800 Nicollet Mall, Suite 800

Mail Stop J09N05

Minneapolis, Minnesota 55402

612 303-6000

 

March 16, 2007

 

Dear Shareholders:

 

You are cordially invited to join us for our 2007 annual meeting of shareholders, which will be held on Wednesday, May 2, 2007, at 3:30 p.m., Central Time, in the Stars Room on the 50th Floor of the IDS Center, 80 South Eighth Street, Minneapolis, Minnesota. For your convenience, a map showing the location of the IDS Center is provided on the back of the accompanying proxy statement. Holders of record of our common stock as of March 5, 2007, are entitled to notice of and to vote at the 2007 annual meeting.

 

The Notice of Annual Meeting of Shareholders and the proxy statement that follow describe the business to be conducted at the meeting. We also will report on matters of current interest to our shareholders.

 

We hope you will be able to attend the meeting. However, even if you plan to attend, please vote your shares promptly to ensure they are represented at the meeting. You may submit your proxy vote by Internet or telephone as described in the following materials or by completing and signing the enclosed proxy card and returning it in the envelope provided. If you decide to attend the meeting and wish to change your proxy vote, you may do so automatically by voting in person at the meeting.

 

If your shares are held in the name of a broker, bank, trust or other nominee, you may be asked for proof of ownership to be admitted to the meeting, as described under “How can I attend the meeting?” on page 4 of the proxy statement.

 

We look forward to seeing you at the annual meeting.

 

Sincerely,

 

 

Andrew S. Duff

Chairman and Chief Executive Officer

800 Nicollet Mall, Suite 800

Mail Stop J09N05

Minneapolis, Minnesota 55402

612 303-6000

 

 

By Order of the Board of Directors

 

 

James L. Chosy

Secretary

 

March 16, 2007

 

PROXY STATEMENT
TABLE OF CONTENTS

 

PROXY STATEMENT

 

2007 ANNUAL MEETING OF SHAREHOLDERS

 

TO BE HELD MAY 2, 2007

 

The Board of Directors of Piper Jaffray Companies is soliciting proxies for use at the annual meeting of shareholders to be held on May 2, 2007, and at any adjournment or postponement of the meeting. This proxy statement and the enclosed proxy card are first being mailed or given to shareholders on or about March 16, 2007.

 

At our annual meeting, shareholders will act upon the matters outlined in the Notice of Annual Meeting of Shareholders. These include the election of directors, ratification of the selection of our independent auditor for 2007 and approval of the amendment and restatement of our Amended and Restated Certificate of Incorporation to provide for the declassification of our Board of Directors. Also, management will report on matters of current interest to our shareholders and respond to questions from our shareholders.

 

The Board has set March 5, 2007, as the record date for the annual meeting. If you were a shareholder of record at the close of business on March 5, 2007, you are entitled to vote at the meeting. As of the record date, XX,XXX,XXX shares of common stock, representing all of our voting stock, were issued and outstanding and, therefore, eligible to vote at the meeting.

 

Holders of our common stock are entitled to one vote per share. Therefore, a total of XX,XXX,XXX votes are entitled to be cast at the meeting. There is no cumulative voting.

 

In accordance with our bylaws, shares equal to a majority of the voting power of the outstanding shares of common stock entitled to vote generally in the election of directors as of the record date must be present at the annual meeting in order to hold the meeting and conduct business. This is called a quorum. Shares are counted as present at the meeting if:

 

 

It is your designation of another person to vote stock you own. That other person is called a proxy. If you designate someone as your proxy in a written document, that document also is called a proxy or a proxy card. When you designate a proxy, you also may direct the proxy how to vote your shares. We refer to this as your “proxy vote.” Two executive officers have been designated as proxies for our 2007 annual meeting of shareholders. These executive officers are James L. Chosy and Thomas P. Schnettler.

 

It is a document that we are required to give you, in accordance with regulations of the Securities and Exchange Commission, when we ask you to designate proxies to vote your shares of Piper Jaffray

Companies common stock at a meeting of our shareholders. The proxy statement includes information regarding the matters to be acted upon at the meeting and certain other information required by regulations of the Securities and Exchange Commission and rules of the New York Stock Exchange.

 

If your shares are registered directly in your name, you are considered the shareholder of record with respect to those shares. If your shares are held in a stock brokerage account or by a bank, trust or other nominee, then the broker, bank, trust or other nominee is considered to be the shareholder of record with respect to those shares, while you are considered the beneficial owner of those shares. In that case, your shares are said to be held in “street name.” Street name holders generally cannot vote their shares directly and must instead instruct the broker, bank, trust or other nominee how to vote their shares using the method described below under “How do I submit my proxy?”

 

If you are a shareholder of record, you can submit a proxy to be voted at the meeting in any of the following ways:

 

 

The Internet and telephone voting procedures have been set up for your convenience. The procedures have been designed to authenticate your identity, allow you to give voting instructions, and confirm that those instructions have been recorded properly. When you vote by Internet or telephone, you reduce our mailing and handling expenses. If you are a shareholder of record and would like to submit your proxy by Internet or telephone, please refer to the specific instructions provided on the enclosed proxy card. If you wish to vote using a paper format, please return your signed proxy card promptly to ensure we receive it before the annual meeting.

 

If you hold your shares in street name, you must vote your shares in the manner prescribed by your broker, bank, trust or other nominee. Your broker, bank, trust or other nominee has enclosed or otherwise provided a voting instruction card for you to use in directing the broker, bank, trust or other nominee how to vote your shares. In many cases, you may be permitted to submit your voting instructions by Internet or telephone.

 

If you hold shares of Piper Jaffray common stock in the Piper Jaffray Companies Retirement Plan or U.S. Bancorp 401(k) Savings Plan, your completed proxy card or the submission of your proxy by Internet or telephone will serve as voting instructions to the respective plan’s trustee. Your voting instructions must be received at least five days prior to the annual meeting in order to count. In accordance with the terms of the Piper Jaffray Companies Retirement Plan and U.S. Bancorp 401(k) Savings Plan, the trustee of each plan will vote all of the shares held in the plan in the same proportion as the actual proxy votes submitted by plan participants at least five days prior to the annual meeting.

 

If you receive more than one set of proxy materials or multiple control numbers for use in submitting your proxy, it means that you hold shares registered in more than one account. To ensure that all of your shares are voted, sign and return each proxy card or voting instruction card you receive or, if you submit your proxy by Internet or telephone, vote once for each card or control number you receive.

 

If you are a shareholder of record, you may vote your shares in person at the meeting by completing a ballot at the meeting. Even if you currently plan to attend the meeting, we recommend that you also submit your proxy as described above so your vote will be counted if you later decide not to attend the meeting. If you submit your vote by proxy and later decide to vote in person at the annual meeting, the vote you submit at the meeting will override your proxy vote.

 

If you are a street name holder, you may vote your shares in person at the meeting only if you obtain and bring to the meeting a signed letter or other form of proxy from your broker, bank, trust or other nominee giving you the right to vote the shares at the meeting.

 

If you are a participant in the Piper Jaffray Companies Retirement Plan or U.S. Bancorp 401(k) Savings Plan, you may submit voting instructions as described above, but you may not vote your Piper Jaffray shares held in the Piper Jaffray Companies Retirement Plan or U.S. Bancorp 401(k) Savings Plan in person at the meeting.

 

The Board of Directors recommends a vote:

 

 

If you are a shareholder of record and submit a signed proxy card or submit your proxy by Internet or telephone but do not specify how you want to vote your shares on a particular manner, we will vote your shares:

 

 

Your vote is important. We urge you to vote, or to instruct your broker, bank, trust or other nominee how to vote, on all matters before the annual meeting. If you are a street name holder and fail to instruct the shareholder of record how you want to vote your shares on a particular matter, those shares are considered to be “uninstructed.” New York Stock Exchange rules determine the circumstances under which member brokers of the New York Stock Exchange may exercise discretion to vote “uninstructed” shares held by them on behalf of their clients who are street name holders. With respect to the three proposals to be acted upon at the annual meeting, the rules permit member brokers (other than Piper Jaffray & Co.) to exercise voting discretion as to the uninstructed shares. If the broker, bank or other nominee does not exercise this discretion, the uninstructed share will be referred to as a “broker non-vote.” For more information regarding the effect of broker non-votes on the outcome of the vote, see below under “How are votes counted?”

 

Our broker-dealer subsidiary, Piper Jaffray & Co., is a member broker of the New York Stock Exchange and is a shareholder of record with respect to shares of our common stock held in street name on behalf of Piper Jaffray & Co. clients. Because Piper Jaffray & Co. is our affiliate, New York Stock Exchange rules prohibit Piper Jaffray & Co. from voting uninstructed shares even on routine matters.

Instead, Piper Jaffray & Co. may vote uninstructed shares on such matters only in the same proportion as the shares represented by the votes cast by all shareholders of record with respect to such matters.

 

Yes. You may revoke your proxy and change your vote at any time before your proxy is voted at the annual meeting, in any of the following ways:

 

 

The three director nominees who receive the most votes cast at the meeting in person or by proxy will be elected. The affirmative vote of the holders of a majority of the outstanding shares of common stock present in person or represented by proxy and entitled to vote at the annual meeting is required to ratify the selection of our independent auditor. The affirmative vote of the holders of at least 80% of the outstanding shares of our common stock is required to approve the proposal to amend and restate our Amended and Restated Certificate of Incorporation to declassify our Board of Directors.

 

You may either vote “FOR” or “WITHHOLD” authority to vote for each director nominee. You may vote “FOR,” “AGAINST” or “ABSTAIN” on the other proposals. If you properly submit your proxy but withhold authority to vote for one or more director nominees or abstain from voting on one or more of the proposals, your shares will be counted as present at the meeting for the purpose of determining a quorum and for the purpose of calculating the vote on the particular matter(s) with respect to which you abstained from voting or withheld authority to vote. If you do not submit your proxy or voting instructions and also do not vote by ballot at the annual meeting, your shares will not be counted as present at the meeting for the purpose of determining a quorum unless you hold your shares in street name and the broker, bank, trust or other nominee has discretion to vote your shares and does so. For more information regarding discretionary voting, see the information above under “What if I do not specify how I want my shares voted?”

 

If you withhold authority to vote for one or more of the director nominees or you do not vote your shares on this matter (whether by broker non-vote or otherwise), this will have no effect on the outcome of the vote. With respect to the proposal to ratify the selection of Ernst & Young LLP as our independent auditor, if you abstain from voting this will have the same effect as a vote against the proposal, but if you do not vote your shares (or, for shares held in street name, if you do not submit voting instructions and your broker, bank, trust or other nominee does not vote your shares), this will have no effect on the outcome of the vote. Approval of the proposal to amend and restate our Amended and Restated Certificate of Incorporation to declassify our Board of Directors requires that the total votes cast in favor of the proposal represent more than 80% of the outstanding shares of our common stock. Consequently, if you abstain from voting or do not vote your shares (or, for shares held in street name, if you do not submit voting instructions and your broker, bank, trust or other nominee does not vote your shares), this will have the same effect as a vote against the proposal.

 

Yes. We have procedures to ensure that, regardless of whether you vote by Internet, telephone, mail or in person:

 

 

All of our shareholders are invited to attend the annual meeting. You may be asked to present valid photo identification, such as a driver’s license or passport, before being admitted to the meeting. If you hold your shares in street name, you also may be asked to present proof of ownership to be admitted to the meeting. A brokerage statement or letter from your broker, bank, trust or other nominee are examples of proof of ownership. To help us plan for the meeting, please let us know whether you expect to attend, by responding affirmatively when prompted during Internet or telephone voting or by marking the attendance box on the proxy card.

 

Piper Jaffray pays for the cost of proxy preparation and solicitation, including the reasonable charges and expenses of brokerage firms, banks, trusts or other nominees for forwarding proxy materials to street name holders. We are soliciting proxies primarily by mail. In addition, our directors, officers and regular employees may solicit proxies by telephone or facsimile or personally. Our directors, officers and regular employees will receive no additional compensation for their services other than their regular compensation.

 

Yes. If you are a shareholder of record, you may request and consent to electronic delivery of future proxy statements and annual reports by accessing the Web site www.proxyvote.com and following the instructions to vote. After you have voted your proxy, you will be prompted regarding electronic delivery. If your shares are held in street name, please contact your broker, bank, trust or other nominee and ask about the availability of electronic delivery.

 

The number of directors currently serving on our Board of Directors is seven. Our Board of Directors is currently divided into three classes of approximately equal size. The members of each class are elected to serve a three-year term with the term of office for each class ending in consecutive years. If shareholders approve the proposal to amend and restate our Amended and Restated Certificate of Incorporation as described under Item 3 of this Proxy Statement, the Board of Directors will be declassified in a manner that does not affect the unexpired terms of the directors elected in 2007 or prior years. This process will result in the annual election of all directors at our 2010 annual meeting.

 

At this year’s annual meeting, the terms of our Class I directors will expire. Andrew S. Duff, Samuel L. Kaplan and Frank L. Sims, who currently serve as Class I directors with terms expiring at the 2007 annual meeting, have been nominated for reelection to the Board to serve until our 2010 annual meeting of shareholders or until their successors are elected and qualified. Each of the nominees has agreed to serve as a director if elected. The three nominees receiving a plurality of the votes cast at the meeting in person or by proxy will be elected. Proxies may not be voted for more than three directors.

If, for any reason, any nominee becomes unable to serve before the annual meeting occurs, the persons named as proxies may vote your shares for a substitute nominee selected by our Board of Directors.

 

The Board of Directors recommends a vote FOR the election of the three director nominees. Proxies will be voted FOR the election of the three nominees unless otherwise specified.

 

Following is biographical information for each of the nominees for election as director and for the directors whose terms of office will continue after the meeting.

 

ANDREW S. DUFF:  Age 49, chairman and chief executive officer since December 31, 2003. Mr. Duff became chairman and chief executive officer of Piper Jaffray Companies following completion of our spin-off from U.S. Bancorp on December 31, 2003. He also has served as chairman of our broker-dealer subsidiary since 2003, as chief executive officer of our broker-dealer subsidiary since 2000 and as president of our broker-dealer subsidiary since 1996. He has been with Piper Jaffray since 1980. Prior to the spin-off from U.S. Bancorp, Mr. Duff also was a vice chairman of U.S. Bancorp from 1999 through 2003.

 

SAMUEL L. KAPLAN:  Age 70, director since December 31, 2003. Mr. Kaplan is a partner and founding member of the law firm of Kaplan, Strangis and Kaplan, P.A., Minneapolis, Minnesota, and has served as the firm’s president continuously since the firm was founded in 1978. Mr. Kaplan also is a member of the board of directors of Vyyo Inc.

 

FRANK L. SIMS:  Age 56, director since December 31, 2003. Mr. Sims is corporate vice president, transportation and product assurance and a member of the management corporate center at Cargill, Inc. since July 2000. Cargill is a marketer and distributor of agricultural and industrial products and services. Mr. Sims has responsibility for global transportation and supply chain solutions and serves as a member of the risk management and financial solutions platform. Mr. Sims joined Cargill in 1972 and has served in a number of executive positions, including president of Cargill’s North American Grain Division from 1998 to 2000. Mr. Sims also is chairman of the Federal Reserve Bank of Minneapolis and a member of the board of directors of Tennant Company.

 

MICHAEL R. FRANCIS:  Age 44, director since December 31, 2003. Mr. Francis has served as executive vice president, marketing for Target Corporation since 2003. Target Corporation operates Target-brand general merchandise discount stores and an online business, Target.com. Mr. Francis began his career with Marshall Field’s department stores in 1985 and has been with Target Corporation since its acquisition of Marshall Field’s in 1990. He previously served Target Corporation as senior vice president, marketing from 2001 to 2003 and as senior vice president, marketing and visual presentation of the department store division from 1995 to 2001. Prior to that, he held a variety of positions within Target Corporation.

 

ADDISON L. PIPER:  Age 60, director since December 31, 2003. Mr. Piper retired from Piper Jaffray effective at the end of 2006, having served as vice chairman of Piper Jaffray Companies since the completion of our spin-off from U.S. Bancorp on December 31, 2003. He worked for Piper Jaffray from 1969 through 2006, serving as assistant equity syndicate manager, director of securities trading and director of sales and marketing. He served as chief executive officer from 1983 to 2000 and as chairman from 1988 to 2003. From 1998 through August 11, 2006, Mr. Piper also had responsibility for our venture and private capital fund activities. Mr. Piper also is a member of the board of directors of Renaissance Learning Corporation.

 

B. KRISTINE JOHNSON:  Age 55, director since December 31, 2003. Since 2000, Ms. Johnson has been president of Affinity Capital Management, a Minneapolis-based venture capital firm that invests primarily in seed and early-stage health care companies in the United States. Ms. Johnson served as a consultant to Affinity Capital Management in 1999. Prior to that, she was employed for 17 years at Medtronic, Inc., a manufacturer of cardiac pacemakers, neurological and spinal devices and other medical products, serving most recently as senior vice president and chief administrative officer from 1998 to 1999. Her experience at Medtronic also included service as president of the vascular business and president of the tachyarrhythmia management business, among other roles.

 

JEAN M. TAYLOR:  Age 44, director since July 27, 2005. Ms. Taylor is the president and chief executive officer of Taylor Corporation, positions she has held since 2001 and 2007, respectively. Taylor Corporation is a privately held group of approximately 80 affiliated entrepreneurial companies engaged in marketing, fulfillment, personalization and printing services. These businesses operate throughout North America, Europe and Australia and together employ more than 15,000 employees. Ms. Taylor joined Taylor Corporation in 1994 as vice president and served as executive vice president from 1999 to 2001.

 

The Board of Directors conducts its business through meetings of the Board and the following standing committees: Audit, Compensation, and Nominating and Governance. Each of the standing committees has adopted and operates under a written charter, all of which are available on our Web site at www.piperjaffray.com. Other corporate governance documents available on our Web site include our Corporate Governance Principles, Director Independence Standards, Director Nominee Selection Policy, Procedures for Contacting the Board of Directors, Codes of Ethics and Business Conduct, and Complaint Procedures Regarding Accounting and Auditing Matters. All of these documents also are available in print to any shareholder who requests them.

 

We have adopted a Code of Ethics and Business Conduct applicable to our employees, including our principal executive officer, principal financial officer, principal accounting officer, controller and other employees performing similar functions, and a separate Code of Ethics and Business Conduct applicable to our directors. Directors who also serve as officers of Piper Jaffray must comply with both codes. Both codes are available on our Web site at www.piperjaffray.com and are available in print to any shareholder who requests them. We will post on our Web site at www.piperjaffray.com any amendment to, or waiver from, a provision of either of our Codes of Ethics and Business Conduct within four business days following the date of such amendment or waiver.

 

Under applicable rules of the New York Stock Exchange, a majority of the members of our Board of Directors must be independent, and no director qualifies as independent unless the Board of Directors affirmatively determines that the director has no material relationship with Piper Jaffray. To assist the Board with these determinations, the Board has adopted the following categorical Director Independence Standards, which are available on our Web site at www.piperjaffray.com. Under the Director Independence Standards, a director will be deemed independent for purposes of service on the Board if:

 

 

 

Our Director Independence Standards deem the following types of relationships not to be material relationships that would cause a director not to be independent:

 

 

 

 

 

 

 

 

The Board has affirmatively determined, in accordance with the foregoing Director Independence Standards, that none of our non-employee directors other than Addison L. Piper has a material

relationship with Piper Jaffray and that other than Mr. Piper, each non-employee director (including Michael R. Francis, B. Kristine Johnson, Samuel L. Kaplan, Frank L. Sims and Jean M. Taylor) is independent. None of the independent directors has a relationship described in Rule 303A.02(b) of the New York Stock Exchange rules, and with the exception of one relationship between Piper Jaffray and Ms. Johnson, every relationship between Piper Jaffray and each of these directors is of a type described in the Director Independence Standards and does not exceed the limits set forth in the Director Independence Standards. Within the types of relationships listed above, Messrs. Francis and Sims, Ms. Johnson and Ms. Taylor have relationships with Piper Jaffray of the type described in (a); Mr. Francis and Ms. Johnson have relationships with Piper Jaffray of the type described in (f); and Messrs. Francis, Kaplan and Sims and Ms. Taylor and Ms. Johnson have relationships with Piper Jaffray of the type described in (i). With respect to the one relationship not covered by our Director Independence Standards, Ms. Johnson’s brother, Paul V. Olson, was employed by us as a financial advisor in the Private Client Services business of our broker-dealer subsidiary until the completion of the sale of this business to UBS Financial Services Inc. in August 2006. The Board broadly considered all the relevant facts and circumstances of this relationship, including the fact that Mr. Olson was not an executive officer of our company or of our broker-dealer subsidiary and the Board’s determination that in her role as a director, Ms. Johnson exercises independent judgment that is not unduly influenced by management or by the fact that her brother is or was an employee of the firm. After this analysis, the Board affirmatively determined in its judgment that this relationship is not material and that Ms. Johnson is independent. In addition to the independent directors listed above, Richard A. Zona served as an independent director during 2006 until his resignation on August 30, 2006. The Board previously determined that Mr. Zona was independent after reviewing relationships of the type described in (c) and (f) above.

 

Our other directors, Mr. Duff and Mr. Piper, cannot be considered independent directors because of relationships with the company that are described in Rule 303A.02(b) of the New York Stock Exchange corporate governance rules. Specifically, Mr. Duff is employed as our chief executive officer, and Mr. Piper was employed as an executive officer of Piper Jaffray within the last three years.

 

The Board of Directors has appointed Mr. Kaplan to serve as the lead director of the Board. The lead director has the following duties and responsibilities, as described in our Corporate Governance Principles:

 

 

At both the Board and committee levels, our non-employee directors meet regularly in executive sessions in which Mr. Duff and other members of management do not participate. Mr. Kaplan, our lead director, serves as the presiding director of executive sessions of the Board, and the chairperson of each

committee serves as the presiding director at executive sessions of that committee. At least once annually, our independent directors meet in an executive session without Messrs. Piper and Duff.

 

 

The Audit Committee’s purpose is to oversee the integrity of our financial statements, the independent auditor’s qualifications and independence, the performance of our internal audit function and independent auditor, and compliance with legal and regulatory requirements. The Audit Committee has sole authority to retain and terminate the independent auditor and is directly responsible for the compensation and oversight of the work of the independent auditor. The Audit Committee meets with management and the independent auditor to review and discuss the annual audited and quarterly unaudited financial statements, reviews the integrity of our accounting and financial reporting processes and audits of our financial statements, and prepares the Audit Committee Report included in the proxy statement. The responsibilities of the Audit Committee are more fully described in the Committee’s charter. The Audit Committee met seven times during 2006. The Board has determined that all members of the Audit Committee are independent (as that term is defined in the applicable New York Stock Exchange rules and in regulations of the Securities and Exchange Commission), that all members are financially literate and have the accounting or related financial expertise required by the New York Stock Exchange rules, and that Mr. Sims is an “audit committee financial expert” as defined by regulations of the Securities and Exchange Commission.

 

 

The Compensation Committee discharges the Board’s responsibilities relating to compensation of the executive officers, oversees succession planning for the executive officers jointly with the Nominating and Governance Committee and ensures that our compensation and employee benefit programs are aligned with our compensation and benefits philosophy. The Committee has full discretion to determine the amount of compensation to be paid to the executive officers. The Committee also has sole authority to evaluate the chief executive officer’s performance and determine the compensation of the chief executive officer based on this evaluation. In addition, the Committee is responsible for recommending stock ownership guidelines for the executive officers and directors, for recommending the compensation and benefits to be provided to our non-employee directors, for reviewing and approving the establishment of broad-based incentive compensation, equity-based, retirement or other material employee benefit plans, and for discharging any duties under the terms of these plans.

 

The Committee has delegated authority to our chief executive officer under our Amended and Restated 2003 Annual and Long-Term Incentive Plan to allocate awards to employees other than our executive officers in connection with our annual equity grants made in the first quarter of each year. The annual equity grants are part of the payment of bonuses for the preceding year. Under this delegated authority, the Committee approves the aggregate amount of equity to be awarded to all employees other than executive officers, and the chief executive officer approves the award recipients and specific amount of equity to be granted to each recipient. All other terms of the awards are determined by the Committee. The Committee also has delegated authority to the chief executive officer to grant equity awards to employees other than executive officers in connection with recruiting, retention and significant promotions. This delegation permits the chief executive officer to determine the recipient of the award as well the type and amount of the award, subject to an annual share

limitation set by the Committee each year. All awards granted pursuant to this delegated authority must be made in accordance with our equity grant timing policy described below in “Compensation Discussion and Analysis — Equity Grant Timing Policy.” All other terms of the awards are determined by the Committee.

 

The work of the Committee is supported by our chief administrative officer and our Compensation and Human Resources departments. Personnel in these departments work closely with the chief administrative officer, the chief executive officer and, as appropriate, the chief financial and accounting officers and the general counsel, to prepare and present information and recommendations for review and consideration by the Committee, as described below under “Compensation Discussion and Analysis — Setting Compensation — Involvement of Executive Officers.”

 

In 2006, the Compensation Committee engaged an independent outside compensation consultant, Towers Perrin HR Services, to provide peer group analyses, competitive assessments, program design recommendations and advice to the Committee, as described below under “Compensation Discussion and Analysis — Setting Compensation — Compensation Consultant.”

 

The Committee reviews and discusses with management the disclosures regarding executive compensation to be included in our annual proxy statement, and recommends to the Board inclusion of the Compensation Discussion and Analysis in our annual proxy statement. The responsibilities of the Compensation Committee are more fully described in the Committee’s charter. For more information regarding the Committee’s process in setting compensation, please see “Compensation Discussion and Analysis — Setting Compensation” below. The Compensation Committee met eight times during 2006. The Board has determined that all members of the Compensation Committee are independent (as that term is defined in applicable New York Stock Exchange rules).

 

 

The Nominating and Governance Committee identifies and recommends individuals qualified to become members of the Board of Directors and recommends to the Board sound corporate governance principles and practices for Piper Jaffray. In particular, the Committee assesses the independence of our Board members, identifies and evaluates candidates for nomination as directors, responds to director nominations submitted by shareholders, recommends the slate of director nominees for election at the annual meeting of shareholders and candidates to fill vacancies between annual meetings, recommends qualified members of the Board for membership on committees, oversees the director orientation and continuing education programs, reviews the Board’s committee structure, reviews and assesses the adequacy of our Corporate Governance Principles, evaluates the annual evaluation process for the chief executive officer, the Board and Board committees, and oversees the succession planning process for the executive officers jointly with the Compensation Committee. The Nominating and Governance Committee also oversees administration of our related person transactions policy and reviews the transactions submitted to it pursuant to such policy. The responsibilities of the Nominating and Governance Committee are more fully described in the Committee’s charter. The Nominating and Governance Committee met five times during 2006. The Board has determined that all members of the Nominating and Governance Committee are independent (as that term is defined in applicable New York Stock Exchange rules).

 

Our Corporate Governance Principles provide that our directors are expected to attend meetings of the Board and of the committees on which they serve, as well as our annual meeting of shareholders. Our Board of Directors held 13 meetings during 2006. Each of our directors attended at least 82% of the meetings of the Board of Directors and the committees on which he or she served during 2006.

Attendance at our Board and committee meetings during 2006 averaged 95.8% for incumbent directors as a group, and all of our directors attended the 2006 annual meeting of shareholders.

 

The Board has established a process for shareholders and other interested parties to send written communications to the Board or to individual directors. Such communications should be sent by U.S. mail to the attention of the Office of the Secretary, Piper Jaffray Companies, 800 Nicollet Mall, Suite 800, Mail Stop J09N05, Minneapolis, Minnesota 55402. Communications regarding accounting and auditing matters will be handled in accordance with our Complaint Procedures Regarding Accounting and Auditing Matters. Other communications will be collected by the secretary of the company and delivered, in the form received, to the lead director or, if so addressed, to a specified director.

 

The Nominating and Governance Committee will consider director candidates recommended by shareholders and has adopted a policy that contemplates shareholders recommending and nominating director candidates. A shareholder who wishes to recommend a director candidate for nomination by the Board at the annual meeting of shareholders or for vacancies of the Board that arise between shareholder meetings must timely provide the Nominating and Governance Committee with sufficient written documentation to permit a determination by the Board whether such candidate meets the required and desired director selection criteria set forth in our bylaws, our Corporate Governance Principles and our Director Nominee Selection Policy described below. Such documentation and the name of the director candidate must be sent by U.S. mail to the Chairperson, Nominating and Governance Committee, c/o the Office of the Secretary, Piper Jaffray Companies, 800 Nicollet Mall, Suite 800, Mail Stop J09N05, Minneapolis, Minnesota 55402.

 

Alternatively, shareholders may directly nominate a person for election to our Board by complying with the procedures set forth in Article II, Section 2.4 of our bylaws, and with the rules and regulations of the Securities and Exchange Commission. Under our bylaws, only persons nominated in accordance with the procedures set forth in the bylaws will be eligible to serve as directors. In order to nominate a candidate for service as a director, you must be a shareholder at the time you give the Board notice of your nomination, and you must be entitled to vote for the election of directors at the meeting at which your nominee will be considered. In accordance with our bylaws, director nominations generally must be made pursuant to notice delivered to or mailed and received at our principal executive offices at the address above, not later than the 90th day, nor earlier than the 120th day, prior to the first anniversary of the prior year’s annual meeting of shareholders. Your notice must set forth all information relating to the nominee that is required to be disclosed in solicitations of proxies for the election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934 and Rule 14a-11 thereunder (including the nominee’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected).

 

As required by our Corporate Governance Principles and our Director Nominee Selection Policy, when evaluating the appropriate characteristics of candidates for service as a director, the Nominating and Governance Committee takes into account many factors. At a minimum, director candidates must demonstrate high standards of ethics, integrity and professionalism, independence, sound judgment, community leadership and meaningful experience in business, law or finance or other appropriate endeavor. Candidates also must be committed to representing the long-term interests of our shareholders. In addition to these minimum qualifications, the Committee considers other factors it deems appropriate based on the current needs and desires of the Board, including specific business and financial expertise currently desired on the Board, experience as a director of a public company, geography, age, gender and ethnic diversity. The Committee has authorized use of an outside consultant to identify and screen potential director candidates. The Committee will reassess the qualifications of a director, including the director’s attendance and contributions at Board and committee meetings, prior to recommending a director for reelection.

 

Directors who are not Piper Jaffray employees receive an annual cash retainer of $50,000 for service on our Board and Board committees. No separate meeting fees are paid. The lead director and the chairperson of the Audit Committee each receives an additional annual cash retainer of $8,000. The chairperson of each other standing committee of the Board each receives an additional annual cash retainer of $5,000. In addition to the cash retainer, we also grant equity awards to our non-employee directors in order to further align their interests with those of our shareholders. Starting in 2007, each non-employee director will receive a grant of 500 shares of our common stock on the date of the director’s initial election to the Board, granted under our Amended and Restated 2003 Annual and Long-Term Incentive Plan. Non-employee directors who will continue their service on the Board following an annual meeting of shareholders will receive a grant of 1,000 shares of our common stock on the date of the annual meeting. Prior to 2007, each non-employee director received a grant of stock options with a fair market value of $20,000 on the date of the director’s initial election to the Board, and non-employee directors who were continuing their service on the Board following an annual meeting of shareholders received a grant of stock options valued at $50,000 on the date of the annual meeting. The number of shares underlying the grant of stock options was determined using the Black-Scholes option-pricing model, and the options were exercisable immediately, have a 10-year term and have an exercise price equal to the closing price of our common stock on the date of grant. The options were granted under our Amended and Restated 2003 Annual and Long-Term Incentive Plan. Non-employee directors who join our Board after the first month of a calendar year are paid pro rata annual retainers and awarded pro rata equity awards based on the period they serve as directors during the year.

 

Our non-employee directors may participate in the Piper Jaffray Companies Deferred Compensation Plan for Non-Employee Directors, which was designed to facilitate increased equity ownership in the company by our non-employee directors. The plan permits our non-employee directors to defer all or a portion of the cash payable to them for service as a director of Piper Jaffray for any calendar year. Any cash amounts deferred by a participating director are credited to a recordkeeping account and deemed invested in shares of our common stock as of the date the deferred fees otherwise would have been paid to the director. This deemed investment is measured in phantom stock, and no shares of common stock are reserved, repurchased or issued pursuant to the plan. The fair market value of all phantom stock credited to a director’s account will be paid out to the director (or, in the event of the director’s death, to his or her beneficiary) in a single lump-sum cash payment following the director’s cessation of service as a non-employee director. The amount paid out will be determined based on the fair market value of the stock on the last day of the year in which the director’s service with us terminates. Directors who elect to participate in the plan are not required to pay income taxes on amounts deferred but will instead pay income taxes on the amount of the lump-sum cash payment paid to the director (or beneficiary) at the time of such payment. Our obligations under the plan are unsecured general obligations to pay in the future the value of the participant’s account pursuant to the terms of the plan.

 

Non-employee directors also may participate in our charitable gift matching program, pursuant to which we will match a director’s gifts to eligible organizations dollar for dollar from a minimum of $50 up to an aggregate maximum of $1,500 per year. In addition, our non-employee directors are reimbursed for reasonable out-of-pocket expenses incurred in connection with their service on the Board and committees of the Board. Employees of Piper Jaffray who also serve as directors receive compensation for their service as employees, but they do not receive any additional compensation for their service as directors. No other compensation is paid to our Board members in their capacity as directors. Non-employee directors do not participate in our employee benefit plans.

 

The following table contains compensation information for our non-employee directors for the year ended December 31, 2006.

 

 

 

 

 

 

Throughout this proxy statement, the individuals who served as our chief executive officer and chief financial officer during the year ended December 31, 2006, and the other individuals included in the Summary Compensation Table, are referred to as the “named executive officers.” These individuals include:

 

 

 

With the exception of Ms. Sponem and Mr. Piper, all of the named executive officers currently serve on our executive management team, which we refer to as the Management Committee. The Management Committee also includes our chief administrative officer, general counsel, and the head of our High-Yield and Structured Products business, all of whom are executive officers of Piper Jaffray. Ms. Sponem and Mr. Piper served on the Management Committee until the closing of the Private Client Services transaction.

 

Compensation Philosophy and Objectives

 

Our executive compensation program is designed to drive and reward superior corporate performance annually and over the long term, as measured by increasing shareholder value. Compensation also must be internally equitable and externally competitive. We continually review our executive compensation program to ensure it reflects good governance practices and the best interests of shareholders, while meeting the following core objectives:

 

 

 

Setting Compensation

 

The Compensation Committee of our Board of Directors has responsibility for approving the compensation paid to our executive officers and ensuring it meets our objectives. Throughout this Compensation Discussion and Analysis, we refer to the Compensation Committee as the “Committee.” Early each year, the Committee approves the amount of incentive compensation to be paid to our executive officers in recognition of prior-year performance, approves their base salaries for the upcoming year, and establishes performance goals for the Management Committee under an annual incentive program. Subject to limits on the compensation that may be paid under the annual incentive program (as described below under “Compensation Program — Annual Incentive Compensation”), the Committee has full discretion to determine the amount of compensation to be paid to the executive officers.

 

Involvement of Executive Officers

 

The work of the Committee is supported by our chief administrative officer and our Compensation and Human Resources departments. Personnel in these departments work closely with our chief administrative officer, chief executive officer and, as appropriate, our chief financial and accounting officers and general counsel, to prepare and present information and recommendations for review and consideration by the Committee in connection with its executive compensation decisions, including regarding the performance goals to be established under the annual incentive program; financial information reviewed in connection with executive compensation decisions; the firms to be included in the compensation peer group (as described below under “— Compensation Peer Group”); the performance evaluations and compensation recommendations for the executive officers; and the evaluation and compensation process to be followed by the Committee.

 

Compensation Peer Group

 

Our Compensation department annually identifies a compensation peer group of firms with which we compete for executive talent. We use available data reflecting base salaries, cash incentives and long-term incentive compensation to compile market data to ensure that our pay levels are competitive relative to the compensation paid by our peer group. To ensure we have statistically relevant data for each of our executive officers, we also use data from external market surveys reflecting a broad number of firms within our industry and labor markets, which typically include many of the firms comprising our compensation peer group. In addition, we may review publicly available data for similar companies who are not direct competitors, and we may review data from different combinations of companies participating in the surveys or within our peer group for each of our executive officers, based on the availability of data and the comparability of positions.

 

We compete with companies of various sizes for executive talent, and therefore the Committee generally reviews composite market data reflecting the market median compensation paid to similarly situated executives at the companies included in the surveys or the compensation peer group. While market data is an important factor considered by the Committee when setting compensation, it is only one of multiple factors considered by the Committee, and the amount paid to each executive may be more or less than the composite market median based on the roles and responsibilities of the executive, experience level of the individual, internal equity and other factors that the Committee deems important.

 

For 2006, our compensation peer group consisted of Cowen & Co.; Friedman, Billings, Ramsey & Co.; Jefferies Group; Keefe, Bruyette & Woods; and Thomas Weisel Partners Group. In addition, we

benchmarked the named executive officers’ compensation against data contained in the following surveys and publicly available data for the following additional companies not included in our peer group:

 

 

Compensation Consultant

 

In 2006, the Committee engaged an independent outside compensation consultant, Towers Perrin HR Services, to provide peer group analyses, competitive assessments, program design recommendations and advice to the Committee. The independent compensation consultant participated in each Committee meeting during the year, advised the Committee regarding the reasonableness of the market data presented to the Committee by our Compensation department, the competitiveness of the base salary and incentive compensation recommendations presented by the chief executive officer, and the competitiveness of the ultimate compensation levels approved by the Committee for each executive officer.

 

Compensation Program and Payments

 

The key components of our executive compensation program are base salary, annual incentive compensation and long-term incentive compensation. In addition, our executives have the opportunity to participate in our company-wide Retirement Plan and to receive certain personal benefits, as described below. From time to time, some of our executives receive (or may be entitled to receive in the future) compensation paid out under historical compensation programs in which they participated in prior years and that continue to provide benefits, also as described below.

 

Base Salary

 

The purpose of base salary is to provide a set amount of cash compensation for each executive that is not variable in nature and is generally competitive with market practices. Base salaries for our executive officers are reviewed and approved annually by the Committee. When setting base salaries, the Committee considers the executive’s role and responsibilities, external market data for similar positions in companies with which we compete for executive talent, and the recommendations of the chief executive officer. The base salary levels of our named executive officers reflect a desire to maintain a relatively equitable compensation baseline among the individuals serving on our Management Committee other than our chief executive officer, whose contribution is distinguished by a higher base salary. Consistent with industry practice and our pay-for-performance objective, the base salary for each of our named executive officers accounts for a relatively small portion of his or her overall compensation. In 2006, the base salaries paid to our named executive officers who continued to serve as executive officers at year-end represented from approximately 5% to 16% of the total cash and equity compensation paid to them.

 

Historically, we have not adjusted base salaries for our Management Committee members on an annual basis but have adjusted salaries for individuals upon their initial appointment to the Management Committee, and have adjusted salaries for the Management Committee as a group when warranted to reflect changes in market pay levels, as reported in external compensation sources. For 2007, the Committee increased the base salaries for Mr. Duff (from $380,000 to $400,000) and for Messrs. Fairman, Peterson, Salveson and Schnettler (from $205,000 to $225,000). The base salaries for

Messrs. Duff, Peterson and Schnettler had been unchanged for the preceding three years. Messrs. Fairman and Salveson each had received a base salary increase more recently upon joining our Management Committee (in mid-2005 and mid-2006, respectively). We believe the new salary levels, which became effective on March 1, 2007, are appropriate based on the officers’ roles, responsibilities, experience and contributions to the company, as well as market data.

 

  Annual Incentive Compensation

 

The Committee has established an annual incentive program for our Management Committee that provides a significant portion of the total compensation paid to our named executive officers. The objective of the program is to provide cash and equity compensation that is variable based on the achievement of annual performance goals determined each year by the Committee. The program is administered by the Committee under the Piper Jaffray Companies Amended and Restated 2003 Annual and Long-Term Incentive Plan and is designed to comply with the requirements of Section 162(m) of the Internal Revenue Code to ensure the tax deductibility of incentive compensation paid to our named executive officers. Under Section 162(m), we cannot deduct compensation in excess of $1 million that is paid to a named executive officer in any year unless the compensation qualifies as “performance-based” compensation under Section 162(m). Awards under the annual incentive program are referred to as “qualified performance-based awards.” From time to time the Committee awards annual incentive compensation that is paid outside our Section 162(m)-compliant annual incentive program, and in this proxy statement we refer to such compensation as “bonus” compensation.

 

  Process Followed for 2006

 

In February 2006, the Committee granted qualified performance-based awards to each of the named executive officers other than Mr. Salveson, who did not become an executive officer until he joined the Management Committee in mid-August 2006. The awards provided that each named executive officer would receive annual incentive compensation in an amount equal to 5% of our 2006 pre-tax operating income, adjusted to eliminate certain compensation and benefits expenses and certain other expenses, losses, income or gains that are unusual in nature or infrequent in occurrence. Pre-tax operating income equals our total revenues less our total expenses before income taxes. The specific adjustments, and the calculation of the adjusted pre-tax operating income, are subject to approval by the Committee. For 2006, the additional adjustments to pre-tax operating income included the elimination of amounts expensed during the year under our Management Committee and corporate support services annual incentive programs for 2006, 2006 equity amortization expense for our Management Committee members and corporate support services employees, certain expenses related to our Retirement Plan, and expenses related to our cash award program (described below under “— Cash Award Program”). Additionally, pre-tax operating income was adjusted to eliminate the gain we realized from the Private Client Services transaction, the gain realized by us related to our ownership of NYSE Group, Inc. common stock, and the benefit resulting from a reduction in a reserve for a particular litigation matter.

 

The amount payable under each qualified performance-based award could be paid out in a combination of cash and equity, in the discretion of the Committee, and was subject to adjustment by the Committee to comply with the following provisions:

 

 

 

In August 2006, in light of the determination that Ms. Sponem would step down from the Management Committee and Mr. Salveson would join the Management Committee following the closing of the Private Client Services transaction, the Committee approved a mid-year bonus to be paid to Ms. Sponem in lieu of any incentive compensation that would have been payable to her under the annual incentive program had she remained employed by the company. At that time the Committee also granted a qualified performance-based award to Mr. Salveson, pursuant to which Mr. Salveson would receive incentive compensation for the period from mid-August through December 2006 under the annual incentive program for the Management Committee, based on the company’s adjusted pre-tax operating income for that time period, subject to terms and limitations consistent with those applicable to the awards granted in February 2006.

 

In January 2007, the Committee certified the company’s adjusted pre-tax operating income for the full year 2006 and for the period from mid-August through December 2006. Following discussion with the chief executive officer and consideration of the information described below, the Committee evaluated the performance of the chief executive officer and determined his incentive compensation for 2006, and assessed the relative contributions of the other members of the Management Committee and approved their incentive compensation for 2006 to be paid out under the annual incentive program. The Committee also approved annual bonus compensation to be paid to Mr. Salveson in recognition of his service for the time period before he became an executive officer, and approved additional bonus compensation for Mr. Salveson for the period during which he served as an executive officer, in the form of stock options granted outside the annual incentive program. Finally, the Committee approved 2006 bonus compensation to be paid to Mr. Piper under his employment arrangement, which was paid outside the annual incentive program due to the fact that he stepped down from the Management Committee following the closing of the Private Client Services transaction.

 

  Compensation Determinations and Relevant Factors

 

When determining the amount of bonus and incentive compensation to be paid for 2006, the Committee reviewed and considered the following information:

 

 

 

Taking into account all of the information described above, the Committee evaluated the performance of the chief executive officer and determined his incentive compensation, assessed current levels of responsibility and contribution during the year for each other named executive officer and approved 2006 bonus and annual incentive compensation for the named executive officers, as follows:

 

 

All of the amounts for Messrs. Duff, Schnettler, Peterson and Fairman were paid out under the annual incentive program. The amounts for Ms. Sponem and Mr. Piper were paid outside of the annual incentive program, as bonus compensation. For Mr. Salveson, $1,303,242 was paid out under the annual incentive program and was paid entirely in cash; an additional $4,704 was paid to Mr. Salveson for the period after he joined the Management Committee, but was paid as bonus compensation outside the annual incentive program in the form of stock options. The remaining $2,045,762 paid to Mr. Salveson was paid out as bonus compensation for his service prior to joining the Management Committee; of this amount, $742,520 was paid in cash, $1,111,754 was paid in the form of restricted stock, and $191,488 was paid in the form of stock options.

 

In order to comply with the annual incentive program provision that limited the aggregate amount payable to our Management Committee as a group under the qualified performance-based awards, the Committee exercised its discretion to pay less than the maximum amounts of annual incentive compensation payable under the qualified performance-based awards to all of the named executive officers who received annual incentive compensation, other than Mr. Salveson. The following factors

significantly influenced the total amount of bonus or annual incentive compensation approved by the Committee for each named executive officer:

 

 

  Form of Payment

 

Consistent with our philosophy regarding executive stock ownership, the bonus and incentive compensation for the named executive officers who continued to serve as executive officers at the end of the year (Messrs. Duff, Fairman, Peterson, Salveson and Schnettler) was paid out in a combination of cash and equity. The equity component represented from 39% to 53% of the total payout and was paid out 85% in restricted stock and 15% in stock options granted under our Amended and Restated 2003 Annual and Long-Term Incentive Plan. In compliance with our equity grant timing policy, the stock options and restricted stock were granted on February 15, 2007; the awards will vest in full on February 15, 2010, subject to the terms and conditions of the applicable award agreements. The number of shares of restricted stock granted to each officer was determined by dividing the total dollar value designated to be paid out to the officer in restricted stock by the closing price of our common stock on February 15, 2007, and the number of shares underlying the stock options was determined by dividing the total dollar value designated to be paid out to the officer in stock options by the Black-Scholes value of one option share on that same date.

 

To maximize the tax deductibility of Mr. Salveson’s bonus and incentive compensation for 2006, the Committee exercised its discretion to pay the amounts payable to him pursuant to his qualified performance-based award solely in cash and to pay a substantial portion of his bonus compensation granted outside of the annual incentive program in the form of equity. The Committee determined to pay the 2006 bonus compensation for Ms. Sponem and Mr. Piper entirely in cash in light of their terminations of employment from the company.

 

  2007 Annual Incentive Compensation

 

In February 2007, the Committee approved the terms and conditions of the annual incentive program under which our Management Committee members may earn incentive compensation for 2007. As in 2006, each Management Committee member was granted a qualified performance-based award that entitles the officer to receive incentive compensation based on our pre-tax operating income, adjusted to eliminate certain compensation and benefits expenses and certain other expenses, losses,

income or gains that are unusual in nature or infrequent in occurrence. The 2007 annual incentive awards are payable in a combination of cash and equity in the discretion of the Committee.

 

  Long-Term Incentive Awards

 

Long-term incentives are intended to provide compensation opportunities based on the creation of shareholder value and an increase in our stock price. A substantial portion of the 2006 bonus and annual incentive compensation paid to the named executive officers who continued to serve as executive officers at year-end was paid in the form of equity, representing from 37% to 48% of the 2006 total compensation (including for this purpose base salary and total incentive compensation, including amounts paid under and outside of our annual incentive program) paid to each named executive officer who continued to serve as an executive officer at year-end, depending on the individual’s position. The upside potential of these equity awards will not be realized by the executive officers unless our performance improves over the vesting period and/or the term of the awards. Many companies with which we compete for talent grant equity solely in the form of restricted stock, and a substantial portion of the equity awarded to our named executive officers is in this form. While the restricted stock will lose value if our performance declines, stock options will have no value to our executives unless our performance improves in future years. In light of this, a portion of the equity granted to our named executive officers is in the form of stock options. Both the restricted stock and stock options have three-year cliff vesting schedules, and the stock options have a 10-year term.

 

  Other Compensation

 

Members of our Management Committee receive limited additional compensation in the form of a monthly stipend to cover parking expenses, reimbursement of dues for club memberships used for business purposes, and certain insurance premiums. Our executive officers who participate in our Retirement Plan, a 401(k) plan, receive company matching contributions on 100% of their annual contributions up to a maximum of 6% of their total pay, up to the social security taxable wage base; their contributions are matched on the same basis we match contributions by non-executive employees. Prior to 2007, we matched a maximum of 4% of the employee’s total pay up to the social security taxable wage base, and for 2006, each of our named executive officers who contributed to the Retirement Plan received the full 4% company match.

 

Some of our named executive officers also receive payments from time to time under the U.S. Bancorp Piper Jaffray Inc. Second Century Growth Deferred Compensation Plan (As Amended and Restated Effective September 30, 1998) (the “Second Century 1998 Plan”) and the U.S. Bancorp Piper Jaffray Inc. Second Century 2000 Deferred Compensation Plan (the “Second Century 2000 Plan”). Certain key employees were eligible to participate in these plans, under which participants were granted one or more deferred bonus awards that were deemed invested in certain measuring investments. Following a liquidity event for a particular investment, the participant receives a benefit payment based on the deemed return to the participant and payment of the portion of the participant’s account that was deemed invested. Participants may continue to receive payments under the plans until a liquidity or bankruptcy event has occurred with respect to each measuring investment. Messrs. Peterson, Salveson and Schnettler were granted deferred bonus awards under these plans in 1996, 1997, 1998 and/or 2000, and received deferred bonus payouts in 2006 as set forth in the Summary Compensation Table. No new awards have been granted under these plans since 2000, and participation in the plans is frozen.

 

  Cash Award Program

 

In connection with our spin-off from U.S. Bancorp on December 31, 2003, we established a cash award program pursuant to which we granted cash awards to a large number of our employees who were employed by us on December 15, 2003. These awards were designed to aid in retention and to provide fair treatment to our employees whose U.S. Bancorp stock option and restricted stock awards expired or were forfeited as a result of the spin-off. The cash award program, which is not a part of our regular compensation program, was approved by both our Board of Directors and by the Board of

Directors of U.S. Bancorp at the time of the spin-off. The allocation and specific terms and conditions of these cash awards were approved by the Committee following the spin-off.

 

Each of the named executive officers entered into a letter agreement with us setting forth the terms and conditions of their cash award(s). Pursuant to these agreements, Mr. Duff was granted a discretionary cash award of $500,000, Ms. Sponem was granted a discretionary cash award of $150,000, and Messrs. Duff, Fairman, Peterson, Piper, Salveson and Schnettler and Ms. Sponem were granted other cash awards replacing the lost value of U.S. Bancorp options and restricted stock that expired or were forfeited as a result of the spin-off. The respective amounts of these other cash awards totaled $4,567,096; $87,180; $559,622; $158,447; $82,500; $244,184; and $890,964. The discretionary cash awards granted to Mr. Duff and Ms. Sponem are payable in four equal installments on each of March 31, 2004, 2005, 2006 and 2007. Fifty percent of each other cash award was paid on March 31, 2004, with the remaining 50% payable in four equal installments on each of March 31, 2005, 2006, 2007 and 2008, except that payment of the remaining amounts under Ms. Sponem’s cash awards was accelerated in connection with her termination of employment from Piper Jaffray (see “— Severance Plans” below), and all unpaid amounts will be paid to her in full in April 2007. In all other cases, the payments are conditioned on the award recipient’s continued employment with Piper Jaffray on the payment date, except that Piper Jaffray will continue to pay the benefits if the recipient’s employment is terminated by reason of death, disability or retirement (as in the case of Mr. Piper, who retired on December 31, 2006), or is terminated without cause during the 24-month period following a change in control of Piper Jaffray.

 

The full value of the cash awards granted to our named executive officers was included in 2003 compensation reported in the Summary Compensation Table in prior years, and therefore is not included in the Summary Compensation Table as 2006 compensation.

 

  Employment Arrangement with Addison L. Piper

 

In 2003 we established an employment arrangement with Mr. Piper that terminated on December 31, 2006, pursuant to which Mr. Piper served as our vice chairman and as a member of our Management Committee. The employment arrangement provided that Mr. Piper would be a full-time employee of our company subject to the policies generally applicable to other executive officers and would be paid an annual base salary of $250,000 and a minimum annual bonus of $500,000 for serving in these positions. Mr. Piper stepped down as a member of our Management Committee in August 2006 following the closing of the Private Client Services transaction and retired as an employee of Piper Jaffray effective as of December 31, 2006. In accordance with his employment arrangement, Mr. Piper continued to receive his annual base salary of $250,000 through December 31, 2006, and the Committee approved the payment of a $500,000 bonus to him for 2006, as discussed above under “— Annual Incentive Compensation.”

 

In August 2006 the Committee approved certain other compensation for Mr. Piper in connection with his retirement, including a lump-sum cash payment of $110,174 payable to Mr. Piper at the time of his retirement for his retiree medical insurance for the 10-year period following his retirement, and the continued provision to Mr. Piper of office space, secretarial support and computer and communications equipment following his retirement. In January 2007, the Board of Directors, upon recommendation of the Committee, approved two additional compensatory arrangements for Mr. Piper: (1) a charitable contribution to be made by Piper Jaffray to one or more organizations designated by Mr. Piper, in an amount totaling $100,000, to acknowledge Mr. Piper’s community commitment during his tenure at Piper Jaffray; and (2) compensation to be paid to Mr. Piper for his continuing service as a member of an investment committee for certain funds managed by our private equity business, including $500 per committee meeting and a 0.5% carry interest in the funds, which could result in investment gains distributed to Mr. Piper in future years.

 

Termination and Change in Control Arrangements

 

  Non-Qualified Retirement Plan

 

Following our spin-off from U.S. Bancorp on December 31, 2003, we assumed liability for the non-qualified benefits accrued for our employees under the defined benefit excess plan component of the U.S. Bancorp Cash Balance Pension Plan. In 2004, we established the Piper Jaffray Companies Non-Qualified Retirement Plan to maintain and administer these benefits, which were transferred to us following the spin-off. Thereafter, participation in the plan was frozen. No new benefits may be earned by participants in this plan, but participating employees will continue to receive investment credits on their transferred plan balances until the plan balance is paid out upon the employee’s retirement or termination of employment. As of December 31, 2006, the Non-Qualified Retirement Plan account balances for our named executive officers were as follows: Mr. Duff, $452,781; Mr. Fairman, $160,049; Mr. Peterson, $438,285; Mr. Piper, $572,819; Mr. Salveson, $403,475; Ms. Sponem, $16,564; and Mr. Schnettler, $793,984. As a result of their terminations of employment in 2006, Mr. Piper and Ms. Sponem will receive a payout of their respective account balances in the first half of 2007.

 

  Severance Plans

 

All of our named executive officers are eligible to participate in the Piper Jaffray Severance Plan, a broad-based plan in which all of our full-time, U.S.-based employees generally are eligible to participate. In the event of certain involuntary terminations of employment resulting from an employer-determined severance event, employees may receive severance pay up to a maximum of their weekly base salary multiplied by 52, subject to a maximum dollar amount equal to the limit in effect under Internal Revenue Code section 401(a)(17) for the year in which the employee’s employment involuntarily terminates. (For 2007, this limit is $225,000.) Employer-determined severance events may include, depending on the circumstances, closure of a company facility, a permanent reduction in our workforce or certain organizational changes that result in the elimination of the employee’s position.

 

In April 2006, the Committee approved a Supplemental Severance Plan applicable to our employees whose employment with us terminated as a result of the Private Client Services transaction, if the employee did not transfer to UBS following the transaction. Under the Supplemental Severance Plan, eligible terminating employees became entitled to receive severance benefits equal to 150% of the benefits provided by our regular Severance Plan, so long as the employee complied with the terms and conditions of the Supplemental Severance Plan. In addition, under the Supplemental Severance Plan, the Committee accelerated the vesting of outstanding equity and cash awards held by the eligible terminating employees, and eligible terminating employees received mid-year bonuses determined at the time of their termination of employment in lieu of year-end bonuses. In connection with her termination of employment following the closing of the Private Client Services transaction in August 2006, Ms. Sponem received a payout of accrued but unpaid paid time off in the amount of $7,692 in accordance with our regular practice for all terminating employees and became entitled to $161,538 in cash severance under the salary continuation component of the Supplemental Severance Plan, pursuant to the same terms and conditions as other employees whose employment was terminated as a result of the transaction. Of the cash severance amount, $62,500 was payable with respect to 2006 and is reflected in the Summary Compensation Table; the remainder is payable with respect to 2007. In addition, the Committee approved a mid-year bonus for Ms. Sponem in the amount of $583,333, as described above under “— Annual Incentive Compensation,” and accelerated the vesting of 12,060 shares of outstanding restricted stock held by Ms. Sponem, outstanding stock options held by her covering 5,207 shares of our common stock, and unpaid cash awards in the amount of $260,240. To ensure compliance with Section 409A of the Internal Revenue Code, the severance pay, mid-year bonus and cash award payout will be paid to Ms. Sponem in April 2007. The equity awards became fully vested on October 31, 2006.

 

  Other Termination and Change-in-Control Provisions

 

Certain award agreements and plans under which compensation has been awarded to our named executive officers include provisions regarding the payment of the covered compensation in the event of a termination of employment or a change in control of our company, as follows:

 

 

 

Compensation Policies

 

Executive Stock Ownership

 

We have adopted stock ownership guidelines to ensure that each member of the Management Committee maintains a meaningful equity stake in the company, which aligns management’s interests with those of our shareholders. The guidelines, which help to drive long-term performance and strengthen retention, provide for our Management Committee members to hold Piper Jaffray Companies stock with a value equal to seven times base salary for the chief executive officer, and two to five times base salary for the other executive officers, depending on the individual’s position, within five years after becoming subject to the guidelines. All of the named executive officers who currently are subject to the guidelines meet the guidelines based on 2007 salary levels. Ms. Sponem and Mr. Piper, who no longer are subject to the guidelines, met their guidelines prior to their respective terminations of employment. We also have adopted a share retention policy requiring members of our Management Committee to hold at least 50% of the shares awarded to them through our incentive plans, or acquired upon exercise of stock options awarded to them, net of taxes and transaction costs, for a minimum of five years.

 

We have an employee trading policy providing that employees may not sell our stock short and may not enter into any derivatives transaction in our stock if the effect of the transaction would be substantially equivalent to a short position in our stock or any standardized options strategy other than a covered call or protective put, and employees may not utilize any hedging strategy with respect to non-transferable Piper Jaffray securities, including restricted stock granted under a company bonus or incentive plan. Subject to these rules, our employees are permitted to hedge investments in our stock so

long as they do not initiate any part of the hedge or unwind any part of such a hedge during designated trading blackout periods.

 

Equity Grant Timing Policy

 

In 2006, we established a policy pursuant to which equity grants to employees will be made only once each quarter, on the 15th calendar day of the month following the public release of earnings for the preceding quarter (or, if the 15th calendar day falls on a weekend or holiday, on the first business day thereafter). This policy covers grants made by the Committee as well as grants made by our chief executive officer to employees other than executive officers pursuant to authority delegated to him by the Committee. We established this equity grant timing policy to provide a regular, fixed schedule for equity grants that eliminates the exercise of discretion with respect to the grant date of employee equity awards. The grant dates under this policy are outside of the designated trading blackout periods that apply to our employees generally and fall within the regularly scheduled trading window periods during which our executive officers generally are permitted to trade in our securities.

 

Prior to the establishment of this policy, the Committee typically approved the grant of equity in connection with annual incentive or bonus compensation on the date of its first regular meeting of the fiscal year, to be granted on the date of its second regular meeting of the fiscal year. Mid-year grants made in connection with recruiting, retention or significant promotions to employees other than the executive officers were granted by the chief executive officer pursuant to authority delegated to him by the Committee and were granted on the later of the employee’s hire date (in the case of a recruiting award) or the date the award was approved by the chief executive officer.

 

Policy on Qualifying Compensation for Deductibility

 

Section 162(m) of the Internal Revenue Code limits deductions for non-performance-based annual compensation in excess of $1 million paid to our named executive officers who served as executive officers at the end of the preceding fiscal year. Our policy is to maximize the tax deductibility of compensation paid to these officers. Accordingly, in 2004 we sought and obtained shareholder approval for the Piper Jaffray Companies Amended and Restated 2003 Annual and Long-Term Incentive Plan, under which our annual incentive program is administered and annual cash and equity incentives are paid. The plan is designed and administered to qualify compensation awarded under our annual incentive program as “performance-based” to ensure that the tax deduction is available to the company. From time to time the Committee may authorize payments to the named executive officers that may not be fully deductible, if they believe such payments are in the interests of shareholders.

 

The Committee has reviewed and discussed the Compensation Discussion and Analysis with management and has recommended to the Board of Directors the inclusion of the Compensation Discussion and Analysis in our year-end disclosure documents.

 

Compensation Committee of the Board of Directors of Piper Jaffray Companies

Michael R. Francis, Chairperson
Frank L. Sims
Jean M. Taylor

 

The following table contains compensation information for the year ended December 31, 2006, for our chief executive officer, the two people who served as our chief financial officer, our three other most highly compensated executive officers, and a former executive officer of our company who would have been one of the three other most highly compensated executive officers of our company except that he was not serving as an executive officer at year-end.

 

 

 

 

 

 

 

 

The “Other” amounts identified in the table above include:

 

 

For more detail regarding each of these payments, see the Compensation Discussion and Analysis.

 

The following table provides information regarding the grants of plan-based awards made to the named executive officers during the year ended December 31, 2006.

 

 

 

 

 

 

 

The following table sets forth certain information concerning equity awards held by the named executive officers that were outstanding as of December 31, 2006.

 

 

 

 

 

 

 

The following table sets forth certain information concerning options exercised and stock vested during the year ended December 31, 2006. None of the equity awards held by the named executive

officers were vested and exercisable during 2006 other than the awards held by Ms. Sponem, which vested on an accelerated basis on October 31, 2006, following her termination of employment, as discussed in the Compensation Discussion and Analysis.

 

 

 

 

The following table provides information regarding amounts accrued by the named executive officers in our Non-Qualified Retirement Plan. As discussed in the Compensation Discussion and Analysis, participation in this plan was frozen in 2004 and no new benefits may be earned by participants in the plan. However, participating employees will continue to receive investment credits on their transferred plan balances in accordance with the terms of the plan. The investment credits are paid in a lump-sum on December 31 each year to employees who remain employed by us on that date. Each employee’s plan balance will be payable by us upon the employee’s retirement or termination of employment. As a result of their termination of employment in 2006, Mr. Piper and Ms. Sponem will receive a payout of their account balances in the first half of 2007. No amounts or portions of amounts reported in the column reporting aggregate earnings in the last fiscal year were included in the 2006 Summary Compensation Table because the amounts earned were not earned at a preferential rate. We previously have reported fiscal year-end balances in our proxy statement but not in the Summary Compensation Table.

 

 

Under the Second Century 1998 Plan and the Second Century 2000 Plan described in the Compensation Discussion and Analysis, certain key employees were granted one or more deferred bonus awards that were deemed invested in certain measuring investments. Following a liquidity event for a particular investment, the participant receives a benefit payment based on the deemed return to the participant and payment of the portion of the participant’s account that was deemed invested. Participants may continue to receive payments under the plans until a liquidity or bankruptcy event has occurred with respect to each measuring investment. No new awards have been granted under these plans since 2000, and participation in the plans is frozen. The following table identifies the amounts earned in 2006 and the deferred balances for each of the named executive officers who received one or more deferred bonuses under the plans. The amounts earned in 2006 are included in “All Other Compensation” in the Summary Compensation Table. We previously have not included fiscal year-end

balances in the Summary Compensation Table, but have included earnings paid out in a given year in the Summary Compensation Table for that year.

 

 

The following tables provide information regarding potential payments to be made to the named executive officers following an employment termination or change in control of Piper Jaffray. Amounts in each table assume a change in control or employment termination on February 15, 2007, except in the case of Ms. Sponem and Mr. Piper, for whom the tables show the actual compensation paid or payable to them due to their employment terminations in 2006. In the following tables, unless indicated otherwise, all equity is listed at its dollar value as of February 15, 2007, based on the $70.13 closing sales price of our common stock on that date. Options are shown at intrinsic value, which represents the difference between the exercise price of the option and the stock price on February 15, 2007.

 

Termination and Change in Control Payments for Andrew S. Duff

 

 

 

 

 

 

 

Termination and Change in Control Payments for Thomas P. Schnettler

 

 

 

 

 

 

 

 

Termination Payments for Sandra G. Sponem