performance as long as the executive remains employed with us. Base salary is set at the CLD Committee’s discretion after taking into account the competitive landscape including the compensation practices of the companies in our selected peer groups, our business strategy, our performance goals and certain individual factors, such as position, salary history, individual performance and contribution, length of service with the Company and placement within the general base salary range offered to our NEOs.

Executive compensation activities in 2018. Based on the criteria above, the CLD Committee made no change to the base salaries for Messrs. Reiner, Schulz, or Dziersk.

Cash Incentives

For 2018, we utilized a cash incentive plan for Messrs. Reiner, Schulz, and Dziersk under which cash incentive payments could be made after the end of each year based on our performance against our corporate objectives for each year. The cash incentive program was intended to reward our NEOs upon the achievement of financial performance goals. Each component of the cash incentive plan had minimum threshold target and maximum levels and operated independent of the other components in that the target incentive payment amount for each component was payable if we hit our target level for that component. Actual results between the minimum threshold, target and the maximum goal levels would be pro-rated. We use our cash incentive plan to align our NEOs' performance with our financial results and to motivate our NEOs to successfully implement our cloud strategy and execute our corresponding financial plan by achieving annual goals that were set at the beginning of the year and remained unchanged through the end of the year.

Executive compensation activities in 2018. Our CLD Committee approved our 2018 Named Executive Officer Plan (2018 NEO Plan) for each of our NEOs in March 2018, and many of the changes reflected in the 2018 NEO Plan were in response to feedback received after the 2017 Say-on-Pay vote. The 2018 NEO Plan eliminated the non-GAAP gross profit from the 2017 Named Executive Officer Plan (2017 NEO Plan), retained the ARR and free cash flow elements from the 2017 NEO Plan, and added total revenue as a new element for 2018. Gross profit was eliminated and replaced with total revenue because we believe that total revenue will be an increasingly valuable indication of top line growth. Overall, ARR, total revenue, and free cash flow were the best indicators to measure the health and trajectory of our overall cloud business at this point in our cloud transition. The 2018 NEO Plan also eliminated the quarterly component and utilizes only annual performance periods for all measures in order to eliminate shareholder confusion on how our quarterly goals are defined. The weighting of the 2018 NEO Plan components is set forth in the following table:
Component
 
Weighting
ARR1
 
50%
Free Cash Flow2
 
25%
Total Revenue
 
25%
Total Incentive Opportunity
100%
(1)
ARR is used to assess the trajectory of our cloud business. ARR means, as of a specified date, the contracted recurring revenue, including contracts with a future start date, together with annualized overage fees incurred above contracted minimum transactions, and excluding perpetual and term license agreements recognized as license revenue in accordance with GAAP. ARR should be viewed independently of revenue and any other GAAP measure.
(2)
Free Cash Flow is a non-GAAP financial measure which is defined as net cash provided by (used in) operating activities, less additions to property, plant and equipment, purchases of other (non-acquisition-related) intangible assets and capitalized internal-use software development costs.


30



Payouts under the 2018 NEO Plan were based on Company performance compared to aggressive goals set for each component’s target. Our primary growth-oriented performance metric is ARR and our ARR performance goal required 19% growth at target for 2017, which is 12% more aggressive than the approximately 17% average top line growth required to achieve target level incentive compensation by our peer companies for 2017. The CLD Committee authorized the payments in February 2019 for payment after audited results were determined for 2018. The target, minimum threshold and maximum for each component are set forth in the following table:
 
Goals ($M)
 
Performance Achieved
Component
Threshold
 
Target
 
Maximum
 
ARR1
180.0
 
190.4
 
195.7
 
190.5
Free Cash Flow
(6.0)
 
(2.0)
 
1.0
 
(0.5)
Total Revenue1
185.0
 
192.0
 
197.0
 
198.5

(1)
Performance achievement shown on a constant currency basis.

For the 2018 NEO Plan, the CLD Committee set the incentive pay as a percentage of the annual base salary of each of Messrs. Reiner, Schulz, and Dziersk, based on achievement of the minimum threshold targets for each component above, as set forth in the following table:
 
Named Executive Officer
 
At Target
Threshold
 
At
Target
 
At Target
Maximum
Andres D. Reiner
 
55%
 
110%
 
220%
Stefan B. Schulz
 
40%
 
80%
 
160%
Thomas F. Dziersk
 
50%
 
100%
 
200%

The actual payout for 2018 performance as a percentage of the base salary of each 2018 NEO reflects actual performance against the target range as described above, and are set forth in the following table:
Named Executive Officer
 
Actual Payout
 
As a % of Base
 
As a % of Target
Andres D. Reiner
 
152.35%
 
138.5%
Stefan B. Schulz
 
110.8%
 
138.5%
Thomas F. Dziersk
 
138.5%
 
138.5%

For 2018, the CLD Committee decided upon the target total cash compensation (base salary plus target cash incentives) for Messrs. Reiner, Schulz, and Dziersk based on each individual’s compensation history, recent individual performance and contribution, as well as the competitive landscape including the compensation practices of the companies in our selected peer groups, our business strategy, and placement within the peer group compensation range for each position.

NEO bonuses in 2018 included no adjustment outside of the formulaic outcome driven by performance versus the goals that were set at the start of the year. We believe that the 2018 goals were aggressive based on performance benchmarking of the growth rates compared to our 2018 peer group, which contributed to our 59% stock price increase between December 31, 2017 and March 15, 2019.
    
Executive compensation activities in 2019. In January 2019, our CLD Committee approved our 2019 Named Executive Officer Plan (2019 NEO Plan) for each of our NEOs. Compared to the 2018 NEO Plan, the 2019 NEO Plan retained the total revenue element, eliminated the ARR and Free Cash Flow metrics, and added a non-GAAP Recurring Revenue Gross Margin metric. The CLD Committee believes that total revenue and Non-GAAP Recurring Revenue Gross Margin are the best indicators to measure the growth and efficiency of our business at this stage of our cloud transition. The weighting of the 2019 NEO Plan components is set forth in the following table:
Component
Threshold
 
Target
 
Maximum
Total Revenue
30%
 
60%
 
120%
Non-GAAP Recurring Revenue Gross Margin1

20%
 
40%
 
80%
Total Incentive Opportunity
50.0%
 
100.0%
 
200.0%

(1)
Non-GAAP Recurring Revenue Gross Margin is used to measure the efficiency of our business, and is defined as (a) total recurring revenue (comprised of subscription and maintenance & support revenue), less recurring cost of revenue excluding share-based compensation, amortization of acquisition-related

31



intangibles, acquisition-related expenses and non-cash rent expense on the preoccupied new PROS headquarters (non-GAAP Recurring Cost of Revenue), divided by (b) total recurring revenue, expressed as a percentage. 

In setting the targets for these components, the CLD Committee believed that there was a reasonable likelihood that we could achieve the targets specified if we execute on our business plan. For the 2019 NEO Plan, the incentive payment as a percentage of the base salary for each continuing NEO remains unchanged from 2018.

Equity Awards

The CLD Committee believes that equity compensation plans are an essential tool to link the long-term interests of stockholders and employees, especially the NEOs, and serve to motivate NEOs to make decisions that will, in the long run, deliver the best returns to stockholders.

Executive compensation activities in 2018. In 2018, the CLD Committee considered the equity mix for our NEOs and believed it was in the best interests of our stockholders to grant equity awards in an equal mix of MSUs and RSUs to our Chief Executive Officer and an equity mix for Messrs. Schulz and Dziersk to be 60% RSUs and 40% MSUs to align with our peer group compensation practices.  RSUs granted in 2018 (January 2018 RSUs) to our NEOs vest in four equal annual installments on January 10th of each year.
 
The CLD Committee determines the size of awards following review of competitive market data from our peer group, as well as subjective factors such as relative job scope, individual performance, tenure and experience, expected future contributions to the growth and development of the Company, Company performance, historical equity compensation awarded to a NEO, and the unvested equity position held by each NEO. These factors are reflected in the MSU and RSU grants made in January 2018 to Messrs. Reiner, Schulz, and Dziersk.

For 2018, the value of Mr. Reiner’s target equity award was based on the Company’s positive results against targets in 2017 and the substantial progress made in leading the Company’s cloud transition. The value of Mr. Schulz's target equity grant in 2018 was based on his especially positive performance in 2017 and his direct impact of the performance on the Company’s results. For 2018, the CLD Committee provided a small equity grant to Mr. Dziersk in order to get him on the same annual equity cycle as our other NEOs going forward.

RSUs are intended to assist in retaining our NEOs and to reward them for sustaining and increasing the share price of our Common Stock.

MSUs are performance-vested units under which the actual number of shares of our Common Stock received following vesting is based on the Company's total stockholder return (TSR) in relation to the Index over a specified performance period. The MSUs awarded in January 2018 (January 2018 MSUs) to Messrs. Reiner, Schulz, and Dziersk have a three-year performance period beginning January 2017. If we under-perform the Index, the percentage at which the MSUs convert into shares of our Common Stock will be reduced from 100%, at a rate of 2.5 to 1 (2½-percentage-point reduction in the number of target units for each percentage point of under-performance), with a minimum percentage of 0%. If we outperform the Index, the percentage at which the MSUs convert to shares will be increased from 100%, at a rate of 2.5 to 1 (2½-percentage-point increase in the number of target units for each percentage point of over-performance), with a maximum percentage of 200%.

The CLD Committee believes that MSUs reward for performance and adjust the reward and the performance for overall market conditions that may have contributed to the outcome. The value realized from MSUs can differ materially from reported pay because MSUs may not vest, or may vest below target if our TSR does not sufficiently perform relative to the Index over the three year performance measurement period. For example, the MSUs granted in January 2015 did not vest. These limited vesting results were caused by the decrease in the Company’s stock price during the early stages of the Company’s transition to a cloud company.

PRSUs are performance vested restricted stock units distinct from MSUs which vest upon achievement of certain performance metrics, which were granted in 2016 with price contingencies that were materially higher than stock price at the time (Stock Price PRSUs). Stock Price PRSUs vest if the average trailing closing price of the Company's Common Stock meets certain minimum stock price growth hurdles. The actual number of shares of our Common Stock issuable under the Stock Price PRSUs is based on our average per share closing price for at least 105 calendar days prior to September 9, 2020, with 25% vesting at $27 (vested in 2017), an additional 25% vesting at $33 (vested in 2018), and the remaining 50% vesting at $41 (not yet vested). The Stock Price PRSUs were partially earned in 2017 and 2018 based on achieving the first two of three stock price growth goals. The remaining Stock Price PRSUs have not been earned yet as the applicable stock price hurdle has not been achieved. The

32



following table shows the number of Stock Price PRSUs earned during 2017 through 2018 and the number that remain unearned but potentially earnable for each of our NEOs:
Named Executive Officer
Stock Price PRSUs per Price Hurdle
Earned in 2017
 
Earned in 2018
 
Outstanding as of 12/31/2018
$27/share
 
$33/share
 
$41/share
Andres D. Reiner
50,000
 
50,000
 
100,000
Stefan B. Schulz
15,000
 
15,000
 
30,000
Thomas F. Dziersk
 
 

The following table sets forth information as of December 31, 2018 with respect to compensation plans under which our equity securities are authorized for issuance. For additional information on our equity compensation plans, see Note 11 of the Notes to the Consolidated Financial Statements in our 2018 Annual Report.
 
I
 
II
 
III
Plan Category
Number of 
securities to be
issued upon 
exercise of
outstanding options and rights
 
Weighted-average
exercise price of
outstanding 
options and rights
 
Number of 
securities
remaining available for future issuance
under plans
(excluding securities listed in Column (I))
All compensation plans previously approved by security holders
$
2,889,749

 
$
10.92

 
1,347,240

All compensation plans not previously approved by security holders

 

 

Total
2,889,749

 
$
10.92

 
1,347,240


Executive compensation activities in 2019. In 2019, the CLD Committee reviewed the equity mix for our NEOs and believed it was in our best interests to continue to grant equity awards in an equal 50/50 mix of PRSUs and RSUs to Mr. Reiner, and 60% RSUs and 40% PRSUs for Messrs. Schulz and Dziersk to align with our peer group compensation practices.  RSUs granted in 2019 to our NEOs vest in four equal annual installments on January 15th of each year. After considering feedback from stockholders, the CLD Committee decided to move from TSR-linked MSUs to PRSUs tied to achievement of internal performance metrics. The PRSUs awarded in 2019 (2019 PRSUs), are payable in shares of our Common Stock, and vest at up to 200% of the grant amount on the third anniversary of the grant based upon achievement of certain internal performance metrics set by the Committee over a two-year performance period beginning January 2019. If we achieve the target performance level, the percentage at which the 2019 PRSUs convert into shares of our Common Stock will be 100%. If we fail to achieve the performance level at target, the percentage at which the 2019 PRSUs convert into shares of our Common Stock will be reduced from 100%, through linear interpolation between 50% threshold and 100% achievement, with a minimum percentage of 0% for performance below threshold. If we perform above the target performance level, the percentage at which the 2019 PRSUs convert to shares of our Common Stock will be increased from 100%, through linear interpolation, with a maximum percentage of 200% for performance above maximum performance levels.

Other Compensation

Our NEOs are eligible to participate in our health and welfare programs, 401(k) plan, Employee Stock Purchase Plan and other benefit programs on the same basis as other U.S. employees.

Severance Compensation and Termination Protection

We generally provide our NEOs with severance packages if they are terminated without cause (as defined in their employment agreements) or for good reason (as defined in their employment agreements) in order to attract and retain them. The amount of severance benefits is described below, and in more detail elsewhere in the section titled “Potential Payments Upon Termination or Change of Control” on page 41 of this Proxy Statement. The CLD Committee reviews the potential payouts to ensure their market-competitiveness in order to incentivize our NEOs to maintain focus on both daily and long-term efforts.

Our severance compensation provisions are designed to meet the following objectives:


33



Change in Control: As part of our normal course of business, we may engage in discussions with other companies about possible collaborations and/or other ways in which the companies may work together to further our respective long-term objectives. In certain scenarios, the potential for merger or being acquired may be in the best interests of our stockholders. We provide a component of severance compensation if a NEO is terminated as a result of a change of control transaction to promote the ability of our NEOs to act in the best interests of our stockholders even though they could be terminated as a result of the transaction.

Termination Without Cause or For Good Reason: If we terminate the employment of one of our NEOs “without cause” or one of our NEOs resigns for “good reason,” each as defined in the applicable agreement, we are obligated to make certain payments based on the NEO's then-effective base salary. We believe this is appropriate because the terminated NEO is bound by confidentiality and non-competition provisions continuing after termination. We also believe it is beneficial to have a mutually-agreed severance package in place prior to any termination event, to avoid disruptive conflicts and provide us with more flexibility to make a change in management if such a change is in our and our stockholders’ best interests.

Employment Agreements

Andres D. Reiner. In December 2018, we entered into a second amended and restated employment agreement with Mr. Reiner, our Chief Executive Officer and President, in order to reflect current competitive market practices. This agreement will automatically renew for additional three-year terms unless the Company decides not to renew. The base salary payable to Mr. Reiner is subject to periodic review by our CLD Committee. In the event Mr. Reiner’s employment with us is terminated by him for good reason, by us without cause or we decide not to renew his agreement, he will receive (i) his full base salary each month for the following 12 months, (ii) any unpaid bonus earned prior to the termination relating to periods preceding the date of termination, (iii) the payment of a bonus at 100% of performance targets, including discretionary components, within the bonus plan in effect as if employed by us for 12 months, (iv) an amount equal to 12 times the monthly cost of Mr. Reiner's health benefits, (v) the acceleration of vesting of all equity awards with respect to such shares that would have vested following his termination date, and (vi) the acceleration of vesting of all market stock awards where the number of units vesting is determined as if the performance period ended on his termination date. If Mr. Reiner’s employment is terminated by us without cause, if he resigns for good reason, or we decide not to renew his agreement within six months prior to, or any time after, a change of control of the Company, he will receive (i) an amount equal to 150% of his annual salary, (ii) any unpaid bonus earned prior to the termination relating to periods preceding the date of termination, (iii) the payment of an aggregate bonus equal to 100% of performance targets, including any discretionary components, within the bonus plan in effect as if employed by us for eighteen months, (iv) an amount equal to 18 times the monthly cost of Mr. Reiner's health benefits, and (v) the acceleration of vesting of all equity awards with respect to shares that would have vested following the Termination Date. If Mr. Reiner's employment with us terminates due to his death or disability, his employment will automatically terminate and he will be entitled to accelerated vesting of (i) all equity awards with respect to all shares that would have vested after the termination date, and (ii) all MSUs at 100% of the target number granted. In addition, if the surviving or acquiring entity (or its parent entity) elects not to assume, continue or substitute for the equity awards or options due under the either the 2007 Plan or 2017 Plan, all outstanding equity awards and options under each plan will vest in full and become fully exercisable. Mr. Reiner is subject to non-competition and non-solicitation restrictions during the term of his employment and for the 12-month period following the termination of his employment.

Stefan B. Schulz. In December 2018, we entered into an amended and restated employment agreement with Mr. Schulz, our Executive Vice President and Chief Financial Officer, in order to reflect current competitive market practices. This agreement is for a three-year term and automatically renews for three-year terms unless the Company decides not to renew. The base salary payable to Mr. Schulz is subject to periodic review by our CLD Committee. In the event Mr. Schulz's employment with us is terminated by him for good reason, by us without cause, or we decide not to renew his agreement, he will receive (i) his full base salary each month for the following 12 months, (ii) any unpaid bonus earned prior to the termination relating to periods preceding the date of termination, (iii) the payment of a bonus at 100% of performance targets, including discretionary components, within the bonus plan in effect as if employed by us for 12 months, (iv) an amount equal to 12 times the monthly cost of Mr. Schulz's health benefits, (v) the acceleration of vesting of all equity awards with respect to such shares that would have vested following the date of termination and prior to the first anniversary of his termination date, and (vi) the acceleration of vesting of all market stock awards scheduled to vest prior to the first anniversary of his termination date, where the applicable performance period is deemed to have ended on his termination date. Alternatively, if Mr. Schulz's employment is terminated by us without cause, if he resigns for good reason, or we decide not to renew his agreement within six months prior to, or any time after, a change of control of the Company, he will receive (i) an amount equal to 150% of his annual salary, (ii) any unpaid bonus earned prior to the termination relating to periods preceding the date of termination, (iii) the payment of an aggregate bonus equal to 100% of performance targets, including discretionary components, within the bonus plan in effect as if employed by us for 18 months, (iv) an amount equal to 18 times the monthly cost of Mr. Schulz's health benefits, and (v) the acceleration of vesting of all equity awards with respect to such shares that would have vested following the date of termination. In addition, if the surviving or

34



acquiring entity (or its parent entity) elects not to assume, continue or substitute for the equity awards or options due under the 2007 Plan or 2017 Plan, all outstanding equity awards and options under each plan will vest in full and become fully exercisable. If Mr. Schulz's employment with us terminates due to his death or disability, his employment will automatically terminate and he will be entitled to accelerated vesting of (i) all equity awards with respect to all shares that would have vested after the termination date, and (ii) all MSUs at 100% of the target number granted. Mr. Schulz is subject to non-competition and non-solicitation restrictions during the term of his employment and for the 12-month period following the termination of his employment.

Thomas F. Dziersk. In October 2017, we entered into an employment agreement with Mr. Dziersk, our Executive Vice President, Worldwide Sales. This agreement is for a three-year term and automatically renews for three-year terms unless the Company decides not to renew. The base salary payable to Mr. Dziersk is subject to periodic review by our CLD Committee. In the event Mr. Dziersk's employment with us is terminated by him for good reason, by us without cause, or we decide not to renew his agreement, he will receive (i) his full base salary each month for the following 12 months, and (ii) an amount equal to 12 times the monthly cost of Mr. Dziersk's health benefits. Alternatively, if Mr. Dziersk's employment is terminated by us without cause, if he resigns for good reason, or we decide not to renew his agreement within six months prior to, or any time after, a change of control of the Company, he will receive (i) an amount equal to 150% of his annual salary, (ii) any unpaid bonus earned prior to the termination relating to periods preceding the date of termination, (iii) an amount equal to 18 times the monthly cost of Mr. Dziersk's health benefits, and (iv) the acceleration of vesting of all equity awards with respect to such shares that would have vested following the date of termination. In addition, if the surviving or acquiring entity (or its parent entity) elects not to assume, continue or substitute for the equity awards or options due under the 2017 Plan, all outstanding equity awards and options under the 2017 Plan will vest in full and become fully exercisable. Mr. Dziersk is subject to non-competition and non-solicitation restrictions during the term of his employment and for the 12-month period following the termination of his employment.
“Cause” is defined in these employment agreements as (a) a breach by our officer of his duties of confidentiality which causes a material harm to us, (b) his conviction of, or a plea of guilty or no contest to, a felony or any other crime involving dishonesty or moral turpitude under the laws of the United States; (c) continued failure to perform assigned duties or comply with any Company policy after notice and a cure period; (d) any material breach by our officer of his employment agreement or any other agreement between our officer and us after notice and a cure period; (e) any intentional wrongdoing by them that adversely affects us; and (f) any failure to cooperate in good faith with us in any governmental investigation or formal proceeding.
Each of our NEOs can resign for “good reason” and be entitled to severance. “Good reason” is defined in their employment agreements as (i) a material diminution in their authority, duties or responsibilities or the assignment of duties to them that are not materially commensurate with their position with us, other than where they are asked to assume substantially similar duties and responsibilities in a larger entity after any change of control; (ii) the relocation of their offices to more than 25 miles from their present location; (iii) a material reduction in their base salaries other than reductions which are part of a general reduction affecting all employees; (iv) our failure to provide them with similar benefits than we provide to our other employees; (v) any material breach by us of any provision of their employment agreement; or (vi) any failure by any successor corporation to assume our obligations under the NEO's employment agreement.
Stock Ownership Guidelines
As part of our overall corporate governance and compensation practices, our Board adopted stock ownership guidelines for our NEOs and directors. These guidelines are designed to align our NEOs’ and directors' interests with our stockholders’ long-term interests by promoting long-term share ownership, which reduces the incentive for excessive short-term risk taking and further increase our NEOs’ and directors’ alignment with stockholder interests. These guidelines require our Chief Executive Officer to hold shares of our stock worth six times his annual salary and each other NEO is required to hold shares of our stock worth two times their annual salary. The guidelines also state that each non-employee director is required to hold shares of our stock worth five times the annual retainer for directors. Share units or unexercised options held by a NEO or director under any of our equity incentive plans are included, at 100% of their intrinsic value, in calculating the value of ownership to determine whether this minimum ownership requirement has been met. Shares held by a NEO or director under either of our equity incentive plans will continue to be included in calculating the value of ownership to determine whether this minimum ownership requirement has been met. Our NEOs must attain this ownership threshold within five years after being appointed as a NEO. Our directors must attain this ownership threshold within six years after joining our Board. As of December 31, 2018, each of our NEOs and directors were in compliance with the applicable guidelines.
Clawback Policy

Our “clawback” policy permits our Board to consider and make a decision in its sole discretion to recover, under applicable law, any incentive bonuses awarded to NEOs whose fraud or intentional misconduct significantly contributed to a restatement of

35



financial results that led to the awarding of incentive bonuses. This “clawback” policy is designed to further link our executive compensation and our long-term performance.

Tax and Accounting Considerations

Limits on Deductibility of Compensation. Section 162(m) of the Code (Section 162(m)) generally prevents us from deducting as a business expense that portion of compensation paid to certain of our executive officers that exceeds $1,000,000. Historically, there was an exception to this $1,000,000 deduction limit for compensation that qualified as “performance-based compensation” under Section 162(m).  Under federal tax legislation enacted on December 22, 2017, referred to as the Tax Cuts and Jobs Act (Tax Act), the performance-based exemption was repealed for taxable years on or after January 1, 2018, and the persons treated as covered employees subject to the deduction limit have been expanded to include our CFO and mandated that once an individual is treated as a covered employee for a given year, that individual will be treated as a covered employee for all subsequent years. Accordingly, any compensation paid to our covered executive officers in excess of $1 million in any one year will not be deductible unless it qualifies for transition relief applicable to certain arrangements in place as of November 2, 2017. The CLD Committee believes that its primary responsibility is to provide a compensation program to meet our stated business objectives, and accordingly the Company reserves the right to pay compensation that is not tax-deductible if it determines that such a payment is in the best interests of the Company and our stockholders.

36





prosdna5a01.jpg

REPORT OF THE COMPENSATION AND LEADERSHIP DEVELOPMENT COMMITTEE OF THE BOARD OF DIRECTORS
We, the Compensation and Leadership Development Committee of the Board of Directors of PROS Holdings, Inc., have reviewed and discussed the preceding Compensation Discussion and Analysis with management and FW Cook. Based on this review and discussion, we recommended to the Board of Directors, and the Board of Directors has agreed that the Compensation Discussion and Analysis be included in this Proxy Statement.
THE COMPENSATION AND LEADERSHIP DEVELOPMENT COMMITTEE OF THE BOARD OF DIRECTORS
Greg B. Petersen, Chairman
Penelope Herscher
William Russell


37



prosdna5a01.jpg

EXECUTIVE COMPENSATION

Summary Compensation Table

The following table presents the compensation paid to or earned by our NEOs, including our Chief Executive Officer, our Chief Financial Officer, and our Executive Vice President, Worldwide Sales during 2018, 2017 and 2016:
Name and
Principal Position
 
Year
 
Salary
 
Bonus
 
Stock
 Awards
(1)
 
Non-Equity 
Incentive Plan Compensation
 
All Other
Compensation (2)
 
Total
Andres D. Reiner
 
2018
 
$
525,000

 
$

 
$
5,408,210

(3)
$
799,838

 
$
1,785

 
$
6,734,832

President and Chief Executive Officer
 
2017
 
$
525,000

 
$

 
$
4,032,840

(4)
$
419,843

 
$
18,584

 
$
4,996,267

 
 
2016
 
$
525,000

 
$

 
$
4,696,100

(5)
$
887,618

 
$
20,837

 
$
6,129,555

Stefan B. Schulz
 
2018
 
$
380,000

 
$

 
$
2,186,406

(6)
$
421,040

 
$
5,660

 
$
2,993,106

Executive Vice President 
 
2017
 
$
365,000

 
$

 
$
1,528,423

(7)
$
212,284

 
$
20,981

 
$
2,126,688

and Chief Financial Officer
 
2016
 
$
365,000

 
$

 
$
2,320,825

(8)
$
448,804

 
$
19,721

 
$
3,154,350

Thomas F. Dziersk
 
2018
 
$
375,000

 
$

 
$
485,863

(11)
$
519,375

 
$

 
$
1,380,238

Executive Vice President,
 
2017
 
$
85,336

(9)
$
100,000

(10)
$
2,697,901

(12)
$
76,377

 
$
5,418

 
$
2,965,032

Worldwide Sales
 
2016
 
$

 
$

 
$

 
$

 
$

 
$

(1)
Represents the aggregate grant date fair value of equity awards granted in the specified fiscal year as calculated in accordance with GAAP. For additional information about equity award valuation assumptions, refer to Note 13 of our financial statements in our Form 10-K for the year ended December 31, 2018.
(2)
Represents executive physicals for Messrs. Reiner and Schulz, and for 2016 and 2017 also represents matching contributions for 401(k) Plan contributions, life and health insurance.
(3)
Represents 82,948 RSUs awarded to Mr. Reiner on January 8, 2018 and 82,948 MSUs awarded on January 12, 2018. The 2018 RSUs vest annually in one fourth installments on January 10th of each year and have a grant date fair value of $27.02. The 2018 MSUs will vest on January 10, 2021, and have a grant date fair value of $38.18. For additional information regarding the 2018 MSUs and RSUs, see "2018 Grants of Plan-Based Awards" below.
(4)
Represents 84,000 RSUs and 84,000 MSUs awarded to Mr. Reiner on January 20, 2017. The RSUs vest annually in one fourth installments on January 1st of each year and have a grant date fair value of $21.02. The 2017 MSUs will vest on March 1, 2020, and have a grant date fair value of $26.99.
(5)
Represents 90,000 RSUs and 90,000 MSUs awarded to Mr. Reiner on March 24, 2016 and 200,000 PRSUs awarded on September 9, 2016. The RSUs vest annually in one fourth installments on March 1st of each year and have a grant date fair value of $11.40. The 2016 MSUs vest on March 1, 2019, and have a grant date fair value of $14.29. The Stock Price PRSUs will vest based on stock price performance criteria, and have a grant date fair value of $11.92.
(6)
Represents 41,667 RSUs awarded to Mr. Schulz on January 8, 2018 and 27,778 MSUs awarded on January 12, 2018. The 2018 RSUs vest annually in one fourth installments on January 10th of each year and have a grant date fair value of $27.02. The 2018 MSUs will vest on January 10, 2021, and have a grant date fair value of $38.18. For additional information regarding the 2018 MSUs and RSUs, see "2018 Grants of Plan-Based Awards" below.
(7)
Represents 39,200 RSUs and 26,100 MSUs awarded to Mr. Schulz on January 20, 2017. The RSUs vest annually in one fourth installments on January 1st of each year and have a grant date fair value of $21.02. The 2017 MSUs will vest on March 1, 2020, and have a grant date fair value of $26.99.
(8)
Represents 62,500 RSUs and 62,500 MSUs awarded to Mr. Schulz on March 24, 2016 and 60,000 PRSUs awarded on September 9, 2016. The RSUs vest annually in one fourth installments on March 1st of each year and have a grant date fair value of $11.40. The 2016 MSUs vest on March 1, 2019, and have a grant date fair value of $14.29. The Stock Price PRSUs vest based on stock price performance, and have a grant date fair value of $11.92.
(9)
Mr. Dziersk commenced his employment with us in October 2017.
(10)
Represents a one-time cash inducement award following commencement of employment.
(11)
Represents 9,259 RSUs awarded to Mr. Dziersk on January 8, 2018 and 6,173 MSUs awarded on January 12, 2018. The 2018 RSUs vest annually in one fourth installments on January 10th of each year and have a grant date fair value of $27.02. The 2018 MSUs will vest on January 10, 2021, and have a grant date fair value of $38.18. For additional information regarding the 2018 MSUs and RSUs, see "2018 Grants of Plan-Based Awards" below.
(12)
Represents 59,504 RSUs and 39,699 MSUs awarded to Mr. Dziersk on October 9, 2017. The 2017 RSUs vest annually in one fourth installments on October 9th of each year and have a grant date fair value of $24.48. The 2017 MSUs will vest on October 9, 2020, and have a grant date fair value of $31.29.


38



Grants of Plan-Based Awards

The following table shows all plan-based awards granted to our NEOs during 2018, including:
 
 
 
 
Estimated Future Payouts
Under Non-Equity Incentive Plan Awards
Estimated Future Payouts Under Equity Incentive Awards
All Other Stock Awards:
Number of Shares of Stock or Units (#)
Exercise or Base Price of Option Awards
($/Sh)
Grant Date Fair value of Options and Awards
($)
Name
 
Type of Award
Grant Date
Threshold
($)
Target
($)
Maximum
($)
Target
(#)
Maximum
(#)
Andres D. Reiner
 
RSU
1/8/2018
 
 
 
 
 
82,948

$
27.02

$
2,241,255

 
 
MSU(1)
1/12/2018
 
 
 
82,948

165,896

 
$
38.18

$
3,166,955

 
 
Cash incentive
 
$
288,750

$
577,500

$
1,155,000

 
 
 
 
 
Stefan B. Schulz
 
RSU
1/8/2018
 
 
 
 
 
41,667

$
27.02

$
1,125,842

 
 
MSU(1)
1/12/2018
 
 
 
27,778

55,556

 
$
38.18

$
1,060,564

 
 
Cash incentive
 
$
152,000

$
304,000

$
608,000

 
 
 
 
 
Thomas F. Dziersk
 
RSU
1/8/2018
 
 
 
 
 
9,259

$
27.02

$
250,178

 
 
MSU(1)
1/12/2018
 
 
 
6,173

12,346

 
$
38.18

$
235,685

 
 
Cash incentive
 
$
187,500

$
375,000

$
75,000

 
 
 
 
 
(1)
The January 2018 MSUs are performance-vested units under which the number of shares of Common Stock received following vesting is based on the Company's TSR in relation to the Index over a three year period ending December 31, 2020 (January 2018 MSU Performance Period). The January 2018 MSUs vest on January 10, 2021, and the maximum number of shares issuable upon vesting is 200% of the January 2018 MSUs initially granted based on the average price of our Common Stock relative to the Index during the January 2018 MSU Performance Period. Includes the target number of shares issuable at the grant date fair value per share of $38.18 for the January 2018 MSUs.

Outstanding Equity Awards at Fiscal Year End

The following table presents the number of options to purchase shares of our Common Stock, SARs, RSUs, MSUs and PRSUs held by our NEOs as of December 31, 2018:
 
 
Option Awards
 
Stock Awards
Name
 
Number of
securities
underlying
unexercised
options/SARs 
(#) Exercisable
 
Number of
securities
underlying
unexercised
options/SARs 
(#) Unexercisable
 
Option/SARs
exercise
price 
($)
 
Option/SARs
expiration
date
 
Equity incentive
plan awards:
number of
unearned shares,
units or other
rights that have
not vested
(#)
 
Equity incentive
plan awards:
market or payout
value of unearned shares, 
units or other
rights that have
not vested ($)
Andres D. Reiner
 
20,000

 
 

 
 
8.68

 
3/9/2020
 
 
 
 
 
 
 
180,000

 
 

 
 
11.33

 
12/14/2020
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
14,300

(1)
 
$
449,020

 
 
 
 
 
 
 
 
 
 
 
 
45,000

(2)
 
$
1,413,000

 
 
 
 
 
 
 
 
 
 
 
 
90,000

(3)
 
$
2,826,000

 
 
 
 
 
 
 
 
 
 
 
 
100,000

(4)
 
$
3,140,000

 
 
 
 
 
 
 
 
 
 
 
 
63,000

(5)
 
$
1,978,200

 
 
 
 
 
 
 
 
 
 
 
 
84,000

(6)
 
$
2,637,600

 
 
 
 
 
 
 
 
 
 
 
 
82,948

(7)
 
$
2,604,567

 
 
 
 
 
 
 
 
 
 
 
 
82,498

(8)
 
$
2,604,567

Stefan B. Schulz
 

 
 

 
 
 
 
 
 
20,625

(9)
 
$
647,625

 
 
 
 
 
 
 
 
 
 
 
 
31,250

(2)
 
$
981,250

 
 
 
 
 
 
 
 
 
 
 
 
62,500

(3)
 
$
1,962,500

 
 
 
 
 
 
 
 
 
 
 
 
30,000

(4)
 
$
942,000

 
 
 
 
 
 
 
 
 
 
 
 
29,400

(5)
 
$
923,160

 
 
 
 
 
 
 
 
 
 
 
 
26,100

(6)
 
$
819,540

 
 
 
 
 
 
 
 
 
 
 
 
41,667

(7)
 
$
1,308,344

 
 
 
 
 
 
 
 
 
 
 
 
27,778

(8)
 
$
872,229

Thomas F. Dziersk
 

 
 

 
 
 
 
 
 
44,628

(10)
 
$
1,401,319

 
 
 
 
 
 
 
 
 
 
 
 
39,669

(11)
 
$
1,245,607

 
 
 
 
 
 
 
 
 
 
 
 
9,259

(7)
 
$
290,733

 
 
 
 
 
 
 
 
 
 
 
 
6,173

(8)
 
$
193,832


39



(1)
Represents the unvested portion of the 57,200 RSUs awarded to Mr. Reiner on January 23, 2015. The RSUs vest annually in one fourth installments on January 1st of each year and have a grant date fair value of $27.11.
(2)
Represents 2016 RSUs awarded to Messrs. Reiner and Schulz on March 24, 2016. These RSUs vest annually in one fourth installments on March 1st of each year and have a grant date fair value of $11.40.
(3)
Represents 2016 MSUs awarded to Messrs. Reiner and Schulz on March 24, 2016. These 2016 MSUs vest on March 1, 2019. The amounts shown above reflect the number and market value, as of December 31, 2018, of 2016 MSUs that would be earned if the performance goals related to these awards were met at the target level at the end of the 2016 MSU Performance Period. If the minimum performance threshold is not met, there will be no payout. The number of shares actually earned will depend on our TSR from March 1, 2016 and March 1, 2019 as compared to the Index.
(4)
Represents Stock Price PRSUs awarded to Messrs. Reiner and Schulz on September 9, 2016. These Stock Price PRSUs vest if the average trailing closing price of our Common Stock is $41 for at least 105 calendar days prior to September 9, 2020.
(5)
Represents 2017 RSUs awarded to Messrs. Reiner and Schulz on January 20, 2017. These RSUs vest annually in one fourth installments on January 1st of each year and have a grant date fair value of $21.02.
(6)
Represents 2017 MSUs awarded to Messrs. Reiner and Schulz on January 20, 2017. These 2017 MSUs vest on March 1, 2020. The amounts shown above reflect the number and market value, as of December 31, 2018, of 2017 MSUs that would be earned if the performance goals were met at the target level at the end of the 2017 MSU Performance Period. If the minimum performance threshold is not met, there will be no payout. The number of shares actually earned will depend on our TSR from February 28, 2017 and February 28, 2020 as compared to the Index.
(7)
Represents 2018 RSUs awarded to Messrs. Reiner, Schulz, and Dziersk on January 8, 2018. These RSUs vest annually in one fourth installments on January 10th of each year and have a grant date fair value of $27.02.
(8)
Represents 2018 MSUs awarded to Messrs. Reiner, Schulz, and Dziersk on January 12, 2018. These 2018 MSUs vest on January 10, 2021. The amounts shown above reflect the number and market value, as of December 31, 2018, of 2018 MSUs that would be earned if performance goals were met at the target level at the end of the 2018 MSU Performance Period. If the minimum performance threshold is not met, there will be no payout. The number of shares that will actually be earned will depend on our TSR for the period from January 1, 2018 and December 31, 2020 as compared to the Index.
(9)
Represents the unvested portion of the RSUs awarded to Mr. Schulz on March 3, 2015. Mr. Schulz was awarded 82,500 RSUs. The RSUs vest annually in one fourth installments on March 3rd of each year and have a grant date fair value of $24.32.
(10)
Represents the unvested portion of the RSUs awarded to Mr. Dziersk on October 9, 2017. Mr. Dziersk was awarded 59,504 RSUs. The RSUs vest annually in one fourth installments on October 9th of each year and have a grant date fair value of $24.48.
(11)
Represents October 2017 MSUs awarded on October 9, 2017 to Mr. Dziersk. These October 2017 MSUs vest on October 9, 2020. The amounts shown above reflect the number and market value, as of December 31, 2018, of October 2017 MSUs that would be earned if the performance goals were met at the target level at the end of the October 2017 MSU Performance Period. If the minimum performance threshold is not met, there will be no payout. The number of shares that will actually be earned depend on our TSR from October 9, 2017 and October 9, 2020 as compared to the Index.

Option Exercises and Equity Awards Vested

The following table presents information on the exercises of stock options and vesting of PRSUs, RSUs and MSUs for our NEOs during the year ended December 31, 2018:
 
 
Option Awards
 
Stock Awards
Name
 
Number of shares acquired on exercise(1)
(#)
 
Value realized on exercise
($)(2)
 
Number of shares acquired on RSU vesting(3)
(#)
 
Number of shares acquired on PRSU and MSU vesting(4)
(#)

 
Value realized on vesting(5)
($)
Andres D. Reiner
 
50,000

 
$
979,467

 
67,025

 
50,000

 
$
3,672,811

Stefan B. Schulz
 

 

 
46,050

 
23,650

 
$
2,237,444

Thomas F. Dziersk
 

 

 
14,876

 

 
481,239

(1)
Represents the exercise of options
(2)
Represents the value realized upon exercise of options
(3)
Represents the vesting of RSUs
(4)
Represents the vesting of PRSUs and MSUs
(5)
Represents the value realized upon vesting of RSUs and PRSUs
    

40



Potential Payments Upon Termination of Employment or Change of Control

The following table represents amounts payable at, following, or in connection with the events described below, assuming that such events occurred on December 31, 2018 for each of the NEOs:
 
Potential Payment on
Name
Voluntary Termination or Termination for Cause ($)
 
Involuntary Termination (Without Cause) or Termination by NEO for Good Reason ($)
 
Involuntary Termination (Without Cause) or Termination by NEO for Good Reason on Change of Control ($)
Andres D. Reiner
 
 
 
 
 
Severance(1)
$
 
 
$
1,102,500
 
 
$
1,653,750
 
Bonus(2)
$
 
 
$
577,500
 
 
$
577,500
 
Health Benefits(3)
$
 
 
$
20,659
 
 
$
30,989
 
Accelerated Equity(4)
$
 
 
$
21,456,203
 
 
$
14,512,954
 
Total
$
 
 
$
23,156,862
 
 
$
16,775,193
 
Stefan B. Schulz
 
 
 
 
 
Severance(1)
$
 
 
$
684,000
 
 
$
1,026,000
 
Bonus(2)
$
 
 
$
304,000
 
 
$
304,000
 
Health Benefits(3)
$
 
 
$
18,547
 
 
$
27,821
 
Accelerated Equity
$
 
 
$
5,698,032
 
 
$
7,514,648
 
Total
$
 
 
$
6,704,579
 
 
$
8,872,469
 
Thomas F. Dziersk
 
 
 
 
 
Severance(1)
$
 
 
$
375,000
 
 
$
562,500
 
Bonus(2)
$
 
 
$
 
 
$
375,000
 
Health Benefits(3)
$
 
 
$
18,547
 
 
$
27,821
 
Accelerated Equity
$
 
 
$
 
 
$
3,131,491
 
Total
$
 
 
$
393,547
 
 
$
4,096,812
 
(1)
Reflects then current base monthly salary for 12 months for termination without cause, and 18 months for termination without cause upon change of control, and in each case, payable on normal payroll cycles. For Messrs. Reiner and Schulz, also reflects the payment of a bonus at 100% of performance targets, including the discretionary components, within the bonus plan in effect as if employed by the Company for 12 months for termination without cause, and for 18 months for termination without cause on change of control.
(2)
Reflects 2018 earned but unpaid bonus, assuming target level performance on a completed bonus period.
(3)
Reflects health benefits as made generally available to employees for 12 months for termination without cause, and for 18 months for termination without cause on change of control.
(4)
Includes the acceleration of vesting of all market stock awards (a) for involuntary termination based on 2016 MSUs vesting at 200% of the target number granted due to our stock price performance relative to the Index, and (b) for involuntary termination associated with a change of control based on 2016 MSUs vesting at the target number granted.




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PROPOSAL TWO
NON-BINDING ADVISORY VOTE ON EXECUTIVE COMPENSATION

What am I voting on?

As required pursuant to Section 14A of the Exchange Act, we are providing our stockholders with the opportunity to vote to approve, on an advisory or non-binding basis, the compensation of our NEOs as disclosed in this Proxy Statement in accordance with SEC rules. We currently conduct this advisory vote on an annual basis and expect to conduct the next advisory vote at our Annual Meeting to be held in 2020.

As described in the “Executive Summary” and “Compensation Discussion and Analysis” sections of this Proxy Statement, our executive compensation program is designed to attract, retain, and motivate talented individuals with the executive experience and leadership skills necessary for us to manage our business and meet our long-term objectives. We seek to provide executive compensation that is competitive with companies that are similar to us. We also seek to provide near-term and long-term financial incentives that reward well-performing executives when strategic corporate objectives designed to increase long-term stockholder value are achieved. We believe that executive compensation should include base salary, cash incentives and equity awards. We also believe that our executive officers’ base salaries should be set at levels relative to comparable companies, and cash and equity incentives should generally be set at levels that give executives the opportunity to achieve above-average total compensation reflecting above-average Company performance. In particular, our executive compensation philosophy is to promote long-term value creation for our stockholders by rewarding improvement in selected financial metrics and by using equity incentives. Please see our “Compensation Discussion and Analysis” on page 22 of this Proxy Statement and related compensation tables for detailed information about our executive compensation programs, including information about the fiscal year 2018 compensation of our NEOs.

This vote is advisory and therefore not binding. However, the Compensation and Leadership Development Committee values the opinions of our stockholders and to the extent there is any significant vote against the NEO compensation as disclosed in this Proxy Statement, we will consider those stockholders’ concerns, and the Compensation and Leadership Development Committee will evaluate whether any actions are necessary to address those concerns.

Note that because the advisory vote on executive compensation occurs well after the beginning of the compensation year, in most cases it may not be feasible to change any executive compensation program in consideration of any one year’s advisory vote on executive compensation.

Vote Required

The affirmative vote of a majority of the outstanding shares of our Common Stock entitled to vote and present in person or represented by proxy at the Annual Meeting is required for advisory approval of this proposal. A properly executed proxy marked “ABSTAIN” with respect to this matter is considered entitled to vote, and thus will have the effect of a vote against this matter.

In accordance with Delaware law, abstentions will be counted for purposes of determining both whether a quorum is present at the Annual Meeting and the total number of shares represented and voting on this proposal. While broker non-votes will be counted for purposes of determining the presence or absence of a quorum, broker non-votes will not be counted for purposes of determining the number of shares represented and voting with respect to the particular proposal on which the broker has expressly not voted and, accordingly, will not affect the approval of this proposal.
THE BOARD UNANIMOUSLY RECOMMENDS VOTING “FOR” THE APPROVAL OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS AS DISCLOSED IN THIS PROXY STATEMENT.


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PROPOSAL THREE
APPROVAL OF PROPOSED AMENDMENTS TO 2017 EQUITY INCENTIVE PLAN
What am I voting on?

Stockholders are being asked to approve the following amendments (Proposed Amendments) to our 2017 Equity Incentive Plan (2017 Plan):
Increased Shares Authorized for Issuance. An increase of 2,050,000 shares, for an aggregate maximum number of shares of our common stock authorized for issuance under the 2017 Plan of 4,550,000 shares, subject to adjustment for certain changes in our capitalization. The 2017 Plan provides that all of these shares may be issued upon the exercise of incentive stock options.
Extension of Plan Term. An extension of the term of the 2017 Plan for an additional two years (currently scheduled to expire in May 2027) to May 7, 2029.
Add Eligibility for More Favorable French Tax Treatment.  Stockholder approval of the amended 2017 Equity Plan, including a French sub-plan, enables us to grant Awards in France that qualify for favorable income tax and social security treatment in France should we decide to grant such awards to employees in France who are eligible to participate in the 2017 Plan.

On March 22, 2019 our Board, upon the recommendation of the CLD Committee, voted to amend the 2017 Plan to incorporate the Proposed Amendments and certain additional clarifying changes, subject to the approval of the Proposed Amendments by the Company's stockholders. If our stockholders approve the Proposed Amendments, they will become effective on the day of the Annual Meeting. If the Proposed Amendments are not approved, the Proposed Amendments will not take effect and the 2017 Plan will remain in effect, including only the clarifying changes.

Key Plan Features

The 2017 Plan, as amended, contains a number of provisions that we believe are consistent with best practices in equity compensation and which protect the interests of stockholders:
Fixed plan term. The 2017 Plan has a fixed term of ten years.
No evergreen authorization. The 2017 Plan does not have an evergreen provision, which would have permitted an annual increase in the number of shares authorized for issuance without further stockholder approval.
No liberal share recycling on options and stock appreciation rights. The 2017 Plan generally provides for gross share counting. The number of shares remaining available for grant under the 2017 Plan is reduced by the gross number of shares subject to options and stock appreciation rights settled on a net basis, and any shares withheld for taxes in connection with the exercise or settlement of options and stock appreciation rights will not again be available for the future grant of awards. Shares withheld or reacquired by the Company for taxes up to the minimum statutory withholding rate in connection with the vesting or settlement of full value awards will not reduce the number of shares remaining available for the future grant of awards.
Individual award limits. The 2017 Plan limits the maximum number of shares for which share-denominated awards may be granted to any employee in any fiscal year and the maximum dollar amount that an employee may earn for each fiscal year contained in a performance period under a cash-denominated award.
Non-employee director award limit. The number of shares for which awards may be granted to any non-employee member of our Board in a fiscal year is limited.
No discounted options or stock appreciation rights. Options and stock appreciation rights must have an exercise price or base price at or above the fair market value per share of our common stock on the date of grant.
Prohibition of option repricing. The 2017 Plan prohibits the repricing of stock options and stock appreciation rights without the approval of our stockholders.
Minimum vesting. The 2017 Plan requires each stock-based award to have a minimum vesting period of one year, except for 5% of the aggregate number of shares authorized for issuance under the 2017 Plan.

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Performance-based awards. Performance share and performance unit awards require the achievement of pre-established goals. The 2017 Plan establishes a list of measures of business and financial performance from which the CLD Committee may construct predetermined performance goals that must be met for an award to vest, although the CLD Committee may choose construct performance goals using alternative metrics.
No liberal change-in-control definition. The 2017 Plan does not contain a “liberal” change in control definition (e.g., mergers require actual consummation).
No automatic vesting upon a change in control. With the exception of awards held by non-employee directors, the 2017 Plan does not provide for automatic acceleration of award vesting upon a change in control. The 2017 Plan allows for an acquiring corporation to assume, continue or substitute new awards for outstanding awards, and, if such awards are assumed, continued or replaced, their vesting will generally not accelerate in connection with the change in control, unless the award holder is involuntarily terminated without cause within 18 months following the change in control. The vesting of awards that are not assumed, continued or replaced will be accelerated. The vesting of awards held by non-employee directors will accelerate in full upon a change in control.
No tax gross-ups. The 2017 Plan does not provide for any tax gross-ups.
Limitation on dividends and dividend equivalents. Dividend equivalents may not be granted in connection with options or stock appreciation rights. Any dividends or dividend equivalents payable in connection with a full value award will be subject to the same restrictions as the underlying award and will not be paid until and unless such award vests.

The above description is a summary only and is qualified in its entirety by reference to the complete text of the 2017 Plan, as amended, which is attached to this Proxy Statement as Appendix A and which we encourage stockholders to read in its entirety.

Purpose

Competition for talent in the software industry is intense and our Board believes equity plays an important role in the success of the Company by encouraging and enabling the employees, officers, non-employee directors and other key persons of the Company and its subsidiaries upon whose judgment, initiative and efforts the Company largely depends for the successful conduct of its business to acquire a proprietary interest in the Company. Our Board anticipates that providing such persons with a direct stake in the Company will assure a closer identification of the interests of such individuals with those of the Company and its stockholders, thereby stimulating their efforts on the Company's behalf and strengthening their desire to remain with the Company. Further, our Board believes that the use of equity-based incentive awards supports the Company's goal of aligning our employees' compensation with long-term shareholder value, and serves as a retention tool for talent in a highly competitive environment.

In approving the initial adoption of the 2017 Plan, our stockholders authorized us to issue up to 2,500,000 shares of our common stock under the 2017 Plan. As of March 15, 2019, a total of 470,611 shares remained available for the future grant of awards under the 2017 Plan.

We believe that these shares remaining available for future award grants under the 2017 Plan is insufficient to meet our future needs. If the Proposed Amendments are approved by our stockholders, our CLD Committee will have flexibility to use various equity-based incentive awards as compensation tools to secure and retain our employees, consultants, and directors, motivate our workforce, and to align their interests with those of our stockholders. Based on our current equity award practices, we expect that the additional shares that would be authorized by the Proposed Amendments would be sufficient for grants by the CLD Committee for approximately 2 to 3 years, assuming we continue to grant awards consistent with our current practices and historical usage, and further dependent on the price of our shares and hiring activity during the next few years, forfeitures of outstanding awards, and noting that future circumstances may require us to change our current equity grant practices. We cannot predict our future equity grant practices, the future price of our shares or future hiring activity with any degree of certainty at this time, and the share reserve under the 2017 Plan could last for a shorter or longer time.

Dilution, Burn Rate and Equity Overhang

We recognize that equity awards dilute existing stockholders. Our CLD Committee regularly reviews our equity compensation program to ensure that we balance our employee compensation objectives with our stockholders’ interest in limiting dilution from equity awards.


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Our CLD Committee also regularly reviews our burn rate and potential dilution from equity compensation. Our equity award burn rate averaged 4.0% of weighted average common shares outstanding over the last three fiscal years, calculated as follows:
 
 
 
Fiscal Year
 
3-Year
Burn Rate
 
2016
 
2017
 
2018
 
Average
Time-vested RSUs granted
 
1,353,000
 
964,000
 
829,000
 
 
Performance-Based awards earned (1)
 
252,000
 
220,000
 
200,000
 
 
Total
 
1,605,000
 
1,184,000
 
1,029,000
 
 
 
 
 
 
 
 
 
 
 
 
Weighted-average common shares outstanding
 
30,395,000
 
31,627,000
 
34,465,000
 
 
 
 
 
 
 
 
 
 
 
 
Gross burn rate (2)
 
5.3%
 
3.7%
 
3.0%
 
4.0%
 
 
 
 
 
 
 
 
 
 
(1) Sum of MSUs earned in each year and 115,000 Market-based RSUs earned in each of 2017 and 2018.
(2) Total number of RSUs granted and Performance-Based awards earned in each year divided by weighted average common shares outstanding

Our total potential dilution from equity compensation, which includes all outstanding equity awards and shares available for grant under the 2017 Plan, was 10.2% of fully-diluted shares outstanding as of December 31, 2018, calculated as follows:
 
 
 
As of
Potential Dilution
 
 
December 31, 2018
Stock-Settled SARs outstanding
 
287,000
RSUs outstanding
 
1,969,000
Target Performance-Based awards outstanding (1)
 
634,000
Total shares available for grant under the 2017 Plan
 
1,347,240
Total potential dilution (2)
 
10.2%
 
 
 
 
(1) Sum of 419,000 target MSUs outstanding and 215,000 Market-Based RSUs outstanding.
(2) We define total potential dilution as the sum of Stock-Settled SARs outstanding, RSUs outstanding,Target Performance-Based awards outstanding, and total shares available for grant under the 2017 Plan, which together are referred to as the "Total Outstanding and Available Shares," divided by the sum of Total Outstanding and Available Shares and 37,155,906 common shares outstanding as of 12/31/2018.

Summary of 2017 Plan, As Amended

The following description of certain features of the 2017 Plan, as amended, is intended to be a summary only. The summary is qualified in its entirety by the full text of the 2017 Plan, as amended, that is attached hereto as Appendix A.

General. The purpose of the 2017 Plan is to advance the interests of the Company and its stockholders by providing an incentive program that will enable the Company to attract and retain employees, consultants and directors and to provide them with an equity interest in the growth and profitability of the Company. These incentives are provided through the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, other stock-based awards and cash-based awards.

Authorized Shares. The maximum aggregate number of shares authorized for issuance under the 2017 Plan is currently 2,500,000. If the Proposed Amendments are approved, the aggregate number of shares authorized for issuance under the 2017 Plan will be increased by 2,050,000 to a new total of 4,550,000.

Share Counting. Each share made subject to an award will reduce the number of shares remaining available for grant under the 2017 Plan by one share. If any award granted under the 2017 Plan expires or otherwise terminates for any reason without having been exercised or settled in full, or if shares subject to forfeiture or repurchase are forfeited or repurchased by the Company for not more than the participant’s purchase price, any such shares reacquired or subject to a terminated award will again become available for issuance under the 2017 Plan. Shares will not be treated as having been issued under the 2017 Plan and will therefore not reduce the number of shares available for issuance to the extent an award is settled in cash. Shares that are withheld or that are tendered in payment of the exercise price of an option will not be made available for new awards under the 2017 Plan. However, shares withheld or reacquired by the Company in satisfaction of a tax withholding obligation determined by the minimum statutory withholding rate in connection with the vesting or settlement of any full value award (but not options or stock appreciation rights) will not reduce the number of shares remaining available for the future grant of awards. Shares withheld for taxes in excess of

45



the minimum statutory withholding rate will not again be available for grant under the 2017 Plan. Upon the exercise of a stock appreciation right or net exercise of an option, the number of shares available under the 2017 Plan will be reduced by the gross number of shares for which the award is exercised.

Adjustments for Capital Structure Changes. Appropriate and proportionate adjustments will be made to the number of shares authorized under the 2017 Plan, to the numerical limits on certain types of awards described below, and to outstanding awards in the event of any change in our common stock through merger, consolidation, reorganization, reincorporation, recapitalization, reclassification, stock dividend, stock split, reverse stock split, split-up, split-off, spin-off, combination of shares, exchange of shares or similar change in our capital structure, or if we make a distribution to our stockholders in a form other than common stock (excluding regular, periodic cash dividends) that has a material effect on the fair market value of our common stock. In such circumstances, the CLD Committee also has the discretion under the 2017 Plan to adjust other terms of outstanding awards as it deems appropriate.

Non-employee Director Award Limits. A non-employee director may not be granted awards under the 2017 Plan in any fiscal year having an aggregate grant date fair value exceeding $500,000.

Other Award Limits. The 2017 Plan establishes limits on the maximum aggregate number of shares or dollar value for which awards may be granted to an employee in any fiscal year, as follows:

No more than 1,250,000 shares under stock-based awards.

No more than $2,000,000 for each full fiscal year contained in the performance period under cash-based awards.

In addition, to comply with applicable tax rules, the 2017 Plan also limits to 4,550,000 the number of shares that may be issued upon the exercise of incentive stock options granted under the 2017 Plan.

Administration. The 2017 Plan generally will be administered by the CLD Committee of the Board, although the Board retains the right to appoint another of its committees to administer the 2017 Plan or to administer the 2017 Plan directly. For purposes of this summary, the term “Committee” will refer to either such duly appointed committee or the Board. Subject to the provisions of the 2017 Plan, the Committee determines in its discretion the persons to whom and the times at which awards are granted, the types and sizes of awards, and all of their terms and conditions. The Committee may, subject to certain limitations on the exercise of its discretion provided by the 2017 Plan, amend, cancel or renew any award, waive any restrictions or conditions applicable to any award, and accelerate, continue, extend or defer the vesting of any award.

The 2017 Plan provides, subject to certain limitations, for indemnification by the Company of any director, officer or employee against all reasonable expenses, including attorneys’ fees, incurred in connection with any legal action arising from such person’s action or failure to act in administering the 2017 Plan. All awards granted under the 2017 Plan will be evidenced by a written or digitally signed agreement between the Company and the participant specifying the terms and conditions of the award, consistent with the requirements of the 2017 Plan. The Committee will interpret the 2017 Plan and awards granted thereunder, and all determinations of the Committee generally will be final and binding on all persons having an interest in the 2017 Plan or any award.

Prohibition of Option and SAR Repricing. The 2017 Plan expressly provides that, without the approval of a majority of the votes cast in person or by proxy at a meeting of our stockholders, the Committee may not provide for any of the following with respect to options or stock appreciation rights: (1) the cancellation of outstanding options or stock appreciation rights with exercise prices per share greater than the then fair market value of the Company’s common stock in exchange for new options or stock appreciation rights having a lower exercise price, other awards or payments in cash (except in the event of a change in control), or (2) the amendment of outstanding options or stock appreciation rights to reduce the exercise price.

Minimum Vesting. No more than 5% of the aggregate number of shares authorized under the 2017 Plan may be issued pursuant to stock-based awards that vest earlier than one year following the date of grant. This minimum vesting requirement will not prohibit the Committee from accelerating vesting in connection with a participant’s death or disability or in connection with a change in control of the Company. Also, the minimum vesting requirement will not apply to awards granted by another company that we assume or substitute for in connection with our acquisition of such company or to awards granted to our non-employee directors that vest on the earlier of the one year anniversary of the date of grant or the next annual meeting of the stockholders which is at least 50 weeks after the immediately preceding year’s annual meeting.

Eligibility. Awards may be granted to employees, directors and consultants of the Company or any present or future parent or subsidiary corporation or other affiliated entity of the Company. Incentive stock options may be granted only to employees

46



who, as of the time of grant, are employees of the Company or any parent or subsidiary corporation of the Company. As of March 15, 2019, we had approximately 1,042 employees, 7 non-employee directors, as well as other consultants, who would be eligible under the 2017 Plan.