UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No. )

____________________

Sincerely,

PEGASYSTEMS INC.

One Rogers1 Main Street

Cambridge, MA 02142

NOTICE OF 20212023 ANNUAL MEETING OF SHAREHOLDERS

To be held on June 22, 202120, 2023

To our Shareholders:

PEGASYSTEMS INC.

One Rogers1 Main Street

Cambridge, MA 02142

PROXY SUMMARY

20212023 Annual Meeting of Shareholders

Our executive compensation is designed to reward performance by our executives and to align the interests of our executives with our shareholders.

The financial highlights information contained in this proxy statement describes the results achieved by Pegasystems Inc. for its shareholders in 2020.2022. As it is a summary, it does not contain all the information you should consider. Therefore, before voting, we encourage you to read this proxy statement in its entirety and our Annual Report on Form 10-K for the fiscal year ended December 31, 2020,2022, including the sections captioned “Financial Statements and Supplementary Data”, “Risk Factors”, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

We develop, market, license, host, and support enterprise software applications that helphelps organizations simplifybuild agility into their business complexity.so they can adapt to change. Our intelligent technologypowerful low-code platform for workflow automation and scalable architectureartificial intelligence-powered decisioning enables the world’s leading brands and government agencies to solve problems quicklyhyper-personalize customer experiences, streamline customer service, and transform for tomorrow. Our clients are able to make better decisionsautomate mission-critical business processes and get work done using real-time artificial intelligence (“AI”) and intelligent automation on applications built on the low-code, cloud-nativeworkflows. With Pega, Platform™, enabling our clients can leverage our intelligent technology and scalable architecture to streamline service, increase customer lifetime value, and boost efficiency. Our consulting andaccelerate their digital transformation. In addition, our client success teams, along with our world-class partners, and clients leverage our Pega Express™ methodology and low code to allow clients to design and deploy criticalmission-critical applications quickly and collaboratively.

We utilize severaluse performance metrics to analyze and assess our overall performance, make operating decisions, and forecast and plan for future periods, including:

Annual contract value (“ACV”) | Increased 21% since December 31, 2019

PEGASYSTEMS INC.

One Rogers1 Main Street

Cambridge, MA 02142

PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS

To be held on June 22, 202120, 2023

This proxy statement contains information about the 20212023 Annual Meeting of Shareholders of Pegasystems Inc. The Annual Meeting will be held on Tuesday, June 22, 2021,20, 2023, beginning at 10:00 am, Eastern Daylight Time. Due to the continuing impact of COVID-19, this year’s Annual Meeting will be held in a virtual format via a live webcast. You will be able to attend the Annual Meeting, submit questions and vote during the live webcast by visiting www.meetingcenter.io/242912236.Time at 1 Main Street, Cambridge, MA 02142. Unless the context otherwise requires, references in this proxy statement to “Pegasystems,” the “Company,” “we,” “us,” or “our” refer to Pegasystems Inc.

This proxy statement is furnished in connection with the solicitation of proxies by our Board of Directors for use at the Annual Meeting and at any adjournment of that meeting. All proxies will be voted in accordance with the instructions they contain. If you do not specify your voting instructions on the proxy you submit for the meeting, it will be voted in accordance with the recommendation of the Board of Directors. If you are the record holder of your shares, you may revoke your proxy and change your vote at any time before it is exercised at the meeting by giving our Secretary written notice to that effect or a duly executed proxy bearing a later date or by voting your shares online at the Annual Meeting. Any shareholder owning shares in “street name” may revoke a proxy or change previously given voting instructions by contacting the bank or brokerage firm holding the shares. We first provided access to our proxy materials over the Internet at www.envisionreports.com/PEGA on or about May 7, 2021.8, 2023.

Pursuant to Rule 14a-16 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, our Annual Report on Form 10-K for the fiscal year ended December 31, 2020,2022, or Annual Report, as filed with the Securities and Exchange Commission, or SEC, is being made available to shareholders on our website, www.pega.com, and at the following URL: www.envisionreports.com/PEGA.

You may obtain a copy of our Annual Report without charge upon written request to:

The Annual Report does not constitute any part of this proxy statement. Certain documents referenced in this proxy statement are available on our website at www.pega.com. Information contained on our website is not included as part of, nor incorporated by reference into, this proxy statement.

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders to be held on June 22, 2021.20, 2023.

This proxy statement and our Annual Report are available for viewing, printing, and downloading at

www.envisionreports.com/PEGA.

INFORMATION ABOUT THE ANNUAL MEETING AND VOTING

What is the purpose of the Annual Meeting?

At the Annual Meeting, shareholders will consider and vote on the following matters:

How does the Board of Directors recommend that I vote on the Proposals?

The Board of Directors recommends that you vote:

Who can vote?

To be able to vote, you must have been a Pegasystems shareholder of record at the close of business on April 21, 2021.20, 2023. This date is the Record Date for the Annual Meeting. On the Record Date, there were 81,267,18382,961,218 shares of our common stock outstanding and entitled to vote.

How many votes do I have?

Each share of our common stock that you owned on the Record Date entitles you to one vote on each matter before the shareholders at the Annual Meeting.

Is my vote important?

Your vote is important regardless of how many shares you own. Please take the time to vote. Also, please take a moment to read the instructions below.

Why did I receive a notice in the mail regarding the Internet availability of proxy materials this year instead of a full set of proxy materials?

We are pleased to comply with the SEC rules that direct companies to distribute their proxy materials over the Internet, as we have done in past years. As a result, we have sent our shareholders and beneficial owners a Notice of Internet Availability of Proxy Materials, or the Availability Notice, instead of paper copies of this proxy statement, our proxy card, and our Annual Report. Detailed instructions on how to access these materials over the Internet may be found in the Availability Notice. This proxy statement and our Annual Report are available for viewing, printing, and downloading at www.envisionreports.com/PEGA.

I prefer to read my proxy materials on paper. How do I get paper copies?

The Availability Notice contains instructions on how to request paper copies by phone, email, or the Internet. You will be sent the materials by first class mail within three business days of your request, at no cost to you. If you receive your proxy materials by mail, you may vote your shares by completing, signing, and dating the proxy card that accompanies this proxy statement and promptly mailing it in the enclosed postage-prepaid envelope. Once you request paper copies, you will continue to receive the materials in paper form until you instruct us otherwise. Please note, however, that the online proxy materials will also be in a format suitable for printing on your own printer.

How can I vote?

If you are the “record holder” of your shares, meaning that you own your shares in your own name and not through a bank or brokerage firm, you may vote over the Internet or by telephone or mail, or you may vote online duringin person at the Annual Meeting by visiting www.meetingcenter.io/242912236 and entering the 15-digit control number found in your Availability Notice, on your proxy card or voting instruction form, or in the instructions you received via email, and following the on-screen instructions.Meeting. If your shares are held in “street name” by a bank or brokerage firm, please see the first sentence of the “Can I vote if my shares are held in ‘street name’?” section below for instructions regarding how to vote your shares.

Can I vote my shares by filling out and returning the Availability Notice?

No. The Availability Notice contains instructions on how to vote over the Internet, by telephone, by requesting and returning a paper proxy card, or by voting online during the Annual Meeting.

Can I vote if my shares are held in “street name”?

If the shares you own are held in “street name” by a bank or brokerage firm, your bank or brokerage firm, as the record holder of your shares, is required to vote your shares according to your instructions. To vote your shares, you will need to follow the directions your bank or brokerage firm provides you. Many banks and brokerage firms also offer the option of voting over the Internet or by telephone, instructions for which would be provided by your bank or brokerage firm on your voting instruction form.

Can I change my vote after I have submitted my proxy?

Your attendance at the Annual Meeting alone, without also voting, will not revoke your proxy.

If your shares are held in “street name” and you wish to revoke a proxy, you should contact your bank or brokerage firm and follow its procedures for changing your voting instructions.

What constitutes a quorum?

In order for business to be conducted at the Annual Meeting with respect to a particular matter, a quorum must be present in person or represented by valid proxies for that particular matter. For each of the proposals described in this proxy statement, a quorum consists of the holders of a majority of the shares of common stock issued and outstanding on April 21, 2021,20, 2023, the Record Date, which is approximately 40,633,59241,480,610 shares of our common stock.

Shares of common stock represented in person or by proxy, including “broker non-votes” and shares that abstain or do not vote with respect to one or more of the matters to be voted upon, will be counted for the purpose of determining whether a quorum exists. A share once represented for any purpose at the Annual Meeting is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of the meeting unless (1) the shareholder attends solely to object to lack of notice, defective notice, or the conduct of the meeting on other grounds and does not vote the shares or otherwise consent that they are to be deemed present, or (2) in the case of an adjournment, a new Record Date is set for that adjourned meeting.

If a quorum is not present, the meeting will be adjourned until a quorum is obtained.

What vote is required for each item?

How will votes be counted?

Each share of common stock will be counted as one vote according to the instructions contained on a properly completed proxy card, whether submitted by mail, over the Internet, by telephone, or voted online at the Annual Meeting. Shares will not be voted in favor of a matter, and will not be counted as voting on a matter, if they either (1) indicate that the shareholder abstains from voting on a particular matter or (2) are broker non-votes. Banks and brokers that do not receive instructions with respect to Proposals 1, 2, 3, 4, and 35 will not be allowed to vote these shares, which will then be counted as “broker non-votes” instead of votes “for” or “against.”

Abstentions and broker non-votes will have no effect on the outcome of voting with respect to Proposal 2 (Advisory Vote on Executive Compensation), Proposal 3 (Advisory Vote on the Frequency of the Shareholder Advisory Vote on Executive Compensation), Proposal 4 (Approval of the Plan), Proposal 5 (Approval of the ESPP), and Proposal 46 (Ratification of the Independent Registered Public Accounting Firm), because these proposals will be approved if the votes cast at the Annual Meeting in favor of the proposal exceed the votes cast at the Annual Meeting opposing the proposal. Abstentions and broker non-votes, however, will have the effect of negative votes with respect to Proposal 1 (Election of Directors) and Proposal 3 (Shareholder Proposal Regarding Shareholder Proxy Access), because, as described above, each of these proposals requirethis proposal requires the affirmative vote of the holders of shares representing a majority of the votes entitled to be cast at the Annual Meeting by all issued and outstanding shares of common stock on the Record Date.

Who will count the votes?

The votes will be counted, tabulated, and certified by our transfer agent and registrar, Computershare. Matthew J. Cushing, our Vice President, Chief Commercial Officer, General Counsel, and Secretary, will serve as the inspector of elections at the Annual Meeting.

Will my vote be kept confidential?

Yes. Your vote will be kept confidential and we will not disclose your vote unless (1) we are required to do so by law, including in connection with the pursuit or defense of a legal or administrative action or proceeding, or (2) there is a contested election for the Board of Directors. The inspector of elections will forward any written comments that you make on the proxy card to management without providing your name, unless you expressly request disclosure of your identity on your proxy card.

No. Under the laws of Massachusetts, where we are incorporated, an item may not be brought before our shareholders at a shareholder meeting unless it appears in the notice of the meeting. Our Amended and Restated Bylaws establish the process for a shareholder to bring a matter before a meeting. See the “How and when may I submit a shareholder proposal for the 20222024 Annual Meeting?” section below.

Where can I find the voting results?

We will report the voting results in a Current Report on Form 8-K, which will be filed with the SEC no later than four business days after the Annual Meeting.

How and when may I submit a shareholder proposal for the 20222024 Annual Meeting?

In addition, our Amended and Restated Bylaws require that we be given advance written notice for nominations for election to our Board of Directors and other matters that shareholders wish to present for action at an annual meeting other than those to be included in our proxy statement under Rule 14a-8. The Secretary must receive such notice at the address noted below not less than 120 days or more than 150 days before the first anniversary of the date on which our proxy statement was released to shareholders in connection with the prior year’s meeting. However, if the date of our annual meeting is advanced or delayed by more than 30 days from the anniversary date of the prior year’s meeting (or no proxy statement was delivered to shareholders in connection with the prior year’s meeting), then we must receive such notice at the address noted below not earlier than the 120th day before such annual meeting and not later than the close of business on the later of (1) the 90th day before such annual meeting and (2) the 10th day following the day on which public notice of the meeting date is first made. Assuming that the 20222024 Annual Meeting is held between May 23, 202221, 2024 and July 22, 2022,20, 2024, you would need to give us appropriate notice at the address noted below no earlier than November 30, 202129, 2023 and no later than December 30, 2021.29, 2023. Notwithstanding the foregoing, the postponement or adjournment of any annual meeting for which notice has been provided to shareholders shall not commence a new time period for giving the shareholders’ notice. If a shareholder does not provide timely notice of a nomination or other matter to be presented at the 20222024 Annual Meeting, under Massachusetts law, it may not be brought before our shareholders at a meeting.

In addition, to comply with the universal proxy rules, shareholders who intend to solicit proxies in support of director nominees other than the Company’s nominees must also comply with the additional requirements of Rule 14a-19 under the Securities Exchange Act of 1934, as amended. Our Amended and Restated Bylaws also specify requirements relating to the content of the notice that shareholders must provide to the Secretary for any matter, including a shareholder proposal or nomination for director, to be properly presented at a shareholder meeting. A copy of the full text of our Amended and Restated Bylaws is on file with the SEC.

Any proposals or notices should be sent to:

Pegasystems Inc.
One Rogers
1 Main Street

Cambridge, MA 02142-1209
02142-1517
Attention: Vice President, Chief Commercial Officer, General Counsel, and Secretary

Who will bear the costs of soliciting these proxies?

We will bear the costs of solicitation of proxies. We will request brokers, custodians, and fiduciaries to forward proxy soliciting material to the owners of shares of our common stock they hold in such shareholders’ names. We will reimburse banks and brokers for their reasonable out-of-pocket expenses incurred in connection with the distribution of proxy materials.

How can I obtain an Annual Report on Form 10-K?

Our Annual Report is available in the “Investors” section of our website at www.pega.com, as well as at the following URL: www.envisionreports.com/PEGA. If you would like a paper copy of our Annual Report on Form 10-K, we will send it to you without charge.

Please contact:

Pegasystems Inc.
One Rogers
1 Main Street

Cambridge, MA 02142-1209
02142-1517
Attention: Vice President, Chief Commercial Officer, General Counsel, and Secretary

Telephone: (617) 374-9600

Whom should I contact if I have any questions?

If you have any questions about the Annual Meeting or your ownership of our common stock, please contact Matthew J. Cushing, Vice President, Chief Commercial Officer, General Counsel, and Secretary of Pegasystems Inc. at the address or telephone number listed above.

Householding of Annual Meeting Materials

Some banks, brokers, and other nominee record holders may be participating in the practice of “householding” proxy statements and annual reports. This means that only one copy of our proxy statement and Annual Report may have been sent to multiple shareholders in your household. We will promptly deliver a separate copy of either document to you if you contact us at the address or telephone number listed above.

If you want to receive separate copies of the proxy statement or Annual Report in the future, or if you are receiving multiple copies and would like to receive only one copy per household, you should contact your bank, broker, or other nominee record holder, or you may contact us at the above address or telephone number.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information, which, except as otherwise noted below, is as of January 31, 2021,2023, with respect to the beneficial ownership of our common stock by: 

* Represents beneficial ownership of less than 1% of our outstanding common stock.

† See 5% Shareholders above. 

(1) The number of shares of common stock beneficially owned by each person is determined under the SEC’s rules. Under these rules, a person is deemed to have “beneficial ownership” of any shares over which that person has sole or shared voting or investment power, plus any shares that the person has the right to acquire within 60 days, including through the exercise of stock options or vesting of restricted stock units (“RSUs”). Unless otherwise indicated, for each person named in the table, the number in the “Shares Acquirable within 60 Days” column consists of shares covered by stock options that may be exercised and RSUs that vest within 60 days after January 31, 2021.2023.

(2) To our knowledge, unless otherwise indicated, all the persons listed in the table above have sole voting and investment power with respect to their shares of common stock, except to the extent authority is shared by spouses under applicable law.

(3) The percent ownership is calculated by dividing each person’s total shares beneficially owned by 80,887,71382,453,791 shares, which was the number of shares of our common stock outstanding on January 31, 2021.2023.

(4) As reported in the Schedule 13G, Amendment #20,#22, filed with the SEC on February 12, 202114, 2023 by Mr. Trefler. Includes 27,00070,000 shares of common stock held by the Trefler Foundation, of which Mr. Trefler is a trustee. Mr. Trefler has shared voting and dispositive control over such shares, but has no pecuniary interest with respect to such shares. As of January 31, 2021,2023, includes 998,8002,249,589 shares of common stock pledged or held in margin securities accounts maintained at brokerage firms.

(5) Represents shares of common stock beneficially owned as of December 31, 2020,2022, based on a Schedule 13G, Amendment #3, filed with the SEC on February 16, 202114, 2023 by Bares Capital Management, Inc. (“Bares Capital Management”). Such filing states that Bares Capital Management hasand Brian Bares have shared voting and dispositive power with respect to 5,205,967 shares, and that Brian Bares has sole voting and dispositive power with respect to an additional 1,3195,550,701 shares. In such filing, Bares Capital Management lists its address as 12600 Hill Country Blvd., Suite R-230, Austin, TX 78738.

(6) Represents shares of common stock beneficially owned as of January 27, 2021,December 31, 2022, based on a Schedule 13G filed with the SEC on February 8, 20219, 2023 by Luxor CapitalThe Vanguard Group, LPInc. (“Luxor Capital”The Vanguard Group”). Such filing states that Luxor CapitalThe Vanguard Group has shared voting and dispositive power with respect to 4,056,0954,274,667 shares. In such filing, Luxor CapitalThe Vanguard Group lists its address as 1114 Avenue of the Americas, 28th Floor, New York, New York 10036.100 Vanguard Blvd., Malvern, PA 19355.

(7) Includes 40,59025,790 shares held by the Jones Family Foundation for which Mr. Jones has voting and dispositive power over such shares, but has no pecuniary interest with respect to such shares. Includes 148,719352,691 shares held by the Richard H. Jones Revocable Trust for which Mr. Jones has sole voting and investment power over such shares.shares, of which 282,672 shares of common stock are pledged or held in margin securities accounts maintained at brokerage firms as of January 31, 2023. Includes 13,12414,339 shares held by the Patricia Jones Revocable Trust, 31,065 shares held by the Patricia Jones Irrevocable (Dynasty) Trust and 86,79985,584 shares held by the Patricia Jones Irrevocable Cornerstone Trust for which Mr. Jones’ spouse has sole voting and dispositive power over such shares. As of January 31, 2021, includes 282,672 shares of common stock pledged or held in margin securities accounts maintained at brokerage firms.

(8) Mr. Stafford joined the Company in June 2020.

PROPOSAL 1 – ELECTION OF DIRECTORS

This year our Board of Directors has nominated Peter Gyenes, Richard Jones, Christopher Lafond, Dianne Ledingham, Sharon Rowlands, Alan Trefler, and Larry Weber for election to the Board of Directors. Recently, Mr. Hovsepian was appointed Chief Executive Officer of Indigo Ag. Because of the resulting time commitments of that role, Mr. Hovsepian notified the Company on April 26, 2021 that he could not stand for re-election at the Annual Meeting. Mr. Hovsepian will continue to serve as a member of the Board of Directors and as a member of any committees of the Board of Directors on which he currently serves until the Annual Meeting.

The persons named in the proxy card as proxies will vote to elect each of the nominees, unless you vote against the election of one or more nominees or abstain from voting on the election of one or more nominees, in each case, by affirmatively marking the proxy card to that effect (or through Internet or telephonic voting). Each of our nominees has indicated their willingness to serve, if elected. However, if any of the nominees shall become unable or unwilling to serve, the proxies, unless authority has been withheld as to such nominee, may be voted for the election of a substitute nominee designated by our Board of Directors, or the Board of Directors may reduce the number of directors. Proxies may not be voted for more than seven persons.

There are no family relationships among any of our executive officers or directors, with the exception of Alan Trefler, our Chairman and Chief Executive Officer, whose brother, Leon Trefler, is Senior Vice President, Global Client Success.our Chief of Clients and Markets. Unless otherwise noted, we refer to Alan Trefler as Mr. Trefler and Leon Trefler as Leon Trefler in this proxy statement.

The Board of Directors recommends that you vote FOR the election of the nominees as directors, and proxies solicited by the Board of Directors will be voted in favor thereof unless a shareholder has indicated otherwise on the proxy.

Director Diversity

We aim to create and maintain a Board with a diversity of skills and attributes that is aligned with our current and anticipated strategic needs. We value diversity and believe that diversity among our directors’ personal and professional experiences, opinions, perspectives, and backgrounds is desirable. We seek to achieve diversity through our thoughtful selection of qualified candidates. Our candidates, as more fully described below, have experience in, among other areas: leadership, technology, international operations and growth, and sales and marketing.

NOMINEES FOR ELECTION FOR A TERM OF ONE YEAR EXPIRING IN 20222024

CORPORATE GOVERNANCE

We believe that good corporate governance is important to ensure that Pegasystems is managed for the long-term benefit of its shareholders, and we are committed to maintaining sound corporate governance principles. During the past year, we continued to review our corporate governance policies and practices and to compare them to those suggested by various authorities in corporate governance and the practices of other public companies. We have also continued to review the provisions of the Sarbanes-Oxley Act of 2002, the existing and proposed rules of the SEC, and the listing standards of Nasdaq.

We have adopted policies and procedures that we believe are in the best interests of Pegasystems and our shareholders. In particular, we have the following policies and procedures:

We have a written Code of Conduct that applies to our Board of Directors and all our employees, including our principal executive officer, principal financial officer, and principal accounting officer, and to persons performing similar functions.

You can access the current charters for our Audit Committee, Compensation Committee, Nominating and Corporate Governance Committee, our Corporate Governance Guidelines, and our Code of Conduct in the “Governance”“Leadership & Governance” section of our website at www.pega.com or by contacting:

Pegasystems Inc.
One Rogers
1 Main Street

Cambridge, MA 02142-1209
02142-1517
Attention: Vice President, Chief Commercial Officer, General Counsel, and Secretary

Telephone: (617) 374-9600

A majority of our directors must be “independent directors” as defined by Nasdaq Rule 5605(a)(2). Our Board of Directors has determined that each of our non-employee directors qualifies as an “independent director” because none of them is an executive officer, or employee, or an individual who has a relationship which, in the opinion of our Board of Directors, would interfere with the exercise of their independent judgment in carrying out the responsibilities of a director. Therefore, our Board of Directors has determined that each of these directors (Peter Gyenes, Richard Jones, Christopher Lafond, Dianne Ledingham, Sharon Rowlands, and Larry Weber, and Ronald Hovsepian)Weber) is an “independent director” as defined under Nasdaq Rule 5605(a)(2). There were no other transactions, relationships, or arrangements not disclosed in this proxy statement that were relevant to the independence of the persons serving as members of our Board of Directors in 2020.2022.

The Board of Directors has responsibility for establishing broad corporate policies and reviewing our overall performance, rather than directing day-to-day operations. The Board’s primary responsibility is to oversee the management of Pegasystems and, in so doing, serve the best interests of Pegasystems and its shareholders. The Board selects, evaluates, and provides for the succession of executive officers and, subject to shareholder election each year at our annual meeting, directors. It reviews and approves corporate objectives and strategies, and evaluates significant policies and proposed major commitments of corporate resources. It participates in decisions that have a potential major economic impact on us. Management keeps the Board informed of Company activity through regular written reports and presentations at Board and committee meetings.

As part of our corporate governance process, our Board of Directors, along with our Audit Committee, oversees the risk management process for Pegasystems, which provides further checks and balances to our leadership structure. The Board has vested its oversight of corporate governance to the Nominating and Corporate Governance Committee. The Board receives reports from members of senior management on the functional areas for which they are responsible. Such reports may include operational, financial, sales, competitive, legal and regulatory, compliance, strategic and other risks, as well as any related management and mitigation. Our Chief Information Security Officer (“CISO”) periodically meets with the Board to inform and update them on our cybersecurity program. In addition, as part of its core functions, the Audit Committee reviews our internal audit, business, and financial controls in collaboration with our senior management, including our Chief Compliance Officer and our Senior Director of Internal Audit, and also receives periodic reports from our CISO.

Since our inception in 1983, Mr. Trefler, our founder, has served as Chairman of our Board of Directors and as our Chief Executive Officer. We believe our leadership structure, which is often adopted by other public companies in the United States, has been effective for us, as evidenced by our solid performance and continued growth. We believe a combined Chairman and Chief Executive Officer, along with independent Board committees and a largely independent Board, provides balanced leadership for the Company. We do not have a lead independent director.

In his dual capacity as both Chairman and Chief Executive Officer, Mr. Trefler provides a strong vision and voice for leading and representing Pegasystems to others, which provides cohesive management and reduces risk of confusion or redundant undertakings or messages. Mr. Trefler effectively serves as a bridge between our Board of Directors and the Company. As our founder, Mr. Trefler has guided us during more than threethrough four decades of growth. As such, he is most familiar with our operations and best suited to lead it into the future.

Our shareholders may recommend candidates to the Board of Directors for inclusion in the slate of nominees which the Board recommends to our shareholders for election. The qualifications of recommended candidates will be reviewed by our Nominating and Corporate Governance Committee. If the Board determines to nominate a shareholder-recommended candidate and recommends his or her election as a director by the shareholders, the name will be included in our proxy card for the shareholders meeting at which his or her election is recommended.

Shareholders may recommend individuals for the Nominating and Corporate Governance Committee to consider as potential director candidates by submitting their names and background to the “Pegasystems Inc. Nominating and Corporate Governance Committee” c/o Pegasystems Inc., One Rogers1 Main Street, Cambridge, MA 02142-1209,02142-1517, Attention: Secretary. The Nominating and Corporate Governance Committee will consider a recommendation only if appropriate biographical information and background material is provided on a timely basis. The process followed by the Nominating and Corporate Governance Committee to identify and evaluate candidates includes requests to our directors and others for recommendations, meetings from time to time to evaluate biographical information and background material relating to potential candidates and interviews of selected candidates by members of the Nominating and Corporate Governance Committee and the Board. Assuming that appropriate biographical and background material is provided for candidates recommended by shareholders, the Nominating and Corporate Governance Committee will evaluate those candidates by following substantially the same process, and applying the same criteria, as for new candidates submitted by our directors.

In considering whether to recommend any candidate for inclusion in the Board’s slate of recommended director nominees, including candidates recommended by shareholders, the Nominating and Corporate Governance Committee will apply the criteria appended to the Nominating and Corporate Governance Committee’s charter. These criteria include the candidate’s integrity, business acumen, experience, commitment, diligence, conflicts of interest, and ability to act in the interest of all shareholders. The value of diversityDiversity is also considered, and the Nominating and Corporate Governance Committee charter specifically dictates that nominees shall not be discriminated against on the basis of race, religion, national origin, sex, sexual orientation, disability, or any other basis proscribed by law. The Nominating and Corporate Governance Committee considers diversity in the broadest sense, encompassing also director experience, professions, skills, and background.

The Nominating and Corporate Governance Committee does not assign specific weights to particular criteria and no particular criterion is necessarily applicable to all prospective nominees. We believe that the backgrounds and qualifications of the directors, considered as a group, should provide a significant composite mix of experience, knowledge, and abilities that will allow the Board to fulfill its responsibilities. More specific information regarding each director nominee’s qualifications can be found in the preceding “Election of Directors” section of this proxy statement. No director candidate was recommended to us by any beneficial owner or group of beneficial owners of more than 5% of our common stock.

Shareholders also have the right to directly nominate director candidates, without any action or recommendation on the part of the Nominating and Corporate Governance Committee. Our Amended and Restated Bylaws specify the requirements relating to the timing and the content of the notice that shareholders must provide to the Secretary for a director nomination to be properly presented at a shareholder meeting. See the section entitled “Information about the Annual Meeting and Voting — How and when may I submit a shareholder proposal for the 20222024 Annual Meeting?” above.

The Board of Directors will give appropriate attention to written communications on issues that are submitted by shareholders and other interested parties, and will respond if and as appropriate. Absent unusual circumstances or as contemplated by committee charters, the Chairman of the Board of Directors will, with the assistance of our Secretary, (1) be primarily responsible for monitoring communications from shareholders and other interested parties, and (2) provide copies or summaries of such communications to the other directors as he considers appropriate.

Communications can be addressed to the full Board of Directors or individual directors. Communications will be forwarded to all directors if they relate to substantive matters and include suggestions or comments that the Chairman of the Board of Directors considers to be important for the directors to know. In general, communications relating to corporate governance and long-term corporate strategy are more likely to be forwarded than communications relating to personal grievances and matters as to which we receive repetitive or duplicative communications.

Shareholders and other interested parties who wish to send communications on any topic to the Board of Directors should address such communications to:

Chairman of the Board of Directors    

c/o Pegasystems Inc.
One Rogers
1 Main Street

Cambridge, MA 02142-1209
02142-1517
Attention: Vice President, Chief Commercial Officer, General Counsel, and Secretary

The Board of Directors met seventwenty times in 2020.2022. During 2020,2022, each of our directors attended at least 75% of the total number of meetings of the Board of Directors and meetings of the committees of which such director was a member. Executive sessions of non-employee directors are held periodically each year, generally in conjunction with regularly scheduled meetings of the full Board. Any non-employee director can request that an additional executive session be scheduled.

Directors are encouraged to attend annual meetings of shareholders, but we have no formal policy requiring such attendance. All then-current directors attended the 20202022 Annual Meeting of Shareholders.

The Board of Directors has standing Audit, Compensation, and Nominating and Corporate Governance Committees. Each committee has a charter that has been approved by the Board. Copies of the charters are posted in the “Governance”“Leadership & Governance” section of our website at www.pega.com. Each committee reviews the appropriateness of its charter and performs a self-evaluation periodically.periodically, typically on an annual basis. All members of the committees are non-employee directors. Mr. Trefler is the only director who is an employee and, as such, is not a member of any of the committees. The Board of Directors has determined that all members of the three standing committees are “independent directors” as defined under Nasdaq Rule 5605(a)(2), and, in the case of the Audit Committee, as further defined under Nasdaq Rule 5605(c)(2), and, in the case of the Compensation Committee, as further defined under Nasdaq Rule 5605(d)(2). The Board of Directors establishes special committees of limited duration to deal with issues not squarely within its purview from time to time. Membership on each standing committee is reflected on the chart below.

(C) Denotes Committee Chair.

Audit Committee

Compensation Committee

Nominating and Corporate Governance Committee

Corporate Responsibility and Sustainability

Pega Values

We have takencontinue to take steps to reduce our impact on the environment while empowering our employees to make a real difference. In addition2022, we expanded our CDP (formally carbon disclosure project) reporting from covering eight global offices to launching ‘green teams’all of our 16 globally leased spaces and 22 managed spaces, and we maintained our B- score in the process. In 2022, Pega made the decision to join the Science-Based Targets initiative (SBTi) and in early 2023, Pega signed SBTi’s commitment letter. Pega commits to set a science-based emissions reduction target aligned with SBTi’s target-setting criteria. In 2022, we maintained carbon-neutrality in eight key offices, those above 25,000 square feet, by procuring renewable energy certificates and carbon offsets. Our path to carbon neutrality includes purchasing offsets for our Scope 1 and 3 emissions and RECs for our Scope 2 emissions. Our sustainability initiatives include recycling programs and green teams to engage our employees in sustainability practices globally, our sustainability initiatives include recycling programs; alternative transportation programs, including incentives for taking public transportation, biking, or walking to work.globally. Our headquarters building has received Leadership in Energy and Environmental Design (“LEED”) Gold certification and some of our other major offices are located in buildings with similar certifications. We adoptedhave a Supplier Code of Conduct, in which we expect our suppliers to adopt policies and practices to reduce environmental impact, and to follow all applicable environmental laws, regulations and standards.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

During 20202022 there were no transactions involving more than $120,000, nor are any proposed, between Pegasystems and any executive officer, director, beneficial owner of 5% or more of our common stock or equivalents, or any immediate family member of any of the foregoing, in which any such persons or entities had or will have a direct or indirect material interest. Leon Trefler, the brother of our Chairman and Chief Executive Officer, Alan Trefler, serves as our Senior Vice President, Global Client Success.Chief of Clients and Markets.

Our Board of Directors adopted a Related Person Transaction Policy, which can be found on the “Governance”“Leadership & Governance” section of our website at www.pega.com. The policy mandates that we enter into or ratify a related person transaction only when our Board of Directors, or a committee thereof, acting in accordance with the policy, determines that the transaction is either in, or is not inconsistent with, the best interest of Pegasystems and its shareholders. A “related person transaction” for these purposes is defined in the policy to include any transaction or relationship (involving an amount expected to exceed $120,000) between Pegasystems and an individual or entity defined as a “related person” in the policy. Approval or ratification of a related person transaction may be conditioned by the Board of Directors, or committee thereof, directing the related person or Pegasystems to take certain actions to narrow the scope of the relationship, such as: requiring the related person to resign from or change position within an entity involved in the related person transaction; assuring that the related person not be directly involved in negotiating the terms of the related person transaction; limiting the duration or magnitude of the related person transaction; or requiring that information about the related person transaction be documented and delivered to the Board of Directors or committee on an ongoing basis.

DIRECTOR COMPENSATION

Non-employee directors are paid an annual cash retainer of $50,000 and receive an annual equity grant valued at $200,000, or the Annual Equity Grant. The Annual Equity Grant is granted in the form of fifty percent common stock and fifty percent stock options, which are both fully vested when granted.

Additionally, we pay an annual cash retainer to non-employee directors serving on the Audit and Compensation Committees:committees: $15,000 to each Audit Committee member; $27,000 to the Audit Committee Chair; $10,000 to each Compensation Committee member; and $20,000 to the Compensation Committee Chair.Chair; and, $7,500 to the Chair of the Nominating and Governance Committee. Directors do not receive compensation for service onas non-Chair members of the Nominating and Corporate Governance Committee. The annual cash retainer and committee retainer payments are payable in full on the date of grant, with such retainers to cover the period from each annual meeting of shareholders to the following year’s annual meeting.

In addition to the above, we also offer to reimburse non-employee directors for expenses incurred in attending Board, committee, or other Company meetings. Alan Trefler is our only director who is also an employee. He receives no compensation for his service as a director.

(1) These amounts reflect the dollar amount of the aggregate grant date fair value of awards granted in 2020,2022, in accordance with Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Topic 718.

(2) Consists of Board retainer fees of $50,000 and committee retainer fees of $15,000.

(3) Consists of Board retainer fees of $50,000 and committee retainer fees of $10,000.

(4) Consists of Board retainer fees of $50,000 and committee retainer fees of $27,000.

(5) Consists of Board retainer fees of $50,000 and committee retainer fees of $20,000.

PROPOSAL 2 – ADVISORY VOTE ON EXECUTIVE COMPENSATION

We include in this proxy statement a non-binding, advisory vote on the compensation of our named executive officers in compliance with the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”).

Although this vote is advisory in nature and, as such, will not be binding, our Board of Directors and our Compensation Committee will consider the outcome of the vote in evaluating itsthe executive compensation program. Therefore, we are asking our shareholders to vote on the following resolution at the Annual Meeting:

The Board of Directors recommends that you vote FOR the approval of the compensation of our named executive officers, as described in this proxy statement, and proxies solicited by the Board of Directors will be voted in favor thereof unless a shareholder has indicated otherwise on the proxy.

COMPENSATION DISCUSSION AND ANALYSIS

This section also provides an overview of our executive compensation philosophy and analyzes how and why the Compensation Committee of our Board of Directors (the “Compensation Committee”) arrives at specific compensation decisions and policies.

Our executive compensation is designed to reward performance by our executives and to align the interests of our executives with our shareholders. For 2020,2022, our executive compensation program included the following elements of fixed and variable compensation:

The Board of Directors and the Compensation Committee believe that our performance-based executive compensation program effectively correlates pay with performance, and, in doing so, aligns the interests of our shareholders and executives. The program ties significant variable compensation, such as annual bonus opportunities, as well as equity awards, with our achievement of our corporate goals. By linking executive compensation with corporate performance, our executive compensation program promotes shareholder value and our continued growth and success.

The names of our executive officers and certain information about them are set forth below as of April 1, 2021:February 16, 2023:

In 2020,2022, pursuant to the requirements of Section 14A of the Exchange Act, which was implemented by the Dodd-Frank Act, we conducted an advisory vote of our shareholders on our executive compensation program for our named executive officers, sometimes called “Say on Pay.” Each year, our shareholders have overwhelmingly approved our executive compensation programs with more than 97% of the votes cast at our 20202022 Annual Meeting voting to adopt our “Say on Pay” resolution. We value the feedback of our shareholders. As a result, our compensation program continues to be modeled on the same principles that received the strong support of our shareholders last year. WeIn addition to this year’s vote, we plan to hold the next shareholder advisory vote on the frequency of voting on “say on pay” at our 20232029 annual meeting of shareholders.

The Compensation Committee

The Compensation Committee oversees all the compensation programs that we offer to our executive officers. In 2020,2022, the Compensation Committee’s schedule of meetings, as well as the agenda items for those meetings, was established by our Chief People Officer, Adriana Bokel Herde.Kate Parente. Ms. Bokel HerdeParente received input from the Chair of the Compensation Committee, Sharon Rowlands, and our Chief Executive Officer, Alan Trefler. During 2020,2022, the Compensation Committee met sixfive times. At those meetings, the Compensation Committee addressed the following matters, among others: discussion and review of the compensation paid to our executive officers, including review and approval of the 20202022 base salaries, target bonuses and the CICP for executive officers, in addition to 20202022 equity awards granted to our executive officers; review and approval of our 2020 strategic goals and achievement of our 2019 strategic goals;its charter; analysis and approval of the bonus payments under the 20192021 CICP; review and approval of the 20202022 CICP, including approval of the 20202022 CICP RSU grants; review and approval of base salary increase budgets for our employees; approval of all grants of stock options and RSUs to our employees;employees, including our executive officers; review of the Company’s 401(k) plan; review of the Company’s Employee Stock Purchase Plan (“ESPP”), including amending its terms to increase the purchase discount from 5% to 15%, change the offering periods from semi-annually to quarterly, and to add a one-year holding period;ESPP; and review and approval of the 20212023 CICP and 20212023 equity award budget.

Ms. Rowlands has served as the Chair of the Compensation Committee since January 2017.

To facilitate the Compensation Committee’s review of each of the elements of the compensation paid to the executive officers, and to assist with the Compensation Committee’s determination of compensation for 2020,2022, management provided the Compensation Committee with “tally sheets.” These tally sheets detailed each executive officer’s total compensation in 2020,2022, including the cash value of each element of that total compensation, including salary, bonus, additional incentives, equity awards, our 401(k) plan matching contribution, Company-paid parking, and Company-paid health, dental, and other insurance premiums. The Compensation Committee also considered more detailed information regarding the equity components of executive compensation, including the total value of outstanding “in-the-money” vested stock options, and unvested stock options, and RSUs, and the retention value of such awards.

Compensation and Other Consultants 

In 2020,2022, our management continued to utilize Arthur J. Gallagher & Co.utilized Mercer, a business of Marsh McLennan, and The Kelliher Group of Morgan Stanley for consulting services related to our 401(k) defined contribution retirement plan. In 2020,2022, the Company spent approximately $486,000$573,000 on Arthur J. Gallagher & Co.Mercer and approximately $176,000$180,000 on The Kelliher Group of Morgan Stanley. Arthur J. Gallagher & Co.Group. Mercer assisted with benefit plan design, vendor assessment, cost considerations, and benefit plan oversight, while members of The Kelliher Group participated in meetings of our Retirement Committee, which is composed of representatives from our Finance Department and People Organization and provided fund guidance and regulatory updates.

The Compensation Committee may retain the services of compensation advisors for the purposes of assisting in the determination of executive compensation, and it has the budgetary authority to hire such advisors as it deems necessary, although it did not do so in 2020.2022. The Compensation Committee does not currently engage its own outside consultant for advice because its members are comfortable with the benchmarking data and other supporting information provided by our management and believes they are adequately experienced and equipped to address the relevant issues and provide appropriate executive compensation market data. The Compensation Committee also believes that outside consultants are unnecessary at this time because our executive officers’ compensation is primarily composed of base salary, bonus, and stock option and RSU grants, and does not include more complex elements such as performance-based equity awards.

Role of Executives in Establishing Compensation

In 2020,2022, our People Organization researched appropriate types and levels of compensation for our executive officers and created preliminary recommendations that were presented to Alan Trefler. Mr. Trefler reviewed that data and presented his recommendations to the Compensation Committee in executive session to determine final compensation for our executive officers. Mr. Trefler, along with Ms. Bokel Herde,Parente, and other members of our People Organization management team, attended meetings of the Compensation Committee as required.

Compensation Philosophy

The objective of our executive compensation program is to align executive compensation with the achievement of our strategic and financial goals. The program focuses on long-term indicators of the underlying success of our business, rather than on ancillary indicators such as our stock price or earnings per share that may be influenced by other factors and may not necessarily demonstrate the underlying success of our business. Our compensation philosophy is built upon principles of internal equity with respect to each executive’s role relative to others within the Company, external competitiveness, recognition of performance against short and long-term goals, and the sharing of success. Therefore, our compensation program is primarily focused on internal and external benchmarking, and the level of attainment of target goals, most of which are shared goals relating to our overall performance.

Benchmarking

We believe that it is helpful to utilize data from a wide array of comparable companies in order to determine the best pay scales to apply to our executive compensation program. We primarily considered data from Radford, which we believe to have the most relevant and comprehensive data for this purpose.

Generally, the Radford surveys included data and breakout information from software companies based upon annual revenue. The surveys analyze compensation data from several hundred technology companies and provide specific data based on each executive officer’s role. Our primary benchmarks are from software companies with annual revenue ranging from $1 billion to $1.5 billion, which we believe is the most relevant benchmark data for our executive compensation program, as we believe this accurately represents the companies from where we attract talent.

In addition to our standard benchmarking industry survey mentioned above, we review compensation practices of a select group of similar companies, which are benchmarked through the use of proxy statements, because one or more of the following applies: (a) they are of comparable size and revenue; (b) they are in a comparable industry; (c) they are within our geographic market; or (d) they compete with us for talent.

The list of companies below was used as our compensation benchmarking peer group for reviewing and evaluating our 20202022 compensation program for our executive officers where there was data for comparable positions:

Base Salary

Bonus – CICP

Annual cash bonuses are intended to reward executive officers for the achievement of our financial and strategic goals. The mechanism that we use to determine whether, and to what extent, annual cash bonuses are paid to our executive officers is the CICP for executive officers, or the Executive Incentive Plan, that is approved by the Compensation Committee each year at a regularly scheduled meeting generally occurring in the first quarter of the year.

For purposes of the Executive Incentive Plan, the performance goals are divided into two categories. The first category is comprised of the corporate financial goals related to bookings and operating income, as approved by the Board of Directors in connection with establishing our annual budget, in the aggregate weighted at 70%75% of total achievement with, in 2020,2022, with Annual Contract Value (“ACV”) growth, new bookings, weighted at 45% and operating incomeprofitability each weighted at 25%. The second category is comprised of the qualitative strategic goals as approved by the Board of Directors as part of our annual strategic planning, with the strategic goals in the aggregate weighted at 30%25% of total achievement. Together, these two categories make up a single performance target under the Executive Incentive Plan, or the Corporate Performance Target.

The percentage achievement of the Corporate Performance Target, or the Funding Percentage, determines the extent to which the Executive Incentive Plan is funded. The Executive Incentive Plan is funded with an amount equal to the aggregate target cash bonus amount for our named executive officers multiplied by the Funding Percentage, except that if the Funding Percentage is less than 70% (“threshold funding”) then the Executive Incentive Plan is not funded at all. In 2020,2022, if the Corporate Performance Target had been exceeded, the percentage achievement of the Corporate Performance Target for purposes of funding the Executive Incentive Plan would have been deemed equal to 100% with an opportunity for an enhanced incentive as determined by the Board of Directors in its discretion.

Once the Funding Percentage is determined, the actual bonus payment for each executive officer is subject to adjustment to reflect each individual’s level of contribution to our strategic goals, as determined by the Compensation Committee. Our strategic goals are established each year by our senior management team and describe our key operational initiatives related to strategy and organizational effectiveness, go-to-market transformation and product and service leadership.effectiveness. The Chief Executive Officer assesses each executive officer’s contribution to the overall operational plan and to such executive officer’s specific functional unit. The Compensation Committee determines and approves executive officer compensation and has the discretion to modify individual payout amounts to reflect an individual’s performance.

The target bonus levels established for our executive officers represent management’s and the Compensation Committee’s assessment of a very high level of achievement of specific goals. Where target bonus levels relate to financial goals that are also the subject of our published financial guidance, these goals are generally established at levels that represent over-performance in relation to the guidance that we publish at the beginning of each calendar year. For 2020,2022, the Funding Percentage was 80%90%, which was consistent with our level of achievement of the Corporate Performance Target for the year.

Additional Cash Incentives

Additional cash incentives have historically been available to several executives other than our Chief Executive Officer based on the achievement of specific individual, business unit, and/or corporate performance goals established by Alan Trefler.our Chief Executive Officer. In addition, in 2020,2022, Mr. Stafford,Higgins and Leon Trefler and Mr. Kra were eligible for sales incentive compensation related to the achievement of sales objectives set by our Chief Executive Officer.

Equity Awards

The Compensation Committee utilizes stock options and RSUs as long-term, non-cash incentives and as a means of aligning the long-term interests of executives and shareholders. In the case of stock options, this is because they do not become valuable to the holder unless the price of our stock increases above the fair market value of our stock on the date of grant. In the case of RSUs, an RSU delivers more value than a stock option to the holder if the price of our stock remains constant, but the value to the holder increases if our stock price increases over time.

Stock options deliver to the recipient a right to receive an option to purchase a specified number of shares of our common stock upon vesting, while RSUs deliver to the recipient a right to receive a specified number of shares of our common stock upon vesting. Unlike stock options, which require payment of the exercise price to purchase shares, RSUs do not require an additional payment by the executive officer at the time shares are issued. Therefore, RSUs provide value to our executives even if our stock price remains constant. Additionally, RSUs, while more expensive than options to the Company by approximately a three to one ratio, can be more efficient based upon the benefit to the executive in comparison to the cost to the Company. RSU grants do not result in the same amount of dilution upon issuance to our investors’ ownership as is caused by stock options, because the same incentive associated with options can be provided to the executive with RSUs, but with fewer shares ultimately issued. In determining the value of equity grants to recipients, we value our RSUs at the fair value of our common stock on the grant date, which is the closing price of our common stock on that date, less the present value of expected dividends, as the executive officers or other employees are not entitled to dividends during the requisite vesting period. We value our stock options using a Black-Scholes option valuation model. Equity awards for employees typically vest over a five-year period. Commencing with awards granted in January 2023, equity awards granted to employees, will typically vest over four years.

Executive officers, andas with other employees, may elect to receive 50% of their target incentive compensation under the Executive Incentive Plan in the form of RSUs instead of cash. As an added incentive, the number of RSUs receivable by executive officers and other employees is determined by dividing 50% of his or her target incentive compensation by an amount equal to 85% of the closing price of our common stock on the date of grant.

If elected pursuant to the Executive Incentive Plan, the equity grant occurs during the open trading period following the public release of our financial results for the prior year and vests 100% on the first anniversary of the date of grant. This typically coincides with the cash payout date for all participants. Vesting is conditioned upon threshold funding of the Executive Incentive Plan, and status as an active employee in good standing with satisfactory performance as of the vesting date. If these conditions are not met, the equity grant does not vest and expires.

Equity Award Granting Practices

Executive officers, and most employees, have typically received an initial equity grant upon joining Pegasystems. Grants to newly hired employees are determined based upon a target financial value associated with their job type, rather than a predetermined number of options or RSUs based on an individual’s level of job responsibilities, which we believe improves our ability to more effectively communicate the value of equity grants to our employees. For all employee positions which are at the director level or above, 50% of the target value is typically granted in stock options and 50% is granted in RSUs. For those employees who hold positions below the director level, equity grants are typically awarded 100% in RSUs.

The Compensation Committee also makes periodic grants of stock options and RSUs to the executive officers, typically on an annual basis. For periodic grants, the number of stock options and RSUs granted to an executive officer is determined by taking into consideration factors such as: (i) equity awards previously granted to the executive; (ii) the executive’s remaining equity awards exercisable and the value of those equity awards; (iii) the performance of the executive; (iv) the anticipated value that an executive will add to Pegasystems in the future; (v) the target value, as discussed above; (vi) the retentive value of equity awards; and (vii) competitive external market data.

We expect to continue to grant periodic equity awards in the future.

Other Perquisites

In addition to the elements of compensation discussed above, we offer the executive officers Company-paid parking at our office location in Cambridge, Massachusetts, and contributions towards medical, dental, vision, life, accidental death and dismemberment, and disability insurance premiums. We do not offer deferred compensation of any kind, nor do we offer retirement benefits other than a 401(k) defined contribution plan. We typically match, on a quarterly basis, 50% of contributions made by executive officers and other employees to the 401(k) plan, up to 6% of the executive officer’s or employee’s base salary.

In February 2020,2022, the Compensation Committee adopted the 20202022 Executive Incentive Plan which covered the period from January 1 through December 31, 2020,2022, or the Incentive Period. The 20202022 Executive Incentive Plan was designed to establish a pool of funds to be available for making bonus payments to the executive officers if we achieved certain performance goals during the Incentive Period. The aggregate 20202022 target cash bonus amount for our named executive officers was $1,397,000.$1,336,000 and £185,500. For our Chief Executive Officer, the target bonus represented 100% of his earned base salary; for our Chief Operating Officer and Chief Financial Officer, the target bonus represented 70% of his earned base salary; for our Chief of Clients and for eachMarkets and our Chief of our Senior Vice Presidents, Global Client & Partner Success, the target bonus represented 50% of each of their earned base salary given their additional opportunities to earn additional cash compensation insalary; for our Chief Product Officer, the form of individual incentive compensation and sales commissions as described further below. When Mr. Stafford joined in June as President of Global Client Engagement, his target bonus was set at 50%represented 60% of his earned base salary. Based on our performance, the Board of Directors determined that the 20202022 Funding Percentage would be 80%90%.

The Compensation Committee has approved the 20212023 Executive Incentive Plan. Under the 20212023 Executive Incentive Plan, 25%75% of the plan funding will be based on progress against our rule of 40 targets described as the attainmentsum of Sales Commissionable Value (“SCV”), 25% based on Annual Contract Value growth, 25% on margin,ACV Growth and Free Cash Flow Margin and 25% based on the attainment of strategic initiatives. Historically, the Compensation Committee has also approved a similar plan for our employees, with the exception of certain of our sales employees who are enrolled in a sales incentive compensation plan.

The Compensation Committee believes that the Chief Executive Officer continued to perform at a high level in 2020,2022, and that his performance is not reflected in his salary. The Chief Executive Officer’s comparatively low salary has historically reflected his status as a significant shareholder, and, as such, his personal wealth is tied directly to sustained increases in our value.

Base Salary and Bonus

In 2020,2022, the Chief Executive Officer’s salary increased toremained at $495,000. Under the 20202022 Executive Incentive Plan, the target bonus for the Chief Executive Officer was 100% of his earned base salary. In determining the Chief Executive Officer’s bonus for 2020,2022, the Compensation Committee considered the factors described above and ultimately determined that he should be granted a bonus of $396,000$446,000 under the 20202022 Executive Incentive Plan, representing a payment that is consistent with the 20202022 Funding Percentage. Under the 20212023 Executive Incentive Plan, the target bonus for the Chief Executive Officer will continue to be 100% of his earned base salary.

Equity 

In 2020,2022, in recognition of the Chief Executive Officer’s leadership driving our continued growth and market position and low to market cash compensation, which falls betweenbelow the 25th and 50th percentile of the market range, the Compensation Committee provided Mr. Trefler with an equity grant valued at $5,000,000,$6,500,000, comprised of 100% stock options, which falls at approximatelybetween the 50th percentile.and 75th percentile of the market range. In 2021,2023, the Compensation Committee also provided Mr. Trefler with a periodic equity grant valued at $6,500,000,$4,550,000, comprised of 100% performance-based stock options, in consideration of the above factors. Mr. Trefler’s equity awards are comprised of 50% stock options and 50% RSUs and vestThe 2022 grant vests on a five-year schedule.schedule while the 2023 grant vests over 2-years subject to certain performance conditions.

Base Salary

Bonus – CICP

Under the 20202022 Executive Incentive Plan, our Chief Operating Officer’s and Chief Financial Officer’s target bonus represented 70% of his respective earned base salary; our President of Global Client Engagement’sChief Product Officer’s target bonusbonuses represented 50%60% of his earned base salary given his opportunity to earn additional cash incentives in the formsalary; our Chief of sales commissions as described further below; and for Leon Trefler and Mr. Kra, our Senior Vice Presidents, Global Client Success, the& Partner Success’s target bonus represented 50% of his earned base salary given his opportunity to earn additional cash incentives in the form of individual incentive compensation and sales commissions as described further below; and for Leon Trefler, our Chief of Clients and Markets, the target bonus represented 50% of his earned base salary given his opportunity to earn additional cash incentives in the form of sales commissions as described further below. For 2020,2022, the Compensation Committee approved bonuses for our named executive officers under the 20202022 Executive Incentive Plan consistent with the 20202022 Funding Percentage. In 2020,2022, Mr. Stillwell, Mr. Higgins, and Leon TreflerMr. Akgonul, opted to receive 50% of their CICP payment in RSUs. Accordingly, for 2020,2022, Mr. Stillwell, Mr. Higgins, and Mr. Akgonul, received a cash bonusbonuses of $128,735; and Leon Trefler received a cash bonus of $73,000.$175,000, $124,000, £94,000 (or $113,000 based on the December 31, 2022 exchange rate), respectively.

Under the 20212023 Executive Incentive Plan, the target bonusbonuses for our named executive officers remain unchanged from 2022. Mr. StillwellStillwell’s target bonus will represent 70% of his earned base salary. For Mr. Stafford,Akgonul the target bonus will represent 60% of his earned base salary; and for Leon Trefler and Mr. Kra,Higgins, the target bonuses will represent 50% of their earned base salary given their opportunity to earn additional cash incentives.

Additional Cash Incentives

Individual Incentive Compensation

In 2020, Leon Trefler and Douglas Kra, our Senior Vice Presidents, Global Client Success, were each2022, Mr. Higgins was eligible to receive individual incentive compensation based upon the achievement of specific performance goals established by our Chief Executive Officer. Both Leon Trefler’s and Mr. Kra’s targets were $50,000Higgins’ target was £75,000 in individual incentive compensation for the achievement of operational metrics set by our Chief Executive Officer. For 2020, Leon Trefler2022, Mr. Higgins received $36,000 and Mr. Kra received $25,000.

Sales Commissions

In 2020,2022, Mr. Stafford,Higgins and Leon Trefler and Mr. Kra each had a target sales commission of $516,000, $310,000, and $228,000, respectively,£70,000 related to the SCV of cloud, license,Global ACV Bookings and maintenance sales.Global Consulting Bookings and $375,000 related to Global ACV Bookings, respectively. For 2020,2022, Mr. Stafford’s,Higgins’ and Leon Trefler’s and Mr. Kra’s actual sales commissions were $323,000, $277,000,£63,610 (or $77,000 based on the December 31, 2022 exchange rate) and $151,000,$278,000, respectively.

Equity

Our primary rationale for these payments is that we believe that it is standard in our industry to provide a reasonable severance payment to certain high ranking executive officers in the event that they are terminated without cause, and that the absence of such arrangements might jeopardize our chances of hiring and retaining such executives. We limit such post-termination compensation arrangements to situations in which such executive officers are actually terminated, rather than those in which there is a mere change of control.

While theseMr. Stillwell’s offer letters,letter, which werewas previously filed with the SEC, dodoes not specifically define what constitutes a termination “without cause,” in this context, we believe that the term “cause” would be construed consistently with Massachusetts case law, which generally defines it to mean, in this context, that we had a reasonable good faith basis for dissatisfaction with the employee, due to lack of capacity or diligence, failure to conform to usual standards of conduct, or other culpable or inappropriate behavior, or grounds for discharge reasonably related, in our good faith judgment, to the needs of the business. There are, or were, no other conditions to the payment of the severance amount.

Under our 2004 Long-Term Incentive Plan, in the event of the sale of Pegasystems, the Board of Directors, acting through a majority of directors who are determined to be “independent directors” under the applicable Nasdaq rules, may, in its discretion, provide that all outstanding RSUs, unvested stock options or other stock-based awards granted under the plan shall be assumed or an equivalent option, right, unit, or restricted stock be substituted by the successor entity; accelerated in full prior to the effective date of the sale of Pegasystems; or

cancelled as of the effective date of the sale of Pegasystems; or the Board of Directors may apply any combination of the foregoing.

As discussed above, under the terms of theirhis employment offer letters,letter, if either Mr. Kra, Mr. Stafford or Mr. Stillwell is terminated without cause, he would receive a severance payment equal to six months of his then-current base salary. In addition, Mr. Stafford and Mr. Stillwell would receive an additional month of severance for each year of service with a maximum of 12 months total severance. By way of example, if Mr. Kra had been terminated without cause on December 31, 2020, he would have received a severance payment of $182,500. If Mr. Stafford had been terminated without cause on December 31, 2020, he would have received a severance payment of $215,000. In addition, in the event of a sale of Pegasystems and the termination of Mr. Stafford’s employment, all his unvested stock options and RSUs would be subject to immediate full acceleration of vesting. If, on December 31, 2020, Mr. Stafford had been terminated following a sale of Pegasystems, the value of his accelerated RSUs would have been $4,526,975, and the value of his accelerated stock options would have been $2,367,284, excluding out-of-the-money options. If Mr. Stillwell had been terminated without cause on December 31, 2020,2022, he would have received a severance payment of $383,333.$530,000. In addition, in the event of a sale of Pegasystems and the termination of Mr. Stillwell’s employment, all his unvested stock options and RSUs would be subject to immediate full acceleration of vesting. If, on December 31, 2020,2022, Mr. Stillwell had been terminated following a sale of Pegasystems, the value of his accelerated RSUs would have been $4,361,067,$1,443,353, and the value of his accelerated stock options would have been $8,169,735,$70,504, excluding out-of-the-money options. Similarly, in the event of a sale of Pegasystems and the termination of Mr. Higgins’ employment, all his unvested stock options and RSUs from his new hire grant would be subject to immediate full acceleration of vesting. If, on December 31, 2022, Mr. Higgins had been terminated following a sale of Pegasystems, the value of his accelerated RSUs would have been $768,517, and the value of his accelerated stock options would have been $35,621, excluding out-of-the-money options. The value of accelerated unvested options as of December 31, 20202022 is calculated by taking the difference between the closing price of our common stock on NASDAQ Global Select Market on the last trading day of the fiscal year ($133.2634.24 on December 31, 2020)2022) and the option exercise price and multiplying it by the number of accelerated options. For RSUs, the value represents the closing price of our common stock on the last trading day of the fiscal year multiplied by the number of accelerated units.

Additionally, as noted above, under our 2004 Long-Term Incentive Plan, in the event of the sale of the Company, the Board of Directors may provide that all outstanding RSUs, unexercised stock options or other stock-based awards granted under the plan would accelerate in full prior to the effective date of the sale of the Company. The table entitled “Outstanding Equity Awards at Fiscal Year-End” lists all outstanding equity awards held by our named executive officers as of December 31, 2020.2022.

Prior to 2018, Section 162(m) of the Internal Revenue Code of 1986, as amended, or the Code, generally disallowed a tax deduction to public companies for compensation over $1,000,000 paid to its chief executive officer and its three other most highly compensated executive officers, other than its chief financial officer. Performance-based compensation was excluded from the compensation taken into account for purposes of the $1 million limit if certain requirements were met. Effective in 2018, the Tax Cuts and Jobs Act of 2017 modified Section 162(m) of the Code to eliminate the exception for performance-based compensation, subject to transition relief for certain grandfathered arrangements in effect as of November 2, 2017. In addition, the $1,000,000 limit now applies to all named executive officers, including the chief financial officer, and to any individual who was a named executive officer in any tax year beginning after December 31, 2016. The Compensation Committee will continue to award compensation to our executive officers as it deems appropriate, even though it may not be fully deductible for purposes of Section 162(m). Accordingly, compensation attributable to our Executive Incentive Plan, additional cash incentives, equity awards, or severance may not be fully deductible for the purposes of Section 162(m).

We have conducted a risk assessment of our compensation programs for executive officers and all other employees. Our Finance, Legal, People, Organization, Sales, and Compliance functions reviewed our compensation programs, practices and policies, referred to as the Compensation Programs. Management reviewed and discussed the findings of this review with the Compensation Committee, and with our Disclosure Committee, consisting of representatives from our Finance, Legal, Internal Audit, and Compliance departments. Based upon this assessment, we have concluded that our Compensation Programs are balanced and do not, by design, motivate excessive risk taking by management and other employees.

As part of our risk assessment, we review our Compensation Programs to ensure they are consistent with current market practices. In determining that the programs contained an appropriate mix of risk and reward in relation to our strategy and long-term goals without encouraging excessive risk taking by management and other employees, the following elements were considered: 

As required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of Regulation S-K, we are providing the following information about the relationship of the annual total compensation of our employees and the annual total compensation of our Chief Executive Officer. For 2020,2022, our last completed fiscal year: 

Based on this information, for 20202022 the ratio of the annual total compensation of our Chief Executive Officer to the median employee was approximately 4174 to 1.

The pay ratio reported above is a reasonable estimate calculated in a manner consistent with SEC rules, based on our internal records and the methodology described above. The SEC rules for identifying the median compensated employee allow companies to adopt a variety of methodologies, to apply certain exclusions and to make reasonable estimates and assumptions that reflect their employee populations and compensation practices. Accordingly, the pay ratio reported by other companies may not be comparable to the pay ratio reported above, as other companies have different employee populations and compensation practices and may use different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios.

(1) We currently maintain two equity compensation plans: the 2004 Long-Term Incentive Plan as amended and restated, the (“2004 Plan”) and the 2006 Employee Stock Purchase Plan as amended (“2006 ESPP”). In addition to the issuance of stock options, the 2004 Plan allows for the issuance of stock purchase rights and other stock-based awards, including RSUs. Our shareholders previously approved each of these plans and all amendments that were subject to shareholder approval. See "14."16. Stock-Based Compensation" in Item 8 of our Annual Report filed on Form 10-K for the year ended December 31, 20202022 for additional information.

(2) In connection with our acquisition of In the Chat Communications Inc. on May 10, 2019 and in reliance on the Regulation D exemption from registration requirements under the Securities Act, we granted an employee the right to obtain up to 14 thousand shares of our common stock, which will be issued in five equal tranches contingent upon continued employment. No general solicitation or advertising to market the securities occurred.

(3) The number of shares of common stock issued upon exercise of vested stock options and vesting of RSUs will be less than the 9.817.3 million shown above because, equity grants to our executive officers subject to Section 16 of the Securities Exchange Act of 1934, as amended, use the “net settlement” feature of most of thesefor stock options and RSUs. This feature enables the Company to withhold shares to cover the cost to exercise stock options and, if applicable, to cover taxes due (in the case of stock options and RSUs) based on the fair value of the shares at the exercise date (in the case of stock options) or vesting date (in the case of RSUs), instead of selling all the shares on the open market to satisfy these obligations. The settlement of exercised stock options and vested RSUs on a net share basis for our executive officers subject to Section 16 of the Securities Exchange Act of 1934, as amended will result in fewer shares issued by the Company.

(4) During 2020,2022, stock option and RSU holders net settled stock options and RSUs representing the right to purchase a total of 2.81.4 million shares, of which only 1.60.8 million were issued to the stock option and RSU holders, and the balance of the shares were surrendered to the Company to pay for the exercise price (in the case of stock options) and the applicable taxes (in the case of stock options and RSUs).

(5) The weighted-average exercise price does not consider the shares issuable upon vesting of outstanding RSUs, which have no exercise price.

(6) Includes approximately 0.50.2 million shares remaining available for issuance as of December 31, 20202022 under the 2006 ESPP.

EXECUTIVE COMPENSATION