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proxy summary This summary highlights information contained elsewhere in this proxy statement. We encourage you to review the entire proxy statement. This proxy statement and our Annual Report for the year ended December 31, 2019 are first being mailed to our shareholders on or about April 6, 2020. Website addresses included throughout this proxy statement are for reference only. The information contained on our website is not incorporated by reference into this proxy statement. Business Results We are a technology company with revenue of $279.1 million in 2019. We are a leading provider of cloud-based supply chain management solutions, providing network-proven integrations and comprehensive retail performance analytics to tens of thousands of customers worldwide. 2019 was a year of continued execution for SPS Commerce, in an industry that is in transition. We achieved year-over-year recurring revenue growth, customer growth and wallet share growth and delivered strong revenue and adjusted EBITDA growth in 2019. We also executed one strategic acquisition, effected a two-for-one stock split of our common stock, authorized a new stock repurchase program to repurchase up to $50 million of common stock, and continued to repurchase shares through our buyback program. Additional information regarding our performance in 2019 follows. We had sequential revenue growth for all four quarters of 2019 and now have 76 consecutive quarters of sequential revenue growth. Our revenues of $279.1 million for 2019, compared to $248.2 million for 2018, reflect 12% growth from 2018. Recurring revenue grew 14% from 2018. Our average recurring revenue per recurring revenue customer increased 4% from 2018, and the number of recurring revenue customers grew 5% from 2018. | Description•
| We achieved improvements in operational efficiency that produced Adjusted EBITDA of $69.8 million, compared to $51.3 million in 2018, and non-GAAP net income per diluted share of $1.28 in 2019 compared to split adjusted $0.96 in 2018.1 |
1Adjusted EBITDA, Non-GAAP income and non-GAAP income per diluted share are non-GAAP financial measures. Refer to Appendix A in this proxy statement for a reconciliation of these non-GAAP financial measures to the corresponding GAAP measures. 2
Voting Matters and Voting Recommendations The following proposals are included in this proxy statement and are scheduled to be voted on at the meeting. Our board of directors recommends that you vote your shares as indicated below. PROPOSALS: | | THE BOARD OF DIRECTOR’S VOTING RECOMMENDATIONS: | | RATIONALE FOR SUPPORT: | | FOR FURTHER
DETAILS: | 1. | Election of the Management Incentive Planseven directors identified in this Proxy Statement, each for a term of one year. | | “FOR” each nominee to the Board | 32 | Our nominees are distinguished leaders who bring a mix of skills and qualifications to our board of directors and can represent the interests of all stockholders. | | Page 7 | Federal Income Tax Consequences2.
| Ratification of the selection of KPMG LLP (“KPMG“) as independent auditor of SPS Commerce, Inc. for the fiscal year ending December 31, 2020. | | 34“FOR” | | Based on its assessment of the qualifications and performance of KPMG, the Audit Committee believes that it is in the best interests of the company and its stockholders to retain KPMG. | | Page 37 | Awards Under3.
| An advisory vote to approve the Plancompensation of our named executive officers. | | “FOR” | 34 | Our executive compensation program is designed to attract and retain talented and highly experienced executives and to motivate our executives to achieve the goals that are important to the company’s growth and shareholder value. | | Page 38 | ITEM 3 — RATIFICATION OF SELECTION OF INDEPENDENT AUDITOR4.
| | | 35 | | ITEM 4 — ADVISORY VOTE ON APPROVAL OF THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERSApproval of an amendment to our Eighth Amended and Restated Certificate of Incorporation to increase the number of authorized shares of common stock.
| | | 35 | | STOCKHOLDER PROPOSALS FOR THE 2018 ANNUAL MEETING
| | | 36 | | HOUSEHOLDING OF PROXY MATERIALS“FOR”
| | | 36 | | OTHER MATTERS
| Our board of directors believes that the amendment is necessary to maintain flexibility to issue shares of common stock for future corporate needs. | | 37 | Page 39 |
Other than the proposals described in this proxy statement, the board is not aware of any other matters to be presented for a vote at the annual meeting. If you grant a proxy by telephone, internet, or by signing and returning your proxy card, any of the persons appointed by the board as proxy holders will have the discretion to vote your shares on any additional matters properly presented for a vote at the meeting. If any of our nominees is unavailable as a candidate for director, the above-named proxy holders will vote your proxy for another candidate or candidates as may be nominated by the board of directors. i3
PROXY STATEMENT
2017 ANNUAL MEETING OF STOCKHOLDERSQuestions and Answers about t
TO BE HELD MAY 23, 2017he Annual meeting and Voting
The board of directors of SPS Commerce, Inc. is soliciting proxies for use at the annual meeting of stockholders to be held on May 23, 2017,21, 2020, and at any adjournment or postponement of the meeting. QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING
What is the purpose of the meeting?
Purpose of the Annual Meeting |
At our annual meeting, stockholders will act upon the matters outlined in the Notice of Annual Meeting of Stockholders, and management will report on matters of current interest to our stockholders and respond to questions from our stockholders. The matters outlined in the notice include the election of directors, the approval of the Amended and Restated Management Incentive Plan, the ratification of the selection of our independent auditor for 2017, and2020, an advisory vote on approval ofto approve the compensation of our named executive officers.officers, and the approval of an amendment to our Eighth Amended and Restated Certificate of Incorporation to increase the number of authorized shares of common stock. Annual Meeting Voting Rights and Attendance |
Who is entitled to vote at the meeting? The board of directors has set March 28, 201725, 2020 as the record date for the annual meeting. If you were a stockholder of record at the close of business on March 28, 2017,25, 2020, you are entitled to vote at the meeting. As of the record date, 17,200,52635,019,093 shares of common stock, representing all of our voting stock, were issued and outstanding and, therefore, eligible to vote at the meeting. What are my voting rights? Holders of our common stock are entitled to one vote per share. Therefore, a total of 17,200,52635,019,093 votes are entitled to be cast at the meeting. There is no cumulative voting. How many shares must be present to hold the meeting? 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: you are present and vote in person at the meeting; or you have properly and timely submitted your proxy as described below under “How do I submit my proxy?” What is a proxy?
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 2017 annual meeting of stockholders. These executive officers are Archie C. Black and Kimberly K. Nelson.
If I received a one-page Notice of Internet Availability of Proxy Materials, how can I receive a full set of printed proxy materials?
As permitted by Securities and Exchange Commission rules, we have elected to provide access to our proxy materials over the Internet to record owners and any beneficial owners of our stock who have not previously
requested printed proxy materials, which reduces our costs and the environmental impact of our annual meeting. The Notice of Availability contains instructions on how to request a printed set of proxy materials, which we will provide to stockholders upon request at no cost to the requesting stockholder within three business days after receiving the request.
What is the difference between a stockholder of record and a “street name” holder? If your shares are registered directly in your name, you are considered the stockholder 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 stockholder 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?” How can I attend the meeting? All of our stockholders 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 4
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. Information about the Notice and Proxy Materials |
What is a proxy? 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 2020 annual meeting of stockholders. These executive officers are Archie C. Black and Kimberly K. Nelson. If I received a one-page Notice of Internet Availability of Proxy Materials, how can I receive a full set of printed proxy materials? As permitted by SEC rules, we have elected to provide access to our proxy materials over the Internet to record owners and any beneficial owners of our stock who have not previously requested printed proxy materials, which reduces our costs and the environmental impact of our annual meeting. The Notice of Availability contains instructions on how to request a printed set of proxy materials, which we will provide to stockholders upon request at no cost to the requesting stockholder within three business days after receiving the request. How do I submit my proxy? If you are a stockholder of record, you can submit a proxy to be voted at the meeting in any of the following ways: over the internet using www.proxyvote.com, | • | | over the internet usingwww.proxyvote.com,
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over the telephone by calling a toll-free number; or signing, dating and mailing the proxy card in the envelope provided. To vote by telephone or the internet, you will need to use a control number that was provided to you by our vote tabulator, Broadridge Financial Solutions, and then follow the additional steps when prompted. The steps have been designed to authenticate your identity, allow you to give voting instructions, and confirm that those instructions have been recorded properly. 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, which is similar to the voting procedures for stockholders of record. However, ifIf you request the proxy materials by mail after receiving a Notice of Internet Availability of Proxy Material, you will receive a voting instruction form (not a proxy card) to use in directing the broker, bank, trust or other nominee how to vote your shares. What does it mean if I receive more than one printed set of proxy materials? If you receive more than one Notice of Internet Availability of Proxy Materials or printed set of proxy materials, it means that you hold shares registered in more than one account. To ensure that all of your shares are voted, vote once for each control number you receive as described above under “How do I submit my proxy?” Who pays for the cost of proxy preparation and solicitation? SPS Commerce 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 by mail. In addition, our directors, officers and regular employees may solicit proxies personally, telephonically, electronically or by other means of communication. Our directors, officers and regular employees will receive no additional compensation for their services other than their regular compensation. 5
How does the board of directors recommend that I vote? The board of directors recommends a vote: FOR the election of each of the nominees for director; FOR the ratification of the selection of KPMG as the independent auditor of SPS Commerce, Inc. for the year ending December 31, 2020; FOR advisory approval of the compensation of our named executive officers; and FOR approval of the amendment to our Eighth Amended and Restated Certificate of Incorporation to increase the number of authorized shares of common stock. What if I do not specify how I want my shares voted? If you are a stockholder 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 matter, we will vote your shares as follows: FOR the election of each of the nominees for director; FOR the ratification of the selection of KPMG as the independent auditor of SPS Commerce, Inc. for the year ending December 31, 2020; FOR advisory approval of the compensation of our named executive officers; and FOR approval of the amendment to our Eighth Amended and Restated Certificate of Incorporation to increase the number of authorized shares of common stock. 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 stockholder 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. Other than the ratification of the selection of KPMG as our independent auditor for the year ending December 31, 2020 and the approval of the amendment to our Eighth Amended and Restated Certificate of Incorporation to increase the number of authorized shares of common stock, the rules do not permit member brokers to exercise voting discretion as to the uninstructed shares on any matter included in the notice of meeting. With respect to the ratification of the selection of KPMG as our independent auditor for the year ending December 31, 2020 and the approval of the amendment to our Eighth Amended and Restated Certificate of Incorporation, the rules permit member brokers to exercise voting discretion as to the uninstructed shares. For matters with respect to which the broker, bank or other nominee does not have voting discretion or has, but does not exercise, voting discretion, the uninstructed shares 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?” Can I change my vote after submitting my proxy? 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: by submitting a later-dated proxy by telephone or the internet before 11:59 p.m. Eastern Time on Wednesday, May 20, 2020 for shares held directly and before 11:59 p.m. Eastern Time on Friday, May 15, 2020 for shares held in a Plan; by submitting a later-dated proxy to the Chief Financial Officer of SPS Commerce, Inc., which must be received by us before the time of the annual meeting; 6
| • | by sending a written notice of revocation to the Chief Financial Officer of SPS Commerce, Inc., which must be received by us before the time of the annual meeting; or |
by voting in person at the meeting. Can I vote my shares in person at the meeting? If you are a stockholder 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 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. How does the board of directors recommend that I vote?
The board of directors recommends a vote:
FOR all of the nominees for director;
FOR the approval of the Amended and Restated Management Incentive Plan;
FORthe ratification of the selection of KPMG LLP as the independent auditor of SPS Commerce, Inc. for the year ending December 31, 2017; and
FORthe advisory approval of the compensation of our named executive officers.
What if I do not specify how I want my shares voted?
If you are a stockholder 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 matter, we will vote your shares as follows:
FOR all of the nominees for director;
FORthe ratification of the selection of KPMG LLP as the independent auditor of SPS Commerce, Inc. for the year ending December 31, 2017;
FOR the approval of the Amended and Restated Management Incentive Plan; and
FORthe advisory approval of the compensation of our named executive officers.
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 stockholder 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. Other than the ratification of the selection of KPMG LLP as our independent auditor for the year ending December 31, 2017, the rules donot permit member brokers to exercise voting discretion as to the uninstructed shares on any matter included in the notice of meeting. With respect to the ratification of the selection of KPMG LLP as our independent auditor for the year ending December 31, 2017, the rules permit member brokers to exercise voting discretion as to the uninstructed shares. For matters with respect to which the broker, bank or other nominee does not have voting discretion or has, but does not exercise, voting discretion, the uninstructed shares 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?”
Can I change my vote after submitting my proxy?
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:
by submitting a later-dated proxy by telephone or the internet before 11:59 p.m. Eastern Time on Monday, May 22, 2017;
by submitting a later-dated proxy to the Chief Financial Officer of SPS Commerce, Inc., which must be received by us before the time of the annual meeting;
by sending a written notice of revocation to the Chief Financial Officer of SPS Commerce, Inc., which must be received by us before the time of the annual meeting; or
by voting in person at the meeting.
What vote is required to approve each item of business included in the notice of meeting? The seven directorsA director nominee will be elected if the number of votes cast “FOR” the nominee exceeds the number of votes cast “AGAINST” the nominee. Any incumbent director who does not receive a pluralitygreater number of votes “FOR” than “AGAINST” his or her reelection in an uncontested election shall tender his or her resignation to the board of directors, subject to acceptance by the board of directors. The board of directors will determine whether to accept or reject the offer to resign within 90 days of certification of the voting power of the shares of common stock entitled to vote and present in person or represented by proxy at the meeting.stockholder vote.
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 and to approve the approval ofamendment to our Eighth Amended and Restated Management Incentive Plan.Certificate of Incorporation. IfFor the advisory vote onto approve the executive compensation of our named executive officers, receives more votes “for” than “against,” thenthere is no minimum approval necessary for the proposal since it is an advisory vote; however, the board of directors will be deemed approved.consider the results of the advisory vote when considering future decisions related to such proposals.
How are votes counted? You may either vote “FOR” or “WITHHOLD” authority to vote for each director nominee. You may vote “FOR,” “AGAINST” orOR “ABSTAIN” for each director nominee and 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 for a director nominee or on thethese other 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.voting. 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 voteabstain from voting 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 proposalsproposal to ratify the selection of KPMG LLP as our independent auditor and the proposal to approve an amendment to our Eighth Amended and Restated Management Incentive Plan,Certificate of Incorporation, if you abstain from voting, doing so 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 or may not vote your shares), this will have no effect on the outcome of the vote. Abstentions and broker non-votes will have no effect on the advisory vote to approve the compensation of our named executive officers. How can I attend the meeting?7
All
ITEM 1 – ELECTION OF DIRECTORS |
Our Amended and Restated Bylaws provide that each member of our stockholders are invited to attendboard of directors is elected annually by a majority of votes cast if 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. Who pays for the cost of proxy preparation and solicitation?
SPS Commerce 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 by mail. In addition, our directors, officers and regular employees may solicit proxies personally, telephonically, electronically or by other means of communication. Our directors, officers and regular employees will receive no additional compensation for their services other than their regular compensation.
ITEM 1 —ELECTION OF DIRECTORS
election is uncontested. The number of directors currently serving on our board of directors is seven. Upon recommendation of the governance and nominating committee, which acts as the nominating committee of the board of directors, the board has nominated the seven current members of the board of directors set forth below for election at our 2017 annual meeting, who are Archie C. Black, Martin J. Leestma, James B. Ramsey, Tami L. Reller, Michael A. Smerklo, Philip E. Soran and Sven A. Wehrwein. These nominees will each be a candidate for election to the board of directors to serve until our 2018 annual meeting or until his or her successor is elected and qualified. Each of the nominees hasall have agreed to serve as a directordirectors if elected. The seven nominees receiving a pluralityAll of the votes castdirector nominees were elected by our stockholders at theour 2019 annual meeting in person or by proxy will be elected. Proxies may not be voted for more than seven directors. of stockholders. 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 director nominees, if reelected, will serve until our 2021 annual meeting of stockholders or until their successors are elected and qualified. The board of directors recommends a vote FOR the election of each of the seven director nominees. Proxies will be voted FOR the election of each of the seven nominees unless otherwise specified. Set forth below is biographical information for each of the nominees for election as a director.director nominees. The following includes certain information regarding our directors’ individual experience, qualifications, attributes and skills that led the board of directors to conclude that they should serve as directors. ARCHIENominees for Director
Archie C. BLACK: Age 54, Black President, Chief Executive Officer of SPS Commerce, Inc. Age | | 58 | Director since | | 2001 | SPS Board committee | | Ex-officio member of Finance and Strategy | Independent | | No |
Professional Highlights Mr. Black has served as President and DirectorChief Executive Officer of SPS Commerce, Inc. since 2001. Mr. Black joined us in 1998 as our Senior Vice President and Chief Financial Officer and served in those capacities until becoming our President and Chief Executive Officer. Prior to joining us, Mr. Black was a Senior Vice President and Chief Financial Officer at Investment Advisors, Inc. in Minneapolis, Minnesota, where he directed both the Minneapolis and London organizations. Prior to Investment Advisors, he spent three years at Price Waterhouse. Mr. Black serves on the board of directors of Proto Labs, Inc., a public manufacturing company.publicly traded internet-enabled manufacturer of custom parts. Nominee Qualifications Mr. Black’s qualifications to serve on our board of directors include, among other skills and qualifications, his extensive management, financial, and operational experience as well as his experience with our company.
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MARTINMartin J. LEESTMA: Age 58, Director since March 2006 and was Leestma
Chairman from March 2011 to May 2014. of the board of directors of Forthright Solutions Age | | 61 | Director since | | 2006 | SPS Board committees | | Audit; Finance and Strategy | Independent | | Yes |
Professional Highlights Mr. Leestma is Chief Executive Officer andhas served as Chairman of the board of directors for Forthright Solutions, a solution provider for regulatory and legal compliance programs, and he hassince 2008. He served as Chief Executive Officer since Novemberof Forthright from 2011 and Chairman since 2008.to 2014. Prior to Forthright, Mr. Leestma served as the President, Chief Executive Officer, and a member of the board of directors for Retek Information Systems, a software company, from 2003 to 2005, during which time Retek was a publicly traded company. Prior to joining Retek, heMr. Leestma was Global Managing Partner of Retail Technology at Accenture from 1996 to 1999 and Managing Partner of North American Consumer Goods & Services from 1999 to 2002. He became Global Industry Managing Partner — Retail & CG&S industries in 2002. He became Global Industry Managing Partner – Retail & CG&S Industries in 2002 and served in this role until his departure in 2003. From 2005 to 2008, he served as an independent business consultant. Mr. Leestma also serves on the board of directors for Kipsu, a private texting and digital messaging company, and Xsell Technologies, a private digital dialogue company. Mr. Leestma was Chairman of the board of directors of SPS Commerce from 2011 to 2014. Nominee Qualifications Mr. Leestma’s qualifications to serve on our board of directors include, among other skills and qualifications, his general business experience due to his work as an independent business consultant and his experience with public companies as the Chief Executive Officer of Retek Information Systems from 2003 to 2005. JAMESJames B. RAMSEY: Age 44, Director since March 2014. Ramsey
Co-founder and Board member, Vlocity Inc Age | | 47 | Director since | | 2014 | SPS Board committees | | Compensation; Governance and Nominating | Independent | | Yes |
Professional Highlights Mr. Ramsey is co-founderco-founded and serves as board member atof Vlocity Inc., a provider of industry-specific cloud CRM applications.applications, since 2014. Mr. Ramsey also serves on the boards of Ambra Health (formerly DicomGrid) and, a privately-held medical software company. Previously he served on the board of Flipgrid, Inc., a privately-held education technology software company, until its sale to Microsoft in 2018. Previously, Mr. Ramsey served as the Executive Vice President of Worldwide Sales and Distribution at NetSuite Inc., a publicly traded SaaS company,provider of cloud-based business management software, from 2011 to 2013. Prior to his position as Executive Vice President, Mr. Ramsey held several senior executive roles at NetSuite, including Vice President of the Americas and Senior Vice President of Worldwide Sales and Distribution. Prior to NetSuite Inc., Mr. Ramsey served in various sales management roles at Oracle Corporation. Nominee Qualifications Mr. Ramsey’s qualifications to serve on our board of directors include, among other skills and qualifications, his experience in software sales and in rapidly scaling sales organizations with NetSuite Inc. and Oracle. Oracle Corporation.9
TAMIMarty M. Reaume
Chief People Officer, Lightspeed POS Inc. Age | | 54 | Director since | | 2018 | SPS Board committee | | Compensation; Governance and Nominating | Independent | | Yes |
Professional Highlights Ms. Reaume has served as the Chief People Officer at Lightspeed POS Inc., a cloud based provider of point of sale systems and e-commerce software, since February 2020. Additionally, Ms. Reaume serves on the board of Ambra Health (formerly DicomGrid), a privately-held medical software company and is on the advisory board for OpenClassrooms, a privately held online education platform. From 2017 to August 2019, Ms. Reaume served as Chief People Officer of Twilio Inc., a publicly traded developer and provider of a cloud-based platform enabling organizations to integrate voice, messaging and video communications capabilities into their software applications. From 2015 to 2017, she served as Chief People Officer of Fitbit, Inc., a publicly traded technology company focused on delivering health solutions that impact health outcomes. Ms. Reaume served as Chief People Officer of NetSuite, Inc., a publicly traded provider of cloud-based business management software, from 2009 to 2014, and served as its head of human resources from 2006 to 2009. From 2001 to 2005, Ms. Reaume served as director of human resources at Royal & Sunalliance, a multinational insurance company. Nominee Qualifications Ms. Reaume’s qualifications to serve on our board of directors include, among other skills and qualifications, her strong human resources, talent acquisition and talent development expertise. Tami L. RELLER: Age 52, Director since May 2016. Ms. Reller is an Executive Vice President and Chief FinancialMarketing and Experience Officer at Optum,UnitedHealthcare, a division of UnitedHealth Group.Group Age | | 55 | Director since | | 2016 | SPS Board committee | | Finance and Strategy | Independent | | Yes |
Professional Highlights Ms. Reller has served as Executive Vice President and Chief Marketing and Experience Officer of UnitedHealthcare, the health benefits platform of UnitedHealth Group, since November 2017. Additionally, Ms. Reller serves on the board of Avalara, a public automated tax compliance software company. From April 2017 to November 2017, Ms. Reller served as Chief Growth Officer of Optum, the health service platform of UnitedHealth Group, and from 2016 to April 2017 she served as Chief Financial Officer of Optum. From 2001 until Septemberto 2014, Ms. Reller served in several executive roles with Microsoft Corporation including Executive Vice President of Marketing, Windows Chief Financial Officer and Chief Marketing Officer, Divisional Chief Financial Officer and Corporate Vice President of Dynamics. She was also the Chief Financial Officer of Great Plains Software from 1999 to 2001, until the company was acquired by Microsoft Corporation. Since 2018, Ms. Reller has served as Chairwoman of our board of directors. 10
Nominee Qualifications Ms. Reller’s qualifications to serve on our board of directors include, among other skills and qualifications, her extensive experience steering and managing software companies, her capabilities in financial understanding and auditing review, and her general business knowledge. MICHAEL A. SMERKLO: Age 47,Philip E. Soran
Lead Director, Piper Sandler Companies; Director, Foodsby; Director, Spineology; Director, Claros Technologies Age | | 63 | Director since | | 2010 | SPS Board committees | | Audit; Compensation; Finance and Strategy | Independent | | Yes |
Professional Highlights Mr. Soran serves as Lead Director on the board of directors of Piper Sandler Companies (Piper Jaffray Companies merged with Sandler O’Neill + Partners, L.P. in January 2014. Mr. Smerklo served as the Chairman of2020), a publicly traded investment bank and asset management firm, on the board of directors for ServiceSource InternationalFoodsby, a privately-held food delivery service, on the board of directors of Spineology, a private medical technology company, and on the board of Claros Technologies, Inc., a publicly traded company that provides recurring revenue management solutions for technology-based companies, a position from which he retired in 2015. He was the Chief Executive Officer of ServiceSource from 2003 to 2014. Prior to ServiceSource, Mr. Smerklo held executive positions at Opsware (previously Loudcloud), Morgan Stanley,private advanced materials and Lehman Brothers. Mr. Smerklo currently serves as Co-Founder and Managing Director of Next Coast Ventures, an early stage technology venture capital firm that he founded in late 2015. Mr. Smerklo’s qualifications to serve on our board of directors include, among other skills and qualifications, his extensive experience with software and internet services companies as well as his experience with public companies as the Chief Executive Officer of ServiceSource.
PHILIP E. SORAN: Age 60, Director since July 2010 and Chairman since May 2014.environmental company. Mr. Soran is currentlywas the Executive Chairman and co-founder of Flipgrid, Inc., a privately-held education technology software company, from 2015 until its sale to Microsoft in 2018. Mr. Soran served as President, Chief Executive Officer, and a director of Compellent Technologies, Inc., a publicly traded software company which he co-founded in March 2002, until its acquisition by Dell Inc. in February 2011, after which he served as the President of Dell Compellent from February 2011 to March 2012. Mr. Soran also servesHe previously served on the board of directors for Piper Jaffray Companies, a publicly traded investment bank and asset management firm andof Help Systems, LLC, a privately heldprivately-held software company.company, from 2012 until its sale in 2018. From July 1995 to August 2001, Mr. Soran served as President, Chief Executive Officer and a member of the board of directors of Xiotech, which Mr. Soran co-founded in July 1995. Xiotech was acquired by Seagate in January 2000. From October 1993 to April 1995, Mr. Soran served as Executive Vice President of Prodea Software Corporation, a data warehousing software company. Mr. Soran also held a variety of management, sales, marketing, and technical positions with IBM, and served on the board of directors of Hutchinson Technology Incorporated, a public manufacturing company, from 2011 until its acquisition by TDK Corporation in the fall2016. Mr. Soran served as Chairman of 2016.our board of directors from 2014 to 2017.
Nominee Qualifications Mr. Soran’s qualifications to serve on our board of directors include, among other skills and qualifications, his experience as a chief executive officer of a publicly traded company, service on a variety of public and private technology-related company boards, and his experience in founding and building technology companies as well as his corporate vision and operational knowledge, which provide strategic guidance to the board. SVENSven A. WEHRWEIN: Age 66, Director since July 2008. Wehrwein
Independent financial consultant to emerging companies Age | | 69 | Director since | | 2008 | SPS Board committees | | Audit; Governance and Nominating | Independent | | Yes |
11
Professional Highlights Mr. Wehrwein has been an independent financial consultant to emerging companies since 1999. During his 35-plusover 35 years in accounting and finance, Mr. Wehrwein has experience as a certified public accountant (inactive), investment banker to emerging growth companies, chief financial officer, and audit committee chair. He currently serves on the board of directors of Proto Labs, Inc., a manufacturer of custom parts and a publicly traded company, and Atricure, Inc., a publicly traded medical device company.company, and Proto Labs, Inc., a publicly traded internet-enabled manufacturer of custom parts. Mr. Wehrwein also served on the board of directors of Compellent Technologies, Inc. from 2007 until its acquisition by Dell Inc. in 2011, on the board of Vital Images, Inc. from 1997 until its acquisition by Toshiba Medical in 2011, on the board of Synovis Life Technologies, Inc. from 2004 until its acquisition by Baxter International, Inc. in 2012, on the board of Cogentix Medical, Inc. from 2006 to 2016, and on the board of directors of Image Sensing Systems, Inc. from 2006 to 2012. 2012, all of which were publicly traded companies.Nominee Qualifications Mr. Wehrwein’s qualifications to serve on our board of directors include, among other skills and qualifications, his capabilities in financial understanding, strategic planning, and auditing expertise, given his experiences in investment banking and in financial leadership positions. As chairman of the audit committee, Mr. Wehrwein also keeps the board abreast of current audit issues and collaborates with our independent auditors and senior management team. 12
INFORMATION REGARDING THE BOARD OF DIRECTORS AND CORPORATE GOVERNANCE The board of directors conducts its business through meetings of the board and the following standing committees: audit, compensation, and governance and nominating.nominating, and finance and strategy. Each of the standing committees has adopted and operates under a written charter, all of which are available on our website atwww.spscommerce.com. Other corporate governance documents available on our website include our Corporate Governance Guidelines and Code of Business Conduct and Ethics. Code of Business Conduct and Ethics
We have adopted a code of business conduct and ethics relating to the conduct of our business by our directors, officers and employees, which is posted on our website atwww.spscommerce.com. Our Corporate Governance Guidelines are also available on our website. Director Independence As required under The NASDAQ Stockthe Nasdaq Global Market rules and regulations, a majority of the members of a listed company’s board of directors must qualify as “independent,” as affirmatively determined by the board. The board of directors consults with our counsel to ensure that the board’s determinations are consistent with all relevant securities and other laws and regulations regarding the definition of “independent,” including those set forth in pertinent listing standards of The NASDAQ Stockthe Nasdaq Global Market, as in effect from time to time. Consistent with these considerations, after review of all relevant transactions or relationships between each director, or any of his or her family members, and our Company, our management and our independent registered public accounting firm, the board of directors has affirmatively determined that all of our Company’s directors are independent directors within the meaning of the applicable listing standards of The NASDAQ Stockthe Nasdaq Global Market, except for Mr. Black, our current President and Chief Executive Officer. As required under The NASDAQ Stockthe Nasdaq Global Market rules and regulations, our independent directors meet in regularly scheduled executive sessions at which only independent directors are present. All of the committees of our board of directors are comprised entirely of directors determined by the board to be independent within the meaning of The NASDAQ Stockthe Nasdaq Global Market rules and regulations. Board Leadership Structure Mr. Soran,Tami Reller, a non-employee independent director, has served as our chairmanchair of theour board of directors since May 2014,2018, while Mr. Black serves as our President and Chief Executive Officer. Separating these positions allows our Chief Executive Officer to focus on our day-to-day business, while allowing the chairmanchair of the board to lead the board in its fundamental role of providing advice to, and independent oversight of, management. The board of directors recognizes the time, effort and energy that the Chief Executive Officer is required to devote to his position in the current business environment, as well as the commitment required to serve as our chairman.board chair. Our Corporate Governance Guidelines require our chairmanboard chair and Chief Executive Officer positions to be separate because the board of directors believes that having separate positions and having an independent director serve as chairmanchair of the board is the appropriate leadership structure for us and demonstrates our commitment to good corporate governance. Effective as of the date of our annual meeting of stockholders, our board of directors has decided to appoint Mr. Smerklo as our chairman, succeeding Mr. Soran.
Board Involvement in Risk Oversight Our management is responsible for identifying the various risks facing us, formulating risk management policies and procedures, and managing our risk exposures on a day-to-day basis. The board of directors’ responsibility is to monitor our risk management processes by informing itself concerning our material risks and evaluating whether management has reasonable controls in place to address the material risks; the board is not responsible, however, for identifying or managing our various risks. The audit committee of the board of directors is primarily responsible for monitoring management’s responsibility in the area of financial risk oversight and the board of directors is primarily responsible for monitoring management’s responsibility in our other areas of risk management. Accordingly, management regularly reported to the audit committee and the board of directors on risk management during 2016.2019. The audit committee, in turn, reports on the matters discussed at the committee level to the full board. The audit committee and the full board focus on the material risks facing us, including financial, operational, market, credit, liquidity, legal and regulatory risks, to assess whether management has reasonable controls in place 13
to address these risks. In addition, the compensation committee is charged with reviewing and discussing with management whether our compensation arrangements are administered consistent with effective internal controls and sound risk management. The board of directors believes this division of responsibilities provides an effective and efficient approach for addressing risk management. Board Committees The board of directors has established an audit committee, a compensation committee, and a governance and nominating committee. Each of our committees hascommittee and a charterfinance and each charter is posted on our website.strategy committee. The following sets forth the membership of each of our committees as of March 28, 2017.25, 2020. DIRECTOR | | | | | | COMMITTEES | DirectorAudit
| Compensation | Audit
Committee | | Compensation
Committee | | Governance and
Nominating
Committee | | | | Finance and
Strategy | Archie C. Black | | | | | | | | | |  *
| Martin J. Leestma | 
| X | | Chair | | | | | | 
| James B. Ramsey | | | 
| X | 
| Chair | Marty M. Reaume | | | 
| | 
| | Tami L. Reller | | X | | | | | | | | | Michael A. Smerklo
| | | | X | | | | | | 
| Philip E. Soran | 
| X | 
| | | X | | | | 
| Sven A. Wehrwein | 
| Chair | | | 
| |  Chair  Member
| | | | | X | |
* | Mr. Black is an ex-officio member of the Finance Committee. As an ex-officio member, Mr. Black has a standing invitation to attend each committee meeting but does not count for quorum purposes or vote on committee matters. |
The primary responsibilities of each board committee are discussed in turn below. Audit Committee Among other matters, our audit committee: evaluates the qualifications, performance and independence of our independent auditor and reviews and approves both audit and non-audit services to be provided by the independent auditor; discusses with management and our independent auditors any major issues as to the adequacy of our internal controls, any actions to be taken in light of significant or material control deficiencies and the adequacy of disclosures about changes in internal control over financial reporting; establishes procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters, including the confidential, anonymous submission by employees of concerns regarding accounting or auditing matters; oversees our investment policy; and prepares the audit committee report that SEC rules require to be included in our annual proxy statement and annual report on Form 10-K.statement. Each of the members of our audit committee meets the requirements for financial literacy under the applicable rules and regulations of the SEC and the NASDAQ StockNasdaq Global Market. Our board of directors has determined that Mr. Wehrwein is an audit committee financial expert, as defined under the applicable rules of the SEC. Each member of our audit committee satisfies the NASDAQ StockNasdaq Global Market independence standards and the independence standards of Rule 10A-3(b)(1) of the Securities Exchange Act. 14
Compensation Committee Our compensation committee reviews and approves, on an annual basis, the goals and objectives relevant to our Chief Executive Officer’s compensation and annually reviews the evaluation of the performance of our executive officers and approves our executive officers’ annual compensation. Our compensation committee alsorefers to the annual performance reviews of our Chief Executive Officer and other executive officers to assess and approve their annual compensation, including salary, bonus, incentive and equity-based compensation. Our compensation committee administers the issuance of stock options and other awards under our 2010 Equity Incentive Plan. Our compensation committee also periodically reviews the compensation paid to our non-employee directors and recommends any adjustments in director compensation to our board of directors. Governance and Nominating Committee Our governance and nominating committee identifies individuals qualified to become members of the board of directors, recommends individuals to the board for nomination as members of the board and board committees reviews the compensation paid to our non-employee directors and recommends any adjustments in director compensation and oversees the evaluation of our board of directors. Finance and Strategy Committee Our finance committee was formed in August 2018 to assist the board of directors in matters involving certain finance and strategic matters, including reviewing and monitoring the management of capital, reviewing dividend and share repurchase policies and practices, and reviewing proposed merger, recapitalization, financing and other similar transactions. Meeting Attendance Our Corporate Governance Guidelines provide that our directors are expected to attend meetings of the board of directors and of the committees on which they serve, as well as our annual meeting of stockholders. Our board of directors held sixten meetings during 2016 and acted by written consent four times. The2019. Our audit committee of the board met eight times, the compensation committee of the board met nine times, and acted by written consent sixour compensation committee met nine times, (including any subcommittee written consents), and theour governance and nominating committee of the board met fiveseven times, and acted by written consent twoour finance and strategy committee met six times. Each of our directors attended at least 75% of the meetings of the board of directors and the committees on which he or she served during 2016.2019, and each of our directors whose service would be continuing after the meeting, attended our 2019 annual meeting. Procedures for Contacting the Board of Directors Stockholders who wish to communicate with the board of directors may do so by writing to the board or a particular director in care of the Secretary of the Company.company. Communications should be addressed to SPS Commerce, Inc., Attention: Secretary, 333 South Seventh Street, Suite 1000, Minneapolis, Minnesota 55402. All communications will initially be received and processed by the Secretary of the Company,company, who will then refer the communication to the appropriate board member (either the director named in the communication, the chairperson of the board committee having authority over the matter raised in the communication, or the chairperson of the board in all other cases). The director to whom a communication is referred will determine, in consultation with our counsel, whether a copy or summary of the communication will be provided to the other directors. The board of directors will respond to communications if and as appropriate. Procedures for Selecting and Nominating Director Candidates Stockholders may directly nominate a person for election to our board of directors by complying with the procedures set forth in Article II, Section 2.4(a)(2) of our bylaws, and with the rules and regulations of the Securities and Exchange Commission.SEC. 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 stockholder 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 (February 22, 2018)20, 2021), nor earlier than the 120th day (January 23, 2018)21, 2021), prior to the first anniversary of the prior year’s annual meeting of stockholders. Your notice must set forth all 15
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 (including the nominee’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected). Your notice also must set forth the following information for you and any beneficial owner on whose behalf you make a nomination: (i) the name and address of the stockholder, as they appear on our books; (ii) the class and number of shares of our capital stock which are owned beneficially and of record, as well as a description of all securities or contracts, with a value derived in whole or in part from the value of any shares of our capital stock, held by you and such beneficial owner or to which either is a party; (iii) a description of all arrangements or understandings between you and any such beneficial owner and any other person or persons (including their names) regarding the nomination; (iv) a representation that you intend to appear in person or by proxy at the meeting to nominate the persons named in your notice; and (v) a description of any other information relating to you and any such beneficial owner that would be required to be disclosed in a proxy statement or other filing required to be made in connection with the solicitation of proxies pursuant to Regulation 14A under the Securities Exchange Act of 1934. As required by our Corporate Governance Guidelines, when evaluating the appropriate characteristics of candidates for service as a director, the governance and nominating committee takes into account many factors. The board of directors selects and recommends to stockholders qualified individuals who, if added to the board, would provide the mix of director characteristics and diverse experiences, perspectives and skills appropriate for us. Board candidates are considered based on various criteria, including breadth and depth of relevant business and board skills and experiences, judgment and integrity, reputation in their profession, diversity of background, education, leadership ability, concern for the interests of stockholders and relevant regulatory guidelines. These considerations are made in the context of an assessment of the perceived needs of the board of directors at the particular point in time. We do not have a formal policy with respect to diversity, however, the board of directors seeks to have a board that represents diversity as to gender, race, ethnicity and background experiences. We are committed to inclusiveness and as such, when searching for director nominees, the governance and nominating committee endeavors to include highly qualified diverse candidates (including gender, race and ethnicity) in the pool from which nominees are chosen. Directors must be willing and able to devote sufficient time to carrying out their duties and responsibilities effectively, and should be committed to serving on the board for an extended period of time. The governance and nominating committee will consider director candidates recommended by stockholders in the same manner that it considers all director candidates. Stockholders who wish to suggest qualified candidates should write to SPS Commerce, Inc., 333 South Seventh Street, Suite 1000, Minneapolis, Minnesota 55402, Attention: Chief Financial Officer, stating in detail the characteristics that make the candidate a suitable person to serve on our board of directors in light of our Corporate Governance Guidelines. Hedging, Pledging and Other Restricted Transactions Our employees, including directors and Section 16 officers, are prohibited from engaging in the following transactions with respect to our securities: Purchasing our securities on margin, or otherwise pledging our securities; Short sales of our securities (selling securities not owned at the time of sale); Buying or selling put or call options or other derivative securities based on our securities; Purchasing any financial instruments (including prepaid variable forward contracts, equity swaps, zero cost collars and exchange funds) that are designed to hedge or offset any decrease in the market value of our securities; and Engaging in limit orders or other pre-arranged transactions that execute automatically, except for “same-day” limit orders and approved 10b5-1 plans. Director Compensation Our director compensation program is designed to compensate our non-employee directors fairly for work required for a company of our size and scope and to align their interests with the long-term interests of our stockholders. Director compensation reflects our desire to attract, retain and use the expertise of highly qualified individuals serving on our board of directors. The compensation committee periodically reviews the compensation 16
arrangements for our non-employee directors and makes recommendations to our board of directors. In May 2019, the compensation committee, with the advice of its compensation consultant, conducted a review of our director compensation program. This review analyzed the structure and the overall level and mix of compensation delivered by our director compensation program as compared to our peer group. Following this review, the compensation committee recommended, and the Board approved, changes to our director compensation program as described below. For 2019, our director compensation program provided that each non-employee director receive a stock option to purchase up to $85,000 of shares of our common stock on the date of the annual meeting of stockholders at which the director was elected to the board, calculated as the grant date fair value of the option computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Stock Compensation (“ASC Topic 718”). These awards vest in four equal installments on the last day of each fiscal quarter with the first vesting date occurring on June 30, 2019, provided the recipient remains a member of the board as of the vesting date, and have an exercise price equal to the fair market value of our common stock on the date of grant in accordance with our 2010 Equity Incentive Plan. The $85,000 option grant in 2019 reflects an increase over the $68,000 option granted awarded to non-employee directors during 2018. Prior to December 2019, each non-employee director also received an initial stock option grant to purchase up to $111,000 of shares of our common stock in connection with initial appointment to the board. Our director compensation program for 2019 also provided that each non-employee director receive an award of up to $85,000 in restricted stock or deferred stock units (or some combination of two), at the director’s election, on the date of the annual meeting of stockholders at which the director was elected to the board, calculated as the grant date fair value of the award computed in accordance with FASB ASC Topic 718. These awards vest in four equal installments on the last day of each fiscal quarter with the first vesting date occurring on June 30, 2019, provided the recipient remains a member of the board as of the vesting date. The deferred stock units must be retained until completion of the director’s service on the board, and upon completion of such service, convert into an equal number of shares of our common stock. A director may defer receipt of the shares for up to ten years after completion of service. The $85,000 award of restricted stock and/or deferred stock units in 2019 reflects an increase over the $68,000 restricted stock award granted to non-employee directors during 2018. Non-employee directors receive cash fees in addition to the equity awards described above. In 2019, each non-employee director received an annual cash retainer of $31,000 (no change from 2018) and the chair of our board of directors received an annual cash retainer of $53,500 ($5,500 increase from 2018). In addition, the annual cash fee paid to the chair of each committee was as follows: Committee Chair | | Annual Cash Fee Effective
May 14, 2019 | | Annual Cash Fee Prior to
May 14, 2019 | | Audit | $ | 20,000 | | $ | 18,500 | | Compensation | $ | 12,000 | | $ | 10,000 | | Governance and Nominating | $ | 7,500 | | $ | 7,000 | | Finance and Strategy | $ | 10,000 | | $ | 10,000 | |
The annual cash fee for each committee member, other than the chair, was as follows: Non-Chair Committee Members | | Annual Cash Fee
Effective
May 14, 2019 | | Annual Cash Fee
Prior to May 14, 2019 | | Audit | | $ | 8,000 | | $ | 7,000 | | Compensation | | $ | 5,000 | | $ | 5,000 | | Governance and Nominating | | $ | 4,000 | | $ | 3,000 | | Finance and Strategy | | $ | 5,000 | | $ | 5,000 | |
We also reimbursed our non-employee directors for out-of-pocket expenses incurred in connection with attending our board and committee meetings. 17
Beginning in 2020, the chair of our board of directors annual retainer amount will increase to $61,000. Under our stock ownership guidelines adopted in February 2019, we require our non-employee directors to achieve ownership of shares of our common stock (excluding unvested equity awards but including vested in-the-money options and vested restricted stock units) having a fair market value equal to five times the directors’ annual base cash retainer. Non-employee directors must comply with the stock ownership guidelines within five years of their appointment to the board of directors. Until a non-employee director has achieved compliance with the ownership guidelines, the director must retain 50% of the net shares acquired upon exercise, vesting or settlement of any equity award. As of March 25, 2020, all of our non-employee directors had met the stock ownership requirement or had served as a director for less than five years since the ownership guidelines took effect. The table below sets forth the compensation provided to our non-employee directors during 2016.2019. Mr. Black’s compensation is set forth under “–“2019 Summary Compensation Table” because he served as our President and Chief Executive Officer during that year. Mr. Black did not receive any separate compensation for his service as a director. 2019 Director Compensation Table | | | | | | | | | | | | | | | | | Name | | Fees Earned or
Paid in Cash
($) | | | Stock Awards(1)
($) | | | Option Awards(1)
($) | | | Total
($) | | Michael B. Gorman(2) | | | 14,899 | | | | — | | | | — | | | | 14,899 | | Martin J. Leestma(3) | | | 45,915 | | | | 52,950 | | | | 52,989 | | | | 151,854 | | James B. Ramsey(4) | | | 38,147 | | | | 52,950 | | | | 52,989 | | | | 144,086 | | Tami L. Reller(5) | | | 19,247 | | | | 52,950 | | | | 163,981 | | | | 236,178 | | Michael A. Smerklo(6) | | | 34,294 | | | | 52,950 | | | | 52,989 | | | | 140,233 | | Philip E. Soran(7) | | | 50,640 | | | | 52,950 | | | | 52,989 | | | | 156,579 | | Sven A. Wehrwein(8) | | | 48,801 | | | | 52,950 | | | | 52,989 | | | | 154,740 | |
Name(1) | | Fees Earned or Paid in Cash ($) | | | Stock Awards ($)(2) | | | Option Awards ($)(2) | | | Total ($) | | Melvin L. Keating(3) | | | 13,300 | | | | — | | | | — | | | | 13,300 | | Martin J. Leestma | | | 48,630 | | | | 84,952 | | | | 84,975 | | | | 218,557 | | Michael J. McConnell(3) | | | 13,300 | | | | — | | | | — | | | | 13,300 | | James B. Ramsey | | | 43,315 | | | | 84,952 | | | | 84,975 | | | | 213,242 | | Marty M. Reaume | | | 39,630 | | | | 84,952 | | | | 84,975 | | | | 209,557 | | Tami L. Reller | | | 56,921 | | | | 84,952 | | | | 84,975 | | | | 226,848 | | Philip E. Soran | | | 54,891 | | | | 84,952 | | | | 84,975 | | | | 224,818 | | Sven A. Wehrwein | | | 54,076 | | | | 84,952 | | | | 84,975 | | | | 224,003 | |
(1) | As of December 31, 2019, the directors held shares of unvested restricted stock, options to purchase shares of our common stock, and exercisable options as follows (shares have been adjusted to reflect a two-for-one stock split effective August 22, 2019): |
| | | | Options | | Name | | Unvested Restricted Stock (#) | | Total Outstanding (#) | | | Number of Outstanding that Were Exercisable (#) | | Martin J. Leestma | | 410 | | | 45,952 | | | | 44,518 | | James B. Ramsey | | 410 | | | 47,074 | | | | 45,640 | | Marty M. Reaume | | 410 | | | 22,124 | | | | 16,050 | | Tami L. Reller | | 410 | | | 38,288 | | | | 36,854 | | Philip E. Soran | | 410 | | | 61,992 | | | | 60,558 | | Sven A. Wehrwein | | 410 | | | 51,462 | | | | 50,028 | |
(2) | Represents the grant date fair value of the stock and option awards granted during the year computed in accordance with FASB ASC Topic 718. For a discussion of the relevant assumptions used to determine the valuation of our option awards for financial reporting purposes, please refer to Note IM to the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K filed with the Securities and Exchange CommissionSEC on February 27, 2017.25, 2020. |
(2)(3) | AsMessrs. Keating and McConnell ceased serving as directors on our board as of December 31, 2016, Mr. Gorman heldMay 14, 2019 and had no shares of unvested restricted stock andor options to purchase an aggregate of 15,274 shares of our common stock, all of which were vested. |
(3) | Asoutstanding as of December 31, 2016, Mr. Leestma held 254 shares of unvested restricted stock and options to purchase an aggregate of 35,135 shares of our common stock, 34,286 of which were vested.2019. |
(4) | As of December 31, 2016, Mr. Ramsey held 254 shares of unvested restricted stock and options to purchase an aggregate of 14,360 shares of our common stock, 12,855 of which were vested. |
(5) | As of December 31, 2016, Ms. Reller held 254 shares of unvested restricted stock and options to purchase an aggregate of 9,967 shares of our common stock, 3,824 of which were vested. |
(6) | As of December 31, 2016, Mr. Smerklo held 254 shares of unvested restricted stock and options to purchase an aggregate of 12,689 shares of our common stock, 11,605 of which were vested. |
(7) | As of December 31, 2016, Mr. Soran held 254 shares of unvested restricted stock and options to purchase an aggregate of 32,463 shares of our common stock, 31,614 of which were vested. |
(8) | As of December 31, 2016, Mr. Wehrwein held 254 shares of unvested restricted stock and options to purchase an aggregate of 21,870 shares of our common stock, 21,021 of which were vested. |
For 2016, our director compensation policy provided that each non-employee director receive a stock option to purchase up to $53,000 of shares of our common stock on the date of the annual meeting of stockholders at which the director was elected to the board or continued to serve as a director calculated as the grant date fair value of the option computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718,Stock Compensation (“ASC Topic 718”). These awards vest in four equal installments on the last day of each fiscal quarter with the first vesting occurring on June 30, 2016, provided the recipient remains a member of the board as of the vesting date. In addition, each non-employee director receives an initial stock option grant to purchase up to $111,000 of shares of our common stock in connection with appointment to the board calculated as the grant date fair value of the option computed in accordance with ASC Topic 718. All stock options granted under the policy have an exercise price equal to the fair market value of our common stock on the date of grant in accordance with our 2010 Equity Incentive Plan.
18Our director compensation policy for 2016 also provided that each non-employee director received a restricted stock award of $53,000 of shares of our common stock on the date of the annual meeting of stockholders at which the director was elected to the board or continued to serve as a director calculated as the grant date fair value of the option computed in accordance with ASC Topic 718. These restricted stock awards vest in four equal installments on the last day of each fiscal quarter with the first vesting occurring on June 30, 2016, provided the recipient remains a member of the board as of the vesting date.
We also reimbursed our non-employee directors for out-of-pocket expenses incurred in connection with attending our board and committee meetings.
Non-employee directors receive cash fees in addition to the equity awards described above. As of the date of the 2016 annual meeting of stockholders, we made no changes to the cash fees except as set forth below. Effective as of our 2016 annual meeting of stockholders, each non-employee director received an annual cash retainer of $27,500 and the chairman of our board of directors received an additional annual cash fee of $12,000. In addition, for 2016 prior to the annual meeting of stockholders, the chair of each committee received an annual cash fee as follows:
| | | | | Committee Chair | | Annual Cash Fee | | Audit | | $ | 15,000 | | Compensation | | $ | 10,000 | | Governance and Nominating | | $ | 6,800 | |
For 2016 prior to the annual meeting of stockholders, the annual cash fee for each committee member, other than the chair, was as follows:
| | | | | Non-Chair Committee Members | | Annual Cash Fee | | Audit | | $ | 5,000 | | Compensation | | $ | 4,000 | | Governance and Nominating | | $ | 2,700 | |
Each non-employee director elected at the 2016 annual meeting of stockholders received an annual retainer of $31,000, a stock option grant to purchase up to $53,000 of shares of our common stock and a restricted stock award of $53,000 of shares of our common stock. The vesting schedules and other terms of the awards did not change. In addition, the chairman of our board of directors received an additional annual cash fee of $14,000.
For 2016 following the annual meeting of stockholders, the chair of each committee received an annual cash fee as follows:
| | | | | Committee Chair | | Annual Cash Fee | | Audit | | $ | 17,000 | | Compensation | | $ | 10,000 | | Governance and Nominating | | $ | 7,000 | |
For 2016 following the annual meeting of stockholders, the annual cash fee for each committee member, other than the chair, was as follows:
| | | | | Non-Chair Committee Members | | Annual Cash Fee | | Audit | | $ | 7,000 | | Compensation | | $ | 5,000 | | Governance and Nominating | | $ | 3,000 | |
Our director compensation plan is unchanged for directors elected at our 2017 annual meeting.
EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSISEXECUTIVE COMPENSATION Compensation Discussion and Analysis |
The following is a discussion and analysis of compensation arrangements of our named executive officers for 2016.2019. Our named executive officers for 20162019 were: Archie C. Black, our President and Chief Executive Officer, Kimberly K. Nelson, our Executive Vice President and Chief Financial Officer, and James J. Frome, our Executive Vice President and Chief Operating Officer. Executive Summary We are a technology company with $193.3 million in annual revenues. We are a leading provider of cloud-based supply chain management solutions, providing network-proven integrations and comprehensive retail performance analytics to thousands of customers worldwide.
2016 was a successful year for us. As reflected in our earnings releases we focus on improving revenue, recurring revenue, net income (and diluted EPS), non-GAAP net income (and diluted non-GAAP EPS) and non-GAAP Adjusted EBITDA and we performed well on all these measures in 2016. A reconciliation of net income to non-GAAP net income (and diluted non-GAAP EPS) and to Adjusted EBITDA is incorporated by reference to the sections titled “Results of Operations — Year Ended December 31, 2016 Compared to Year Ended December 31, 2015 — Non-GAAP Income Per Share” and “— Adjusted EBITDA,” respectively, included in our annual report on Form 10-K filed with the Securities and Exchange Commission on February 27, 2017 (SEC file no. 001-34702).
We had sequential revenue growth for all four quarters of 2016 and we now have 64 consecutive quarters of sequential revenue growth.
Our revenues of $193.3 million, compared to $158.5 million for 2015, reflect 22% growth from 2015.
Our average recurring revenue per recurring revenue customer increased 16% from 2015, and our recurring revenue from recurring revenue customers grew 23% from 2015.
We achieved improvements in operational efficiency that produced Adjusted EBITDA of $26.5 million, compared to $22.6 million in 2015, and non-GAAP income per diluted share of $1.01 in 2016 compared to $0.84 in 2015.
As reflected in our compensation philosophy, we set the compensation of our executive officers, including theour named executive officers, based on their ability to create sustainable long-term stockholder value in a cost-effective manner. Our executive compensation philosophy is to align executive compensation decisions with our desired business direction, strategy and performance. The primary objectives and priorities of our executive compensation program are the following: Pay for Performance: Emphasize variable compensation that is tied to our financial and stock price performance in an effort to generate and reward superior individual and collective performance; | • | | Pay for Performance: Emphasize variable compensation that is tied to our financial and stock price performance in an effort to generate and reward superior individual and collective performance;
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Stockholder Alignment: Link our executives’ incentive goals with the interests of our stockholders, provide equity-based forms of compensation and establish specific stock ownership guidelines for employees in key management positions throughout our Company; | • | | Stockholder Alignment: Link our executives’ incentive goals with the interests of our stockholders, provide equity-based forms of compensation and establish specific stock ownership guidelines for employees in key management positions throughout our Company;
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Long-Term Success: Support and reward our executives for consistent performance over time and achievement of our long-term strategic goals; and | • | | Long-Term Success: Support and reward our executives for consistent performance over time and achievement of our long-term strategic goals; and
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Attraction and Retention: Attract and retain highly qualified executives whose abilities are critical to our success and competitive advantage. | • | | Attraction and Retention: Attract and retain highly qualified executives whose abilities are critical to our success and competitive advantage.
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To achieve these objectives, we have designed an executive compensation program that is significantly weighted towards long-term goals. This approach aids us in the retention of executive officers and assures that the interests of our executive officers and stockholders are aligned. Although theWhile our program emphasizes performance-based and equity-based compensation as a percentage of total direct compensation (base salary and annual and long-term incentives), we do not however, have specific policies governing the allocation of the target total direct compensation opportunity among its various components. Accordingly, our 2016 compensation actions and decisions were based on our accomplishment in this area. Each of the primary elements of our executive compensation program is discussed in more detail below. While we have identified particular compensation objectives that each element of executive compensation serves, our compensation programs areprogram is designed to be flexible and complementary and to collectively serve all of the executive compensation objectives described above. Accordingly, whether or not specifically mentioned below, we believe that, as a part of our overall executive compensation policy, each individual element, to a greater or lesser extent, serves each of our objectives.
Our compensation committee also considers the results of the stockholders’ advisory vote on the compensation of our named executive officers. At our 20162019 Annual Meeting of Stockholders, our say-on-pay proposal received “for” votes that represented approximately 98%90.5% of the shares voted on this proposal. The compensation committee considered the results of the say-on-pay vote when evaluating our compensation practices and policies in 20162019 and when setting the compensation of our named executive officers for 20162020 and 2017.decided not to make any significant changes to our executive compensation program. The compensation committee believes that the significant support for the 20162019 say-on-pay proposal demonstrates stockholders’ support of our compensation policies.program, policies and practices. 19
In 2016,2019, the compensation committee took the following actions with respect to the compensation of theour named executive officers:
increased base salaries between 10% and 16% per individual compared to 2015;
awarded formula-based bonuses at 23% of the target bonus opportunity established at the beginning of the year; and
| • | Awarded formula-based bonuses at 122% of the target bonus opportunity established at the beginning of the year; |
approved stock option and restricted stock unit (“RSUs”) awards to satisfy competitive market concerns, satisfy our retention objectives and reward individual performance for 2016.2019; approved performance stock unit awards (“PSUs”) to further our retention objectives and our focus on rewarding performance; and adopted a clawback policy requiring reimbursement or forfeiture of all or a portion of any incentive compensation awarded to an executive when (i) the company is required to prepare an accounting restatement due to material noncompliance with financial reporting requirements and the executive’s award, vesting, or payment of an award would have been smaller given the restated financial information or (ii) there is misconduct resulting in either a violation of the law or of company policy that has caused significant financial or reputational harm to the company and either the executive committed the misconduct directly or failed in his or her responsibility to manage or monitor the applicable conduct or controls. In addition to the compensation actions and decisions noted above, we maintained the following compensation policies and practices in 2016: 2019: No Tax Gross-Up Provisions. Our named executive officers are not entitled to any tax gross-up treatment on any severance or change in control benefits;benefits. ourCompensation Programs Create No Excessive Risk. Our compensation programs are reviewed regularly by our compensation committee, which has determined that our compensation programs do not create inappropriate or excessive risk that is likely to have a material adverse effect on our Company company;Company.
Independent Compensation Consultant Engaged. Our compensation committee engaged an independent compensation consultant, Compensia, to assist the committee with determining compensation for our named executive officers as well as provide the committee with market data and guidance on best practices;practices. ourHedging Transactions Prohibited. Our insider trading policy prohibits our employees, including directors and executive officers, from purchasingparticipating in the following with respect to our securitiessecurities: purchasing on margin, or otherwise pledging or hedging, our securities;short sales, buying or selling put or call options or other derivative securities, purchasing financial instruments that are designed to hedge or offset any decrease in market value or engage in limit orders or other pre-arranged transactions that execute automatically except for ‘same-day’ limit orders and approved 10b5-1 plans.
ourCompensation is Performance-Based. Our executive compensation program is designed so that a significant portion of compensation is “at risk” based on corporate performance, as well as equity-based, to align the interest of our named executive officers and our stockholders;stockholders.
theMulti-year Performance Periods for Equity Awards. The annual equity awards granted to our named executive officers vest or are earned over a multi-year period, consistent with market practice and our retention objectives;objectives.
weStock Ownership Guidelines. We maintain stock ownership guidelines which require our chief executive officer to beneficially own shares of our common stock with a value equal to at least three times his base salary;salary and our other executive officers to beneficially own shares of our common stock with a value equal to at least one times his or her base salary.
weNo Perquisites. We do not provide perquisites or other personal benefits to our named executive officers beyond what is provided to our other employees; andemployees.
our executive officers participate in broad-based Company-sponsored health and welfare benefits program on the same basis as our other full-time, salaried employees.
Compensation Objectives and Process We have designed the compensation arrangements for our named executive officers to provide compensation in overall amounts and in forms that attract and retain talented and experienced individuals and motivate our 20
executives to achieve the goals that are important to our growth. We typically provide compensation to our named executive officers through a combination of base salary, annual cash bonuses and equity awards. During 2016, our compensation primarily consisted of base salary, annual cash incentive awards, stock option grants and restricted stock unit awards, which helpshelp align the incentives of our named executive officers with the interests of our stockholders. During 2019, our compensation primarily consisted of base salary, annual cash incentive awards, and under the 2010 Equity Incentive Plan, stock option grants, RSUs and PSUs. Historically, our compensation committee has establisheddetermined all elements of compensation for our named executive officers. Generally, prior to making its compensation determinations, our Chief Executive Officer provides his review of our other named executive officers to the compensation committee. Our compensation committee engagedengages Compensia, Inc., a national independent compensation consultant, to help evaluate our compensation philosophy and provide guidance in administering our compensation program. Our compensation committee has determined that Compensia is independent and the services provided by Compensia currently do not and during 2019 did not raise any conflict of interests. Our compensation committee determines executive compensation, in part, by reference to the compensation information for the executives of a peer group of comparable companies. For 2016,2019, our compensation committee reviewed an updated version of the formal compensation study and executive compensation market assessment prepared in 20122018 by Compensia, our independent compensation consultant retained by our compensation committee.Compensia. The competitive market data used in the Compensia study was gathered from our compensation peer group, which consisted in 2019 of the following US-based technology companies of similar size: Benefitfocus
| | •8x8 | •Model N | •Apptio | •Monotype Imaging Holdings | •Benefitfocus | •Paylocity Holding | •Carbonite | •PROS Holdings | •Five9 | •Q2 Holdings | •HealthStream | •Qualys | •Imperva | •Rapid7 | •LivePerson | •Varonis Systems | •MINDBODY | •Workiva |
BroadSoftIn comparison to the prior year peers, we removed five companies and added three. Of the five companies removed, two, Broadsoft and Callidus Software, were removed because they had been acquired. The three other companies removed, 2U, Hubspot and Stamps.com, were removed because their market capitalization exceeded our selection range, which, at the time had a maximum of $3.3 billion (3.0x our market capitalization at the time of the analysis in May 2018). The three peer companies added were 8x8, Model N and PROS Holdings. These three companies were added because they met our selection criteria, including being software companies with trailing four quarter revenue between 50% and 200% of our trailing four quarter revenue (which was $221 million at the time of the review in May 2018) and the market capitalization range of between 33% and 300% of our then current market capitalization.
Data from the compensation peer group is valuable to the compensation committee because it provides insight into competitive pay practices for each of the elements of total compensation as well as confirms the reasonableness of its compensation decisions. Our Factors Considered in Compensation Deliberations The Compensation Committee does not use a single method or measure in setting or approving the target total direct compensation opportunities or each individual compensation element for our named executive officers, nor is the weighting of any one factor on the determination of pay components and levels quantifiable in comparison to the other factors. The factors below, which the Compensation Committee considers when selecting and setting the amount of each compensation element for our named executive officers provide a framework for its compensation decision-making: •our executive compensation program objectives; | •our performance against the financial and operational goals and objectives established by the compensation committee and our board of directors; |
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•each named executive officer’s qualifications, knowledge, skills, experience and tenure relative to other similarly-situated executives at the companies in our compensation peer group; | •the scope of each executive officer’s role and responsibilities compared to other similarly situated executives at the companies in our compensation peer group; | •the prior performance of each named executive officer, based on an assessment of his or her contributions to our overall performance and ability to lead his or her business unit or function and work as part of a team; | •the potential of each named executive officer to contribute to our long-term financial, operational and strategic objectives; | •the CEO’s compensation relative to that of our other executive officers, and compensation parity among our executive officers; | •our financial performance relative to our peers; | •the compensation practices of our compensation peer group and the positioning of each executive officer’s compensation in a ranking of peer company compensation levels based on an analysis of competitive market data; | •in the case of long-term incentive compensation, the value of any outstanding vested and unvested equity awards held by each of our executive officers, including the equity awards and other long-term compensation opportunities granted to each executive officer in prior years; and | •the recommendations provided by our CEO regarding the compensation of our executive officers, as described above. |
These factors provide the framework for decision-making by the compensation committee has determined that Compensia is independent andwith respect to the services provided by Compensia currently do not and during 2016 did not raise any conflictcompensation of interests.each of our named executive officers. Base Salary Base salaries are used to recognize the experience, skills, knowledge and responsibilities required of all our employees, including our named executive officers. Base salaries for each of our named executive officers are initially established based on arm’s-length negotiations between us and the executive. Our compensation committee reviews the base salaries of our named executive officers annually at the beginning of each year. When negotiating or reviewing base salaries, the compensation committee considers market competitiveness based on their experience, the executive’s expected future contribution to our success and the relative base salaries and responsibilities of our other executives. In February 2016, our Our named executive officers received no base salary increases between 10% and 16% of their 2015 base salaries. The adjustments were made to transition our named executive officer’s compensation to be competitive with the compensation of other similarly situated companies as reflected in the compensation peer group.2019.
Annual Cash Bonus 2016 – 2019 Management Incentive Plan
Our named executive officers participatedparticipate in our management incentive plan, which provides them with an opportunity to receive a formula-based cash bonus. The formula-based bonus is intended to motivate our executives to achieve specific financial goals that will drive the growth and success of our business. The formula-based bonus is based on thea target bonus opportunity for each named executive officer established by the compensation committee at the beginning of each year. The compensation committee established the target bonus opportunity based on theat an amount it believes is necessary to provide a competitive overall compensation package in light of each named executive officer’s base salary and to motivate our executives to achieve an aggressive level of growth. The target bonus opportunity was set at $445,000 for Mr. Black, $260,000 for Ms. Nelson and $270,000 for Mr. Frome. The amount of the formula-based bonus, if any, actually paid to executives after the end of the year is determined by a matrix approved by the compensation committee at the beginning of the year that takes into account our revenues and earnings before interest, taxes, depreciation and amortization and stock-based compensation, and other adjustments including the impact(“Adjusted EBITDA”).1 1Adjusted EBITDA is a non-GAAP financial measure. Refer to Appendix A in this proxy statement for a reconciliation of an earn-out adjustment relatedthis non-GAAP financial measure to the Toolbox acquisition in 2016 and the impact of use tax refunds in 2015 related to items previously expensed, or Adjusted EBITDA. corresponding GAAP measure.
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The formula-based bonus is based in part on revenues because, given the scalability of our current core business, the compensation committee believes our financial results are driven most significantly by the revenues we generate. The compensation committee also believes formula-based bonuses should be based in part on Adjusted EBITDA because Adjusted EBITDA is a useful measure of our operating performance. The matrix approved for 20162019 provided that each executive would receive a percentage of his or her target formula-based bonus, between 0%60% and 165%190%, based on our actual revenues and Adjusted EBITDA performance for the year.year, with the potential for no payout if performance fell below the threshold levels. For example, to be paid out at the maximum 165%190% bonus level, we needed to generate $198.8 $283.65 million in revenue and at least $26.5$72.06 million of Adjusted EBITDA. For our executivesnamed executive officers to earn their target bonuses for 2016,2019, we needed to generate revenues of approximately $196.0$278.85 million and Adjusted EBITDA of approximately $26.5$66.06 million. If we failed to achieve eitherboth threshold levels of revenues of approximately $193.2$274.05 million orand Adjusted EBITDA of approximately $26.5$66.06 million, our named executive officers would not receive a formula-based bonus for the year. The compensation committee hashad the discretion to adjust the pre-established target levels for revenues and Adjusted EBITDA in the event we completecompleted one or more acquisitions during the year. The compensation committee did not exerciseexercised such discretion for 2016.2019 and increased the target levels for revenues and Adjusted EBITDA to take into account the impact of the MAPADOC acquisition during 2019. The compensation committee did not exercise such discretion for 2016. The compensation committee established the intervals for the matrix with the intent that achieving 100% of an executive’s target bonus will be a difficult but achievable goal in light of the prior year’s results of operations and anticipated growth for 2016.2019. For 2016,2019, we delivered $26.5$279.1 million in revenues and $69.8 million of Adjusted EBITDA and $193.3 million in revenues. We mettherefore exceeded the target levels set under the management incentive plan for revenues and Adjusted EBITDA but did not meet the target for revenue for 100% payout.EBITDA. As a result, the formula-based bonus for each named executive officer was determined to be 23%122% of the target amount, resulting in the following payouts:
Mr. Black — $102,350$542,900 Ms. Nelson — $62,100$317,200 Mr. Frome — $59,800$329,400 Equity Awards Historically, we have granted our named executive officers stock options and restricted stock unitRSUs. In 2017, we also began granting our named executive officers PSUs. We believe equity awards are an important element of compensation because they provide our executives a potential ownership interest in connectionour company, which helps align their interests with their employment.those of other stockholders. When determining the size of the equity award for our named executive officers, our compensation committee considers the executive’s position and responsibilities, the equity holdings of our other executives, competitive market data, CEO recommendations, and the anticipated future contribution the executive will make to our success. We believe stock options and restricted stock unit awards are an important element of compensation because they provide our executives a potential ownership interest in our company, which helps align executives’ interests with those of other stockholders. We believe stock options further align the interest of our executives and stockholders because the executives profit from stock options only if our stock price increases relative to the option’s exercise price.price as our policy is to grant annual stock options with an exercise price equal to the fair market value of our common stock on the date of grant. We believe stock options also help retain our executives because the awards vest over several years,a specific period of time, and vesting depends on the executive’s continued employment with us. Similarly, restricted stock unit awardsus, or until meeting the requirements for retirement eligible individuals. RSUs vest over several years and have immediate value to the executives upon vesting, while requiring the executives to maintain continuous employment with us in order for the awards to vest. Typically, theseour stock options and restricted stock unit awardsRSUs vest over a period of four years. The vesting of thesethe stock options and restricted stock unitsRSUs in the event of a termination or change in control is described in more detail below under “– Potential“Potential Payments Upon Termination or Change in Control.” Under PSUs are earned over a specified performance period depending on the company’s performance during such performance period and the award recipient’s continued employment. We believe PSUs further align our stock ownership guidelines, our chief executive officer is required to beneficially own sharesexecutives’ interests with those of our common stockstockholders because the executives profit from PSUs only if certain performance goals 23
are achieved. Consequently, we believe PSUs also help retain our executives. The PSUs awarded in 2017 are earned contingent upon successful attainment of pre-determined revenue goals over the course of a three-year performance period and the award recipient’s continued employment. The PSUs awarded in 2018 and 2019 are earned contingent upon successful attainment of pre-determined total shareholder return (“TSR”) targets, relative to Russell 2000 companies (the “Index”) over the course of a three-year performance period and the award recipient’s continued employment. The Index was selected because it is a major, broad index of stocks, many of which are similar in size to SPS. The three year period was designed to provide long term performance periods to align management compensation with a value equallong term shareholder returns. The following table sets forth the TSR targets for PSUs granted to at least three times his annual base salary. Currently, we do not require our other named executive officers to satisfyin 2019: Company TSR as Compared to Index TSR | | Percentage of Target PSUs Earned | Company TSR is more than 10% less than Index TSR | | 0% | Company TSR is 10% less than Index TSR | | 40% | Company TSR is equal to Index TSR | | 80% | Company TSR is 5% greater than Index TSR | | 100% (target) | Company TSR is 30% greater than Index TSR(a) | | 200% (maximum) |
If the company’s TSR is greater than the Index TSR but is negative, the percentage of PSUs earned is capped at 100%. If the comparison of the company’s TSR against Index TSR falls between the levels specified in the above table, the corresponding PSUs earned will be determined by a minimum stock ownership level.linear interpolation. The vesting of the PSUs in the event of a termination or change in control is described in more detail below under “Potential Payments Upon Termination or Change in Control.” At the beginning of each year, our compensation committee grants annual equity awards to our named executive officers. In 2016, Mr. Black received a stock option to purchase 76,190 shares of our common stock, Ms. Nelson received a stock option to purchase 34,208 shares of common stock, and Mr. Frome received a stock option to purchase 34,208 shares of common stock. Our policy is to grant annual stock options with an exercise price equal to the fair market value of our common stock on the date of grant. Our named executive officers also received of restricted stock unit awards to be settled in shares of our common stock ranging from a restricted stock unit award in the amount of 25,478 shares for Mr. Black, a restricted stock unit award in the amount of 11,439 shares for Ms. Nelson, and a restricted stock unit award in the amount of 11,439 shares for Mr. Frome.
These equity awards to our named executive officers reflect the pay levels our compensation committee believed were appropriate relative to the market data, each executive’s individual performance, and maintaining an overall competitive compensation package. The following table sets forth certain information regarding grants of equity based awards to our named executive officers in 2019: Name | | Stock Options | | RSUs | | PSUs(1) | Archie C. Black | | 34,482 | | 22,004 | | 11,002 | Kimberly K. Nelson | | 17,600 | | 11,230 | | 5,614 | James J. Frome | | 20,114 | | 12,834 | | 6,416 |
| (1) | Amount presented is the target number of PSUs granted. The threshold and maximum number of PSUs is set forth in the Grants of Plan-Based Awards Table on page 27. |
In 2019, the mix of equity awards granted was similar to the mix granted in 2018. In the future, we anticipate that equity compensation, whether in the form of restricted stock, stock options, restricted stock units, performance share units,RSUs, PSUs or other stock-based awards, will remain a significant part of our executive compensation program and will continue to be granted on an annual basis to ensure a continued unvested equity component to the executive compensation package. Stock Ownership Guidelines Under our stock ownership guidelines, our chief executive officer is required to beneficially own shares of our common stock with a value equal to at least three times his annual base salary, and our other executive officers are required to beneficially own shares of our common stock with a value equal to at least one times his or her annual base salary. An executive officer has five years from the date he or she becomes subject to the ownership guidelines to achieve compliance with the guidelines. Until an executive officer has achieved compliance with the ownership guidelines, the executive must retain 50% of the net shares acquired upon exercise, vesting or settlement of any equity award. Each of our executive officers were in compliance with our stock ownership guidelines as of March 25, 2020. 24
Other Compensation Perquisites are not a material aspect of our executive compensation program. All of our full-time employees, including our named executive officers, are eligible to participate in our Section 401(k) plan. Pursuant to our Section 401(k) plan, employees may elect to reduce their current compensation by up to the statutorily prescribed annual limit and to have the amount of this reduction contributed to our Section 401(k) plan. Our SectionIn 2019, our 401(k) plan providesprovided that we willwould match eligible employees’ Section 401(k) contributions equal to 25%50% of the employee’s elective deferrals, up to the first 6% of the employee’s pre-tax annual compensation.compensation for each pay period, payable half in cash and half in shares of our common stock. Severance and Change in Control Benefits We have entered into employment agreements with each of our named executive officers that require us to provide certain payments and benefits to them in the event of a termination of employment including, a termination of employment in connection withand/or a change in control of the Company.company. We believe that these payments and benefits wereare necessary to attract our executives to join our company and that they are in the best interests of the Companycompany and our stockholders because they help assure us that we will have the continued dedication and objectivity of our executives, notwithstanding the possibility or occurrence of a change in control. Tax Implications As a publicly-traded company we are not permitted under Section 162(m) of the Internal Revenue Code (the “Code”) as in effect prior to deductthe enactment of the Tax Cuts and Jobs Act of 2017 (“Tax Reform Act”) in December 2017 generally disallowed a tax deduction to public companies for compensation of more than $1 million paid in any taxable year to each “covered employee,” consisting of the chief executive officer and the three other highest paid executive officers employed at the end of the year (other than the chief financial officer). “Performance-based compensation” was exempt from this deduction limitation if the company met specified requirements set forth in the Code and applicable treasury regulations.
The Tax Reform Act retained the $1 million deduction limit, but repealed the “performance-based compensation” exemption from the deduction limit and expanded the definition of “covered employees,” effective for taxable years beginning after December 31, 2017. Consequently, compensation paid to certain executive officers to the extent that compensation exceeds $1.0 million per covered officer in any year. Compensation that is considered “performance based” for purposes of Section 162(m) is excluded from this limitation. Non-performance based compensation paid2018 and later years to our named executive officers in excess of $1 million is not deductible unless it qualifies for 2016 exceededtransitional relief applicable to certain binding, written performance-based compensation arrangements that were in place as of November 2, 2017. The compensation committee intends to continue to comply with the $1.0requirements of Section 162(m) as it existed prior to the Tax Reform Act with respect to performance-based compensation in excess of $1 million limit per individual.payable under outstanding awards granted before November 2, 2017 under the 2010 Equity Incentive Plan in order to qualify them for the transitional relief. OurThe compensation committee believes that stockholder interests are best served if its discretion and flexibility in establishing the cashstructuring and equity incentiveawarding compensation programs for our named executive officers, the potential deductibility of theis not restricted, even though some compensation payable under those programs should be only one of a number of relevant factors taken into consideration, and not the sole governing factor. For that reason, ourawards result in non-deductible compensation committee may deem it appropriate to provide one or more named executive officers with the opportunity to earn compensation which may not qualify as “performance based” for purposes of Section 162(m), such as cash incentive awards under programs not approved by our stockholders or restricted stock grants tiedexpenses to the named executive officer’s continued service, and which may be in excess of the amount deductible by reason of Section 162(m) or other provisions of the Code. Our compensation committee believes it is important to maintain this flexibility in determining cash and equity incentive compensation in order to attract and retain high caliber named executive officer candidates, even if all or part of that compensation may not be deductible by reason of the Section 162(m) limitation.
company. Also, our compensation committee takes into account whether components of our compensation program may be subject to the penalty tax associated with Section 409A of the Code, and aims to structure the elements of compensation to be compliant with or exempt from Section 409A to avoid such potential adverse tax consequences. COMPENSATION COMMITTEE REPORTCompensation Committee Report
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 the Company’scompany’s definitive proxy statement and incorporated by reference in the Company’scompany’s Annual Report on Form 10-K. Compensation Committee of the Board of Directors of SPS Commerce, Inc. Philip E. Soran, Martin J. Leestma,ChairpersonChair James B. Ramsey
Marty M. Reaume Michael A. Smerklo
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2019Summary Compensation TableCompensation Table* The following table provides information regarding the compensation paid to and earned by our named executive officers in 2016, 20152019, 2018 and 2014:2017: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Name and Principal Position | | Year | | | Salary
($) | | | Bonus
($) | | | Stock
Awards
($)(1) | | | Option
Awards
($)(1) | | | Non-Equity
Incentive Plan
Compensation
($) | | | All Other
Compensation
($)(2) | | | Total
($) | | Archie C. Black | | | 2016 | | | | 495,000 | | | | — | | | | 1,224,982 | | | | 1,224,987 | | | | 102,350 | | | | 3,975 | | | | 3,051,294 | | | Chief Executive Officer and President | | | 2015 | | | | 425,000 | | | | — | | | | 907,390 | | | | 907,483 | | | | 344,250 | | | | 3,975 | | | | 2,588,098 | | | | | 2014 | | | | 403,760 | | | | 80,750 | | | | 617,952 | | | | 618,022 | | | | 188,961 | | | | 3,900 | | | | 1,913,345 | | | | | | | | | | | Kimberly K. Nelson | | | 2016 | | | | 345,000 | | | | — | | | | 549,987 | | | | 549,998 | | | | 59,800 | | | | 3,514 | | | | 1,508,299 | | | Executive Vice President and Chief Financial Officer | | | 2015 | | | | 313,000 | | | | — | | | | 448,966 | | | | 448,998 | | | | 169,020 | | | | 3,473 | | | | 1,383,457 | | | | | 2014 | | | | 295,610 | | | | 40,635 | | | | 262,613 | | | | 262,655 | | | | 95,122 | | | | 3,846 | | | | 960,481 | | | | | | | | | | | James J. Frome | | | 2016 | | | | 360,000 | | | | — | | | | 549,987 | | | | 549,998 | | | | 62,100 | | | | 5,313 | | | | 1,527,398 | | | Executive Vice President and Chief Operating Officer | | | 2015 | | | | 319,000 | | | | — | | | | 458,494 | | | | 458,494 | | | | 215,325 | | | | 3,975 | | | | 1,455,288 | | | | | 2014 | | | | 298,700 | | | | 41,070 | | | | 262,613 | | | | 262,655 | | | | 96,108 | | | | 3,900 | | | | 965,046 | |
Name and Principal Position | | Year | | Salary ($) | | | Bonus ($) | | | Stock Awards ($)(1) | | | Option Awards ($)(1) | | | Non-Equity Incentive Plan Compensation ($) | | | All Other Compensation ($)(2) | | | Total ($) | | Archie C. Black | | 2019 | | | 495,000 | | | | — | | | | 2,015,896 | | | | 600,024 | | | | 542,900 | | | | 8,400 | | | | 3,662,220 | | Chief Executive | | 2018 | | | 495,000 | | | | — | | | | 2,527,729 | | | | 599,984 | | | | 890,000 | | | | 8,250 | | | | 4,520,963 | | Officer and President | | 2017 | | | 495,000 | | | | — | | | | 3,749,891 | | | | 749,996 | | | | 289,250 | | | | 4,050 | | | | 5,288,187 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Kimberly K. Nelson | | 2019 | | | 345,000 | | | | — | | | | 1,028,762 | | | | 306,259 | | | | 317,200 | | | | 8,400 | | | | 2,005,621 | | Executive Vice | | 2018 | | | 345,000 | | | | — | | | | 1,007,943 | | | | 306,245 | | | | 520,000 | | | | 7,060 | | | | 2,186,248 | | President and Chief Financial Officer | | 2017 | | | 345,000 | | | | — | | | | 1,531,193 | | | | 306,247 | | | | 169,000 | | | | 3,405 | | | | 2,354,845 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | James J. Frome | | 2019 | | | 360,000 | | | | — | | | | 1,175,712 | | | | 350,005 | | | | 329,400 | | | | 8,400 | | | | 2,223,517 | | Executive Vice | | 2018 | | | 360,000 | | | | — | | | | 1,151,927 | | | | 349,981 | | | | 540,000 | | | | 8,250 | | | | 2,410,158 | | President and Chief Operating Officer | | 2017 | | | 360,000 | | | | — | | | | 1,556,147 | | | | 311,242 | | | | 175,500 | | | | 4,050 | | | | 2,406,939 | |
(1) | Represents the grant date fair value of the stock-based awards granted during the year computed in accordance with FASB ASC Topic 718. For a discussion of the relevant assumptions used to determine the valuation of our stock option awards for financial reporting purposes, please refer to Note IM to the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K filed on February 27, 2017.25, 2020. The grant date fair value of the RSUs and PSUs granted in each year if target performance and maximum performance is achieved are as follows: |
| | 2019 | | 2018 | | 2017 | Name | | RSUs ($) | | PSU Target ($) | | PSU Maximum ($) | | RSUs ($) | | PSU Target ($) | | PSU Maximum ($) | | RSUs ($) | | PSU Target ($) | | PSU Maximum ($) | Archie C. Black | | 1,200,098 | | 815,798 | | 1,199,988 | | 1,752,887 | | 774,843 | | 1,199,898 | | 1,499,945 | | 2,249,946 | | 3,374,917 | Kimberly K. Nelson | | 612,484 | | 416,278 | | 612,319 | | 612,471 | | 395.472 | | 612,416 | | 612,477 | | 918,716 | | 1,378,074 | James J. Frome | | 699,966 | | 475,746 | | 699,793 | | 699,959 | | 451,968 | | 699,904 | | 622,448 | | 933,699 | | 1,400,576 |
(2) | Represents matching contributions under our Section 401(k) plan. |
* | See the “Compensation Discussion and Analysis” above for a description of our executive compensation criteria necessary for an understanding of the information disclosed in this table. |
26
2019Grants of Plan-BasedPlan-Based Awards Table The following table sets forth certain information regarding grants of plan-based awards to our named executive officers in 2016:2019. The unit, share, and per share amounts included in the table reflect our two-for-one stock split effective August 22, 2019. | | | | Estimated Future Payouts
Under Non-Equity Incentive
Plans | | All
Other
Stock
Awards:
Number
of Units
(#)(2) | | | All
Other
Option
Awards:
Number
Securities
Underlying
Options
(#)(3) | | | Exercise
Price
of Option
Awards
($/Sh) | | | Grant Date
Fair Value
of Stock
and Option
Awards
($) | | | | | | | | | Estimated Future Payouts Under Non-Equity Incentive Plan Awards | | | Estimated Future Payouts Under Equity Incentive Plan Awards | | | All Other Stock Awards: Number of Shares of Stock | | | All Other Option Awards: Number of Securities Underlying | | | Exercise or Base Price of Option | | Grant Date Fair Value of Stock and Option | | | Name | | Grant Date | | Approval Date(1) | | Threshold
($) | | Target
($) | | Maximum
($) | | | Grant Date(1) | | | Approval Date(1) | | Threshold ($) | | | Target ($) | | | Maximum ($) | | | Threshold (#) | | | Target (#) | | | Maximum (#) | | | or Units (#) | | | Options (#) | | | Awards ($/Sh) | | Awards ($)(2) | | | Archie C. Black | | — | | February 2, 2016 | | | 102,350 | | | | 445,000 | | | | 734,250 | | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | February 5, 2016 | | February 2, 2016 | | | — | | | | — | | | | — | | | | 25,478 | | | | — | | | | — | | | | 1,224,982 | | | | | February 5, 2016 | | February 2, 2016 | | | — | | | | — | | | | — | | | | — | | | | 76,190 | | | | 48.08 | | | | 1,224,987 | | | Annual Cash Bonus (3) | | | | — | | | 1/22/2019 | | | 267,000 | | | | 445,000 | | | | 845,500 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | — | | PSU Award (4) | | | 2/19/2019 | | | 1/22/2019 | | | — | | | | — | | | | — | | | | 4,401 | | | | 11,002 | | | | 22,004 | | | | — | | | | — | | | | — | | | 815,798 | | RSU Award (5) | | | 2/19/2019 | | | 1/22/2019 | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 22,004 | | | | — | | | | — | | | 1,200,098 | | Stock Option Award (5) | | | 2/19/2019 | | | 1/22/2019 | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 34,482 | | | | 54.54 | | | 600,024 | | Kimberly K. Nelson | | — | | February 2, 2016 | | | 59,800 | | | | 260,000 | | | | 429,000 | | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | February 5, 2016 | | February 2, 2016 | | | — | | | | — | | | | — | | | | 11,439 | | | | — | | | | — | | | | 549,987 | | | | | February 5, 2016 | | February 2, 2016 | | | — | | | | — | | | | — | | | | — | | | | 34,208 | | | | 48.08 | | | | 549,988 | | | Annual Cash Bonus (3) | | | | — | | | 1/22/2019 | | | 156,000 | | | | 260,000 | | | | 494,000 | | | �� | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | — | | PSU Award(4) | | | 2/19/2019 | | | 1/22/2019 | | | — | | | | — | | | | — | | | | 2,246 | | | | 5,614 | | | | 11,228 | | | | — | | | | — | | | | — | | | 416,278 | | RSU Award(5) | | | 2/19/2019 | | | 1/22/2019 | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 11,230 | | | | — | | | | — | | | 612,484 | | Stock Option Award(5) | | | 2/19/2019 | | | 1/22/2019 | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 17,600 | | | | 54.54 | | | 306,259 | | James J. Frome | | — | | February 2, 2016 | | | 62,100 | | | | 270,000 | | | | 445,500 | | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | February 5, 2016 | | February 2, 2016 | | | — | | | | — | | | | — | | | | 11,439 | | | | — | | | | — | | | | 549,987 | | | | | February 5, 2016 | | February 2, 2016 | | | — | | | | — | | | | — | | | | — | | | | 34,208 | | | | 48.08 | | | | 549,988 | | | Annual Cash Bonus(3) | | | | — | | | 1/22/2019 | | | 162,000 | | | | 270,000 | | | | 513,000 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | — | | PSU Award(4) | | | 2/19/2019 | | | 1/22/2019 | | | — | | | | — | | | | — | | | | 2,566 | | | | 6,416 | | | | 12,832 | | | | — | | | | — | | | | — | | | 475,746 | | RSU Award(5) | | | 2/19/2019 | | | 1/22/2019 | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 12,834 | | | | — | | | | — | | | 699,966 | | Stock Option Award(5) | | | 2/19/2019 | | | 1/22/2019 | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 20,114 | | | | 54.54 | | | 350,005 | |
(1) | Our compensation committee approved grantsAll equity awards granted in 2019 were granted under our 2010 Equity Incentive Plan. |
(2) | The grant date fair value of each RSU award was computed in accordance with ASC Topic 718 based on the closing stock options identifiedprice on the grant date.For a discussion of the relevant assumptions used to determine the valuation of our option awards and PSU awards for financial reporting purposes, refer to Note M to the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K filed with the SEC on February 25, 2020. |
(3) | Amounts represent estimated payouts of annual case incentives granted under our 2019 Management Incentive Plan. The amount each executive will receive is based on actual revenues and Adjusted EBITDA for the year. The actual cash incentive bonus earned in connection with the 2019 awards are reported in the “All Other Option Awards” column2019 Summary Compensation Table. |
(4) | Amounts represent the number of PSUs that may be earned under our 2010 Equity Incentive Plan at threshold, target and grantsmaximum levels. The PSUs will be paid out in shares of restricted stock unit awards identified inour common stock. The number of PSUs that the “All Other Stock Awards” column on February 2, 2016. In accordance withexecutive officer will receive will be determined at the termsconclusion of these approvals, the grant date2019-2021 performance period and will be dependent upon the company’s achievement of these awards was February 5, 2016.TSR targets. |
(2)(5) | The restricted stock unit awards identified in the “All Other Stock Awards” column approved on February 2, 2016 vestunits (RSU) or shares (stock options) vested as to one-fourth of the underlying unitsunits/shares on February 5, 2017,13, 2020, with the remaining underlying units vesting in 36 equal monthly installments on the fifth day of each month thereafter beginning March 5, 2017. |
(3) | The stock options identified in the “All Other Option Awards” column approved on February 2, 2016 vest as to one-fourth of the underlying shares on February 5, 2017, with the remaining underlying option units/shares vesting in 36 equal monthly installments on the fifth13th day of each month thereafter beginning March 5, 2017.13, 2020. |
27
Outstanding Equity Awards at Fiscal Year-End Table The following table sets forth certain information regarding the outstanding equity awards held by our named executive officers as of December 31, 2016:2019. The unit, share, and per share amounts included in the table reflect our two-for-one stock split effective August 22, 2019. | | | | Option Awards | | Stock Awards | | | Option Awards | | | Stock Awards | | | Name | | Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable (1) | | Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable (1) | | Option
Exercise
Price
($/Sh) | | Option Expiration Date | | Grant Date (4)(5) | | Number of Units
of Stock That
Have Not Vested
(#)(2) | | Market Value
of Units
of Stock that
Have Not
Vested
($)(2)(3) | | | Grant Date | | | Number of Securities Underlying Unexercised Options (#) Exercisable (1) | | | Number of Securities Underlying Unexercised Options (#) Unexercisable (1) | Option Exercise Price ($/Sh) | | | Option Expiration Date | | | Grant Date | | Number of Shares or Units of Stock That Have Not Vested (#)(2) | | Market Value of Shares or Units of Stock that Have Not Vested ($)(3) | | | Equity Incentive Plan Awards: Number of Unearned Shares or Units That Have Not Vested (#)(4) | Equity Incentive Plan Awards: Market Value of Unearned Shares or Units That Have Not Vested ($)(3) | | | Archie C. Black | | | 48,645 | | | | — | | | | 16.64 | | | | February 11, 2021 | | | | — | | | | — | | | | — | | | | | | 31,521 | | | | — | | | | 25.32 | | | | February 10, 2019 | | | | — | | | | — | | | | — | | | | | | 32,515 | | | | 1,414 | | | | 39.01 | | | | February 8, 2020 | | | | February 8, 2013 | | | | — | | | | — | | | | | | - | | | | 76,190 | | | | 48.08 | | | | February 5, 2023 | | | | February 5, 2016 | | | | — | | | | — | | | | | | 16,681 | | | | 6,870 | | | | 65.95 | | | | February 10, 2021 | | | | February 10, 2014 | | | | — | | | | — | | | | | | 12,947 | | | | 15,302 | | | | 67.10 | | | | February 9, 2022 | | | | February 9, 2015 | | | | — | | | | — | | | | | | 4,471 | | | | 6,260 | | | | 68.95 | | | | April 27, 2022 | | | | April 27, 2015 | | | | — | | | | — | | | | | | — | | | | — | | | | — | | | | — | | | | April 27, 2015 | | | | 2,115 | | | | 147,817 | | | 2/10/2014 | | | | 47,102 | | | | — | | | 32.98 | | | 2/10/2021 | | | 2/5/2016 | | 2,124 | | | | | 117,712 | | | | — | | | — | | | | | — | | | | — | | | | — | | | | — | | | | February 8, 2013 | | | | 508 | | | | 35,504 | | | 2/9/2015 | | | | 56,498 | | | | — | | | 33.55 | | | 2/9/2022 | | | 2/14/2017 | | 15,710 | | | | | 870,648 | | | | — | | | — | | | | | — | | | | — | | | | — | | | | — | | | | February 5, 2016 | | | | 25,478 | | | | 1,780,657 | | | 4/27/2015 | | | | 21,462 | | | | — | | | 34.48 | | | 4/27/2022 | | | 2/13/2018 | | — | | | | | — | | | | 10,972 | | | 608,068 | | | | | — | | | | — | | | | — | | | | — | | | | February 9, 2015 | | | | 5,308 | | | | 370,976 | | | 2/5/2016 | | | | 86,030 | | | | 6,350 | | | 24.04 | | | 2/5/2023 | | | 5/3/2018 | | 11,888 | | | | | 658,833 | | | | — | | | — | | | | | — | | | | — | | | | — | | | | — | | | | February 10, 2015 | | | | 2,733 | | | | 191,009 | | | 2/14/2017 | | | | 55,734 | | | | 22,952 | | | 27.85 | | | 2/14/2024 | | | 8/2/2018 | | 11,888 | | | | | 658,833 | | | | ��� | | | — | | Kimberly K. Nelson | | | 6,700 | | | | — | | | | 12.00 | | | | April 27, 2020 | | | | — | | | | — | | | | — | | | | | | 34,322 | | | | — | | | | 16.64 | | | | February 11, 2021 | | | | — | | | | — | | | | — | | | 2/13/2018 | | | | 29,638 | | | | 35,030 | | | 27.34 | | | 2/13/2025 | | | 2/19/2019 | | — | | | | | — | | | | 4,401 | | | 243,892 | | | | | 15,968 | | | | — | | | | 25.32 | | | | February 10, 2019 | | | | — | | | | — | | | | — | | | 2/19/2019 | | | | — | | | | 34,482 | | | 54.54 | | | 2/19/2026 | | | 2/19/2019 | | 22,004 | | | | | 1,219,462 | | | | — | | | — | | | | | 17,456 | | | | 759 | | | | 39.01 | | | | February 8, 2020 | | | | February 8, 2013 | | | | — | | | | — | | | | | | — | | | | 34,208 | | | | 48.08 | | | | February 5, 2023 | | | | February 5, 2016 | | | | — | | | | — | | | | | | 7,089 | | | | 2,920 | | | | 65.95 | | | | February 10, 2021 | | | | February 10, 2014 | | | | — | | | | — | | | Kimberly K. Nelson | | | 2/11/2011 | | | | 28,644 | | | | — | | | 8.32 | | | 2/11/2021 | | | 2/5/2016 | | 954 | | | | | 52,871 | | | | — | | | — | | | | | 8,841 | | | | 10,450 | | | | 67.10 | | | | February 9, 2022 | | | | February 9, 2015 | | | | | | | 2/9/2015 | | | | 38,582 | | | | — | | | 33.55 | | | 2/9/2022 | | | 2/14/2017 | | 6,416 | | | | | 355,575 | | | | — | | | — | | | | | — | | | | — | | | | — | | | | — | | | | February 9, 2015 | | | | 1,162 | | | | 81,212 | | | 2/5/2016 | | | | 65,564 | | | | 2,852 | | | 24.04 | | | 2/5/2023 | | | 2/13/2018 | | — | | | | | — | | | | 5,600 | | | 310,352 | | | | | — | | | | — | | | | — | | | | — | | | | February 8, 2013 | | | | 273 | | | | 19,080 | | | 2/14/2017 | | | | 22,758 | | | | 9,372 | | | 27.85 | | | 2/14/2024 | | | 2/13/2018 | | 12,136 | | | | | 672,577 | | | | — | | | — | | | | | — | | | | — | | | | — | | | | — | | | | February 5, 2016 | | | | 11,439 | | | | 799,472 | | | 2/13/2018 | | | | 15,128 | | | | 17,880 | | | 27.34 | | | 2/13/2025 | | | 2/19/2019 | | — | | | | | — | | | | 2,246 | | | 124,451 | | | | | — | | | | — | | | | — | | | | — | | | | February 9, 2015 | | | | 3,625 | | | | 253,351 | | | 2/19/2019 | | | | — | | | | 17,600 | | | 54.54 | | | 2/19/2026 | | | 2/19/2019 | | 11,230 | | | | | 622,367 | | | | — | | | — | | James J. Frome | | | 3,280 | | | | — | | | | 30.89 | | | | August 9, 2019 | | | | — | | | | — | | | | — | | | 2/8/2013 | | | | 18,216 | | | | — | | | 19.51 | | | 2/8/2020 | | | 2/5/2016 | | 954 | | | | | 52,871 | | | | — | | | — | | | | | 17,456 | | | | 759 | | | | 39.01 | | | | February 8, 2020 | | | | February 8, 2013 | | | | — | | | | — | | | 2/10/2014 | | | | 20,018 | | | | — | | | 32.98 | | | 2/10/2021 | | | 2/14/2017 | | 6,520 | | | | | 361,338 | | | | — | | | — | | | | | — | | | | 34,208 | | | | 48.08 | | | | February 5, 2023 | | | | February 5, 2016 | | | | — | | | | — | | | 2/9/2015 | | | | 39,398 | | | | — | | | 33.55 | | | 2/9/2022 | | | 2/13/2018 | | — | | | | | — | | | | 6,400 | | | 354,688 | | | | | 7,089 | | | | 2,920 | | | | 65.95 | | | | February 10, 2021 | | | | February 10, 2014 | | | | — | | | | — | | | 2/5/2016 | | | | 65,564 | | | | 2,852 | | | 24.04 | | | 2/5/2023 | | | 2/13/2018 | | 13,868 | | | | | 768,565 | | | | — | | | — | | | | | 9,028 | | | | 10,671 | | | | 67.10 | | | | February 9, 2022 | | | | February 9, 2015 | | | | — | | | | — | | | 2/14/2017 | | | | 23,128 | | | | 9,526 | | | 27.85 | | | 2/14/2024 | | | 2/19/2019 | | — | | | | | — | | | | 2,566 | | | 142,230 | | | | | — | | | | — | | | | — | | | | — | | | | February 9, 2015 | | | | 3,702 | | | | 258,733 | | | 2/13/2018 | | | | 17,288 | | | | 20,434 | | | 27.34 | | | 2/13/2025 | | | 2/19/2019 | | 12,834 | | | | | 711,260 | | | | — | | | — | | | | | — | | | | — | | | | — | | | | — | | | | February 5, 2016 | | | | 11,439 | | | | 799,472 | | | 2/19/2019 | | | | — | | | | 20,114 | | | 54.54 | | | 2/19/2026 | | | | | | | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | — | | | | February 10, 2015 | | | | 1,162 | | | | 81,212 | | | | | | — | | | | — | | | | — | | | | — | | | | February 8, 2013 | | | | 273 | | | | 19,080 | | |
(1) | Stock options become exercisable as to one-fourth of the shares on the one year anniversary of the vesting commencement date (typically the grant date), with the remaining shares vesting in a series of 36 equal monthly installments upon completion of each additional month of service. |
(2) | Restricted Stock Units generally vest as to one-fourth of the units on the one year anniversary of the vesting commencement date (typically the grant date), with the remaining units vesting in a series of 36 equal monthly installments upon completion of each additional month of service. |
(3) | Dollar values are calculated using the year end closing sale price of a share of our common stock on the NASDAQ Stock Market, which was $69.89. |
(4) | Options vest as to one-fourth of the shares on the first anniversary of their grant date. The remaining shares vest in a series of 36 successive equal monthly installments upon completion of each additional month of service thereafter. |
(5)(2) | Restricted stock unitsRSUs vest as to one-fourth of the shares onunits in February of the first anniversary ofyear following their grant date. The remaining underlying units vest in a series of 36 successive equal monthly installments upon completion of each additional month of service thereafter. |
(3) | Dollar values are calculated using the year end closing sale price of a share of our common stock on the Nasdaq Global Market, which was $55.42. |
(4) | The PSUs granted in 2019 and 2018 vest in accordance with the successful attainment of pre-determined TSR targets relative to the Index over a three-year performance period ending in 2021 and 2020, respectively. The number of PSUs reported is the threshold number established by the compensation committee. The PSUs awarded in 2017 for the 2017 – 2019 performance period did not vest because we did not meet the threshold revenue goal and as such, are not presented as outstanding. |
28
20192016 Options Exercised and Stock Vested Table The following table sets forth certain information regarding stock awards vested and stock option exercises by our named executive officers during 2016:2019. The unit and share amounts included in the table reflect our two-for-one stock split effective August 22, 2019. | | | | Stock Awards | | | Option Awards | | | Option Awards | | | Stock Awards | | Name | | Number of Shares
Acquired on Vesting (#) | | | Value Realized
on Vesting ($)(1) | | | Number of Shares
Acquired on Exercise (#)(2) | | | Value Realized
on Exercise ($)(3) | | | Number of Shares Acquired on Exercise (#) | | | Value Realized on Exercise ($)(1) | | | Number of Shares Acquired on Vesting (#) | | | Value Realized on Vesting ($)(2) | | Archie C. Black | | | 12,162 | | | | 658,115 | | | | 65,150 | | | | 2,931,111 | | | | 67,290 | | | | 2,269,834 | | | | 47,740 | | | | 2,464,138 | | | | | | | | | | | | | | | | | | | | Kimberly K. Nelson | | | 6,078 | | | | 323,649 | | | | 0 | | | | 0 | | | | 60,018 | | | | 2,217,619 | | | | 22,042 | | | | 1,138,019 | | | | | | | | | | | | | | | | | | | | James J. Frome | | | 6,359 | | | | 338,345 | | | | 15,968 | | | | 589,501 | | | | 18,214 | | | | 646,415 | | | | 23,612 | | | | 1,220,522 | |
(1) | ThisReflects the aggregate value is determinedrealized on exercise in 2019 by multiplying (a) the difference between (i) the market price of our common stock on the exercise date and (ii) the per share exercise price, by (b) the number of shares of our common stock acquired on exercise. |
(2) | Reflects the aggregate value realized by multiplying (a) the number of shares of our common stock vested by (b) the fair market value of our common stock of a share of our common stock on the vesting date. |
(2) | Reflects the aggregate number of shares of our common stock acquired on exercise by each named executive officer during 2016. |
(3) | Reflects the aggregate value realized on exercise in 2016 by each named executive officer by aggregating (1) the difference between (a) the market price of our common stock on the exercise date and (b) the per share exercise price (2) multiplied by the number of shares of our common stock acquired on exercise. |
Pension Benefits We do not offer pension benefits to our named executive officers. Non-Qualified Deferred Compensation We do not offer non-qualified deferred compensation to our named executive officers. Employment Agreements WeIn November 2017, we entered into ana new employment agreement with Archie C. Black, our Chief Executive Officer. The initial term of the agreement expired on December 31, 2009, but the agreement automatically renews for additional one-year terms unless terminated by us or Mr. Black. This agreement renewed for an additional year on January 1, 2017. Pursuant toIn connection with entering into the employment agreement, Mr. Black’s base salary is reviewed annually byBlack entered into a non-competition and non-solicitation agreement with the company pursuant to which he agreed not to compete with our compensation committee and may be maintainedcompany or increased, but not decreased, in the compensation committee’s discretion. Mr. Black’s employment agreement requires him not disclosesolicit our confidential informationcustomers or disparage us, our officers or our employees at any time during the termfor two years following termination of the agreement or thereafter.employment.
In February 2016, we entered into revised employment agreements with each of our named executive officers other thanMs. Nelson and Mr. Black. These “at-will” agreements continue in effect until the executive officer’s employment is terminated.Frome. We previously entered intohave confidentiality and non-competition agreements with our namedeach of these executive officers other than Mr. Black. These agreements requirerequiring the executive officers not to disclose our confidential information at any time. The agreements also require the executive officers not to compete with us or solicit our employees to engage in other employment during the term of their employment with us and for one year thereafter. We have entered into a confidentiality agreement, but not a non-competition agreement, with Mr. Black. The employment agreements with our named executive officers address various termination of employment and change in control scenarios. No severance payments or benefits are madePayment of amounts under these circumstances is subject to a namedcertain conditions and limitations, including that the executive officer whose employment is terminated for cause.must execute a release of claims against us to receive any payment or benefit. The terms of potential payments under these agreements upon a termination of employment or change in control are summarized below under “— Potential“Potential Payments Upon Termination or Change-in-Control.” In February 2020, we entered into amended and restated executive severance and change in control agreements with our named executive officers. Because the agreements were not in effect as of December 31, 2019, the additional potential payments and benefits provided under these amended and restated agreements are not included in the table at the end of the “Potential Payments Upon Termination or Change-in-Control” section.
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Potential Payments Upon TerminationTermination or Change-in-Control Employment AgreementsChange in Control
We have entered intohad in effect on December 31, 2019, various agreements that will requirewould have required us to provide certain payments and benefits to our named executive officers in the event of certain specified terminationterminations of employment, including a termination of employment in connection with a change in control of the Company.company. Employment Agreements in Effect on December 31, 2019 Mr. Black OurMr. Black’s employment agreement with Archie C. Black, our Chief Executive Officer, providesin effect on December 31, 2019 provided that if we terminate his employmentMr. Black without cause, or if he terminates his employment with us for good reason, we will:would:
pay his then-current base salary for 12 months in accordance with our regular payroll practices; and | (1) | pay any unused vacation accrued as of the date of termination and pay his salary for 12 months in accordance with our regular payroll practices; and |
provide health care benefits to him and his family for up to 12 months after the date of termination on the same terms as they are provided as of the date of termination. | (2) | provide health care benefits to him and his family for up to 12 months after the date of termination on the same terms as they are provided as of the date of termination. |
Retirement provisions in the agreement provide that if the sum of Mr. Black’s age plus years of service as an employee of the company is 74 or greater and Mr. Black provides the requisite notice regarding his retirement, then: all of his unvested stock options and RSUs will become fully vested; all outstanding PSUs will continue to vest on each originally scheduled vesting date in an amount equal to the number of units subject to the awards that would otherwise have been determined to have been earned by Mr. Black had he remained continuously employed by the company through the originally scheduled vesting dates; and Mr. Black shall receive a pro-rated portion of any target annual cash incentive bonus for the year of his retirement. Mr. Black was eligible for retirement at December 31, 2019 under the terms of the employment agreement. The agreement further provides that in the event a change in control, all of Mr. Black’s unvested stock options, RSUs and PSUs (at actual performance level) outstanding as of the change in control will become fully vested as of the change in control. For purposes of his employment agreement, “cause” means (a) conviction of a felony; (b) dishonesty or gross misconduct in the performance of the agreement; or (c)(i) failure by Mr. Black to cure hisa material breach of the terms of any non-competition/non-solicitation agreement with us within 30 days of receiving written notice of breach from us.us, (ii) gross negligence or willful misconduct, (iii) conviction of any crime involving moral turpitude or any felony, (iv) willful violation of specific and lawful instructions from the Board that are reasonably related to Mr. Black may terminate hisBlack’s employment for “good reason” (a) by providing us with notice of his intentthe company, and (v) fraud, embezzlement, theft or proven dishonesty against the company. “Good Reason” is defined to terminate his employment within 10 days of his annual performance review; (b) our failure to cure our material breach of the agreement within 30 days of receiving written notice of breach from him; or (c) upon a change in control of the Company, which includes removal of Mr. Black as our Chief Executive Officer by our board of directors ormean the occurrence of any of the following events, in each case without Mr. Black’s consent: (i) a transaction that resultsmaterial reduction in the holders of our stock immediately prior to the transaction ceasing to hold the voting power necessary to electMr. Black’s base salary or annual bonus opportunity, (ii) a majority of our board following the transaction. Also, if we terminatematerial reduction in Mr. Black’s employment if he suffersresponsibilities, or (iii) a permanent disability, we will maintain for his benefit for 12 months after termination all health benefit plans in which he was entitled to participate immediately prior to termination.relocation of Mr. Black’s primary work location by more than 30 miles.
Other Named Executive Officers In February 2016, we entered into revisedThe employment agreements with each of our other named executive officers other than Mr. Black. These new agreements providein effect on December 31, 2019 provided that if we terminate the named executive officer’s employment without cause, prior to a change in control of the Company, we willwould pay the named executive officer:
12 months of his or her then-current base salary over a 12-month period in accordance with our normal payroll practices; a lump-sum payment equal to 100% of his or her target annual cash incentive bonus for the fiscal year in which the termination of employment occurs (payable in a lump sum no later than 60 calendar days after the date of termination); and up to 12 months of continued payment of health insurance premiums. 30
If the named executive officer resigns for good reason prior to a change in control of the Company,company, we willwould pay the named executive officer: six months of his or her then-current base salary over a six-month period in accordance with our normal payroll practices; a lump-sum payment equal to 50% of his or her target annual cash incentive bonus for the fiscal year in which the termination of employment occurs (payable in a lump sum no later than 60 calendar days after the date of termination); and up to six months of continued payment of health insurance premiums. If we terminate the named executive officer’s employment without cause upon or within 12 months after a change in control of the Company,company, or if the named executive officer terminates his or her employment for good reason upon or within 12 months after a change in control of the Company,company, we willwould pay the named executive officer: 12 months of his or her then-current base salary over a 12-month period in accordance with our normal payroll practices; a lump-sum payment equal to 100% of the named executive officer’shis or her target annual cash incentive bonus for the fiscal year in which the termination of employment occurs (payable in a lump sum no later than 60 calendar days after the date of termination); and up to 12 months of continued payment of health insurance premiums. In addition, the employment agreements with each of our other named executive officers other than Mr. Black provideprovided that all unvested stock options, restricted stock unit awardsRSUs and other equity awards as of the change in control of the Company will become fully vested as of the change in control. A “change For purposes of these employment agreements, “cause” means (i) failure by the executive to cure a material breach of the terms of any non-competition/non-solicitation agreement with us within 30 days of receiving written notice of breach from us, (ii) gross negligence or willful misconduct, (iii) conviction of any crime involving moral turpitude or any felony, (iv) willful violation of specific and lawful instructions from the Board or CEO that are reasonably related to the executive’s employment by the company, and (v) fraud, embezzlement, theft or proven dishonesty against the company. “Good Reason” is defined to mean the occurrence of any of the following events, in control” andeach case without the reasons for which a named executive officer other than Mr. Black may be terminated for “cause” are defined in accordance with our 2001 Stock Option Plan and described below. A named executive officer other than Mr. Black may terminate his or her employment for “good reason” if there isofficer’s consent: (i) a material reduction in histhe executive officer’s base salary or her base salary,annual bonus opportunity, (ii) a material reduction in the executive officer’s employment responsibilities, or (iii) a relocation of his or herthe executive officer’s primary work location by more than 30 miles, provided that he or she must give notice of the event giving rise to “good reason” to us within days of the first occurrence of the event, and provided further that we then have 30 days in which to remedy the event.miles. Payment of these amounts is subject to certain conditions and limitations, including, with respect to each named executive officer other than Mr. Black, that he or she must execute a release of claims against us.
Stock Option, AgreementsRSU and Restricted Stock UnitPSU Award Agreements Generally, option agreements executed pursuant to our 2001 Stock Option Plan, provide that, in the event of a change in control of the Company, outstanding stock options granted to senior management, including our named executive officers, immediately become exercisable as to 50% of the unvested shares subject to option. Our option agreements with our named executive officers also provide that if his or her employment with us is terminated, or his or her employment responsibilities or base salary are materially reduced, other than for cause, prior to the first anniversary of the change in control, all remaining unvested shares subject to the option immediately become fully exercisable.
For these purposes a “change in control” includes (1) any person’s acquisition of beneficial ownership of 50% or more of our outstanding common stock; (2) a failure to have a majority of our board of directors be people for whose election our board solicited proxies; (3) approval by our stockholders of a reorganization, merger or consolidation, unless our stockholders immediately prior to the transaction own more than 50% of the
voting power of the corporation resulting from the transaction; or (4) approval by our stockholders of the disposition of all or substantially all of our assets. “Cause” for termination exists upon (a) failure by the named executive officer to cure his or her material breach of the terms of a non-competition/non-solicitation agreement between us and the officer within 30 days of receipt of written notice of breach from us; (b) gross negligence or willful misconduct by the officer; (c) conviction of the officer of a crime involving moral turpitude or any felony; (d) willful violation of instructions from our board of directors or Chief Executive Officer; or (e) fraud, embezzlement, theft or proven dishonesty against us.
Generally, option agreements and restricted stock unitRSU agreements executed pursuant to our 2010 Equity Incentive Plan provide that in the event of a sale of all or substantially all of our assets or a merger, consolidation or share exchange involving our company, the surviving or successor entity may continue, assume or replace some or all of the outstanding awards under the 2010 Equity Incentive Plan. Our awards agreements with our named executive officers typically provide that if awards granted to the executive officerhim or her under the 2010 Equity Incentive Plan are continued, assumed or replaced in connection with such an event and if within one year after the event he or she experiences an involuntary termination of service other than for cause, then his or her outstanding awards will vest in full, will immediately become fully exercisable and will remain exercisable for one year following the date of termination. If awards granted to any participant are not continued, assumed or replaced, the administrator may provide for the surrender of any outstanding award in exchange for payment to the holder of the amount of the consideration that would have been received in the event for the number of shares subject to the award less the aggregate exercise price (if any) of the award. In the event of a change in control (as defined in the 2010 Equity Incentive Plan) of the Companycompany that does not involve a merger, consolidation, share exchange or sale of all or substantially all of our company’s assets, the plan administrator, in its discretion, may provide that any outstanding award will become fully vested and exercisable upon the change in control or upon the involuntary termination of employment of the participant within one year after the change in control or that any outstanding award will be surrendered in exchange for payment to the holder of the amount of the consideration that would have been received in the change in control for the number of shares subject to the award less the aggregate exercise price (if any) of the award. 31
PSU agreements executed pursuant to our 2010 Equity Incentive Plan for the grants made in 2018 and 2019 provide that in the event a change in control of the company occurs prior to the scheduled vesting date of a PSU award and the executive continues serving until the date of the change in control, the applicable performance period will be truncated and will end as of the end of the company’s most recently completed fiscal quarter prior to the date of the change in control and the executive will be entitled to have vest as of the date of the change in control the number of PSUs that are determined to have been earned based on actual performance against the performance goal specified in the agreement over the truncated performance period. The following tables listPSU award agreements provide that the preceding determination of the number of PSUs to be paid out upon a change in control shall be deemed to satisfy any applicable change in control acceleration provisions contained in the executive officer’s employment or severance agreements. The PSUs awarded in 2017 for the 2017-2019 performance period did not vest because we did not meet the threshold revenue goal. Amendments to Employment Agreements Effective February 2020 Summarized below are changes to the potential payments and benefits upon termination of employment or a change in control for our named executive officers that became effective in February 2020. Changes Applicable to Mr. Black Only Effective February 2020, if we terminate Mr. Black without cause, or if he resigns from employment with us for Good Reason, within the period starting three months immediately before a change in control and continuing for 12 months following a change in control, we will pay Mr. Black the following benefits in addition to those described above: Six months of then-current base salary in accordance with our regular payroll practices (18 months total when combined with benefits described above); A pro-rated portion of any target annual cash incentive bonus for the fiscal year in which the termination of employment occurs (payable in a lump sum no later than 60 calendar days after the date of termination); and Six months of continued payment of health insurance premiums (18 months total when combined with benefits described above). Changes Applicable to all of the Named Executive Officers Effective February 2020, the retirement provisions for the named executive officers in the agreement provide that if (a) the sum of the named executive officer’s age plus years of service as an employee of the company is 78 or greater, (b) the named executive officer provides the requisite six months’ notice regarding retirement and (c) the named executive officer continues to provide full-time services for the company through the period prior to retirement, then upon retirement: All unvested equity awards with solely a service based vesting condition will become fully vested; and All outstanding equity awards with a performance period vesting condition will continue to vest on each originally scheduled vesting date in an amount equal to the number of units subject to the awards that would otherwise have been determined to have been earned with continuous employed with the company through the originally scheduled vesting dates. 32
The following table lists the potential payments and benefits a termination of employment or change in control of the Companycompany for our named executive officers.officers for agreements in effect at December 31, 2019. The tables assume the triggering event for the payments or provision of benefits occurred on December 31, 2016,2019, the last day of our last completed fiscal year. Amounts in the tablestable for the vestingacceleration of unvested stock options are calculated based on the number of share of our common stock subject to accelerated stock options multiplied by the difference between $69.89, the closing price for a share of our common stock on The NASDAQ Stockthe Nasdaq Global Market on December 30, 2016,31, 2019 ($55.42), the last trading day of our last completed fiscal year, and the per share exercise price. Archie C. Black The amounts in the table for the acceleration of RSUs and PSUs are determined by multiplying the number of accelerated units by the closing price for our common stock on December 31, 2019.
| | | | | | | | | | | | | | | | | Triggering Event | | Salary &
Unused Vacation | | | Health
Benefits(1) | | | Value of Accelerated
Restricted Stock Units | | | Vesting of Unvested
Stock Options | | Termination Without Cause or for Good Reason Unrelated to Change in Control | | $ | 542,596 | | | $ | 10,386 | | | | — | | | | — | | Permanent Disability | | | — | | | $ | 10,386 | | | | — | | | | — | | Change in Control With Related Termination | | $ | 542,596 | | | $ | 10,386 | | | $ | 2,525,963 | | | $ | 1,781,013 | |
| | | | | | | | | | | | | | | | | | | | | | Retirement | | | Termination Without Cause Unrelated to Change in Control | | | Termination for Good Reason Unrelated to Change in Control | | | Termination Without Cause or for Good Reason and a Change in Control | | | Change in Control | Archie C. Black | | | | | | | | | | | | | | | | | | | | Salary/Bonus | | $ | — | | | $ | 495,000 | | | $ | 495,000 | | | $ | — | | | $ | — | Health Benefits(1) | | $ | — | | | $ | 11,461 | | | $ | 11,461 | | | $ | — | | | $ | — | Value of Accelerated RSUs | | $ | 3,525,488 | | | $ | — | | | $ | — | | | $ | 3,525,488 | | | $ | 3,525,488 | Value of Accelerated Options | | $ | 1,846,036 | | | $ | — | | | $ | — | | | $ | 1,846,036 | | | $ | 1,846,036 | Value of Accelerated PSUs(2)(3) | | $ | 3,370,922 | | | $ | — | | | $ | — | | | $ | 3,370,922 | | | $ | 3,370,922 | Total | | $ | 8,742,446 | | | $ | 506,461 | | | $ | 506,461 | | | $ | 8,742,446 | | | $ | 8,742,446 | Kimberly K. Nelson | | | | | | | | | | | | | | | | | | | | Salary/Bonus | | $ | — | | | $ | 605,000 | | | $ | 302,500 | | | $ | 605,000 | | | $ | — | Health Benefits(1) | | $ | — | | | $ | 7,829 | | | $ | 3,915 | | | $ | 7,829 | | | $ | — | Value of Accelerated RSUs | | $ | — | | | $ | — | | | $ | — | | | $ | 1,703,389 | | | $ | 1,703,389 | Value of Accelerated Options | | $ | — | | | $ | — | | | $ | — | | | $ | 865,440 | | | $ | 865,440 | Value of Accelerated PSUs | | $ | — | | | $ | — | | | $ | — | | | $ | 1,720,348 | | | $ | 1,720,348 | Total | | $ | — | | | $ | 612,829 | | | $ | 306,415 | | | $ | 4,902,006 | | | $ | 4,289,177 | James J. Frome | | | | | | | | | | | | | | | | | | | | Salary/Bonus | | $ | — | | | $ | 630,000 | | | $ | 315,000 | | | $ | 630,000 | | | $ | — | Health Benefits(1) | | $ | — | | | $ | 11,461 | | | $ | 5,730 | | | $ | 11,461 | | | $ | — | Value of Accelerated RSUs | | $ | — | | | $ | — | | | $ | — | | | $ | 1,894,034 | | | $ | 1,894,034 | Value of Accelerated Options | | $ | — | | | $ | — | | | $ | — | | | $ | 943,615 | | | $ | 943,615 | Value of Accelerated PSUs | | $ | — | | | $ | — | | | $ | — | | | $ | 1,966,080 | | | $ | 1,966,080 | Total | | $ | — | | | $ | 641,461 | | | $ | 320,730 | | | $ | 5,445,190 | | | $ | 4,803,729 |
(1) | The amounts for health benefits were calculated by multiplying our standard monthly rates for familydetermined via employer paid health and dental benefits by 12.incurred in 2019 for the named executive. |
Kimberly K. Nelson
| | | | | | | | | | | | | | | | | Triggering Event | | Salary &
Bonus | | | Health
Benefits(1) | | | Value of Accelerated
Restricted Stock Units | | | Vesting of Unvested
Stock Options | | Termination Without Cause Unrelated to Change in Control | | $ | 404,800 | | | $ | 8,145 | | | | — | | | | — | | Termination for Good Reason Unrelated to Change in Control | | $ | 202,400 | | | $ | 4,073 | | | | — | | | | — | | Termination Without Cause or for Good Reason Related to Change in Control | | $ | 404,800 | | | $ | 8,145 | | | $ | 1,153,115 | | | $ | 810,175 | | Change in Control Without Related Termination | | $ | 404,800 | | | $ | 8,145 | | | $ | 1,153,115 | | | $ | 810,175 | |
(1)(2) | The amounts for health benefits were calculated by multiplying our standard monthly rates for family health and dental benefits by 12. |
James J. Frome
| | | | | | | | | | | | | | | | | Triggering Event | | Salary &
Bonus | | | Health
Benefits(1) | | | Value of Accelerated
Restricted Stock Units | | | Vesting of Unvested
Stock Options | | Termination Without Cause Unrelated to Change in Control | | $ | 422,100 | | | $ | 10,386 | | | | — | | | | — | | Termination for Good Reason Unrelated to Change in Control | | $ | 211,050 | | | $ | 5,193 | | | | — | | | | — | | Termination Without Cause or for Good Reason Related to Change in Control | | $ | 422,100 | | | $ | 10,386 | | | $ | 1,158,497 | | | $ | 810,791 | | Change in Control Without Related Termination | | $ | 422,100 | | | $ | 10,386 | | | $ | 1,158,497 | | | $ | 810,791 | |
(1) | The amounts for health benefits were calculated by multiplying our standard monthly rates for family health and dental benefits by 12. |
Outstanding Equity Awards
The following table summarizes, as of December 31, 2016, the number of shares of our common stock to be issued upon exercise of outstanding stock options and settlement of restricted stock unit awards granted under our equity plans as of December 31, 2016. The table also includes the weighted-average exercise price of outstanding stock options and the number of shares of our common stock remaining available for future issuance under the plans for all awards.
| | | | | | | | | | | | | Plan Category | | Number of shares
to be issued upon
exercise of
outstanding
options, warrants
and rights | | | Weighted-average
exercise price of
outstanding
options, warrants
and rights | | | Number of shares
remaining available
for future issuance
under equity
compensation plans
(excluding shares
in first column) | | Equity compensation plans approved by stockholders(1)(2) | | | 1,205,054 | (3) | | | 38.43 | (4) | | | 4,930,712 | (5) | Equity compensation plans not approved by stockholders | | | None | | | | N/A | | | | None | |
(1) | IncludesIn accordance with the 2001 Stock Option Plan, the 2010 Equity Incentive Plan, and the Employee Stock Purchase Plan. |
(2) | The 2010 Equity Incentive Plan contains an “evergreen” provision, pursuantterms of Mr. Black’s employment agreement in effect on December 31, 2019, upon retirement, outstanding PSUs will continue to which the number of shares of common stock reserved for issuance under the 2010 Equity Incentive Plan shall be increasedvest on January 1 of each year beginning in 2011 and ending on January 1, 2020originally scheduled vesting date in an amount equal to the lessernumber of 6%units subject to the awards that would otherwise have been determined to have been earned by Mr. Black had he remained continuously employed by the company through the originally scheduled vesting dates. Because these performance determinations cannot be made until after December 31, 2019, the amount included in the Retirement column reflects the value of Mr. Black’s outstanding based on an estimated performance level at December 31, 2019. |
(3) | Upon a change in control, the PSU performance period for outstanding PSUs will be truncated and will end as of the total numberend of the Company’s most recently completed fiscal quarter prior to the date of change in control. Vesting will be as of the date of change in control and based on actual performance over the truncated performance period. The amount noted reflects the value of the outstanding PSUs based on an estimated performance level at December 31, 2019. |
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CEO Pay Ratio We are providing the following information about the relationship of the median of the annual total compensation of our employees and the annual total compensation of Archie C. Black, our Chief Executive Officer (our “CEO”), for 2019: the median of the annual total compensation of all employees of our company (other than our CEO) was $76,511; and the annual total compensation of our CEO, as reported in the 2019 Summary Compensation Table included on page 26 of this proxy statement, was $3,662,221. Based on this information for 2019, the ratio of our CEO’s annual total compensation to the median of the annual total compensation of our employees was 48:1. We believe this pay ratio to be a reasonable estimate, calculated in a manner consistent with Item 402(u) of Regulation S-K. In 2019, we identified our median employee based on the total cash and equity compensation paid during 2019 to all 1,387 members of our workforce (including full-time, part-time and temporary employees as well as certain independent contractors), other than our CEO, who were employed on December 31, 2019. For purposes of determining the total cash and equity compensation of each employee, we included the contractual amount of annual base salary, the annual target bonus and commission cash incentives, and the grant date fair value of equity awards granted in 2019. We did not include any adjustments for the value of benefits provided. We determined the median employee’s total compensation for 2019, including any perquisites and other benefits, in the same manner that we determine the total compensation of our named executive officers for purposes of the 2019 Summary Compensation Table disclosed above. The elements included in the CEO’s total compensation are fully discussed above in the footnotes to the 2019 Summary Compensation Table. 34
audit committee report and payment of fees to our independent auditor |
Audit Committee Report The primary function of our audit committee is oversight of our financial reporting process, publicly filed financial reports, internal accounting and financial controls, and the independent audit of our consolidated financial statements. The consolidated financial statements of SPS Commerce, Inc. for the year ended December 31, 2019 were audited by KPMG, our independent auditor. As part of its activities, the audit committee has: | 1. | Reviewed and discussed with management and the independent auditor the company’s audited consolidated financial statements; |
| 2. | Discussed with the independent auditor the matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board (“PCAOB”) and the SEC; and |
| 3. | Received the written disclosures and letter from the independent auditor required by applicable requirements of the PCAOB regarding the independent auditor’s communications with the audit committee concerning independence, and has discussed with the independent auditor the independent auditor’s independence. |
Management is responsible for the company’s system of internal controls and financial reporting process. KPMG is responsible for performing an independent audit of the consolidated financial statements and internal controls over financial reporting in accordance with the standards of the PCAOB and for issuing a report thereon. Our committee’s responsibility is to monitor and oversee these processes. Based on the foregoing review and discussions and a review of the report of KPMG with respect to the consolidated financial statements, and relying thereon, we have recommended to the board of directors of SPS Commerce, Inc. the inclusion of the audited consolidated financial statements in SPS Commerce, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2019, for filing with the SEC. Audit Committee of the Board of Directors of SPS Commerce, Inc. Sven A. Wehrwein, Chair Martin J. Leestma Philip E. Soran Auditor Fees KPMG has served as our independent auditor since June 2013. The following table presents fees for professional audit services rendered by KPMG for 2019 and 2018. | | 2019 | | | 2018 | | Audit Fees(1) | | $ | 639,000 | | | $ | 672,000 | | Audit-Related Fees(2) | | $ | 45,000 | | | $ | — | | Tax Fees(3) | | $ | 195,800 | | | $ | 100,300 | | Total | | $ | 879,800 | | | $ | 772,300 | |
(1) | Audit Fees consist of fees for the audit of our shares outstanding asannual consolidated financial statements, the review of December 31our interim consolidated financial statements, the review of financial information included in our filings with the immediately preceding calendar year or a number of shares determined by our board of directors;provided, however, no more than 1,201,500 shares ofSEC (including our common stock mayofferings) and other professional services provided in connection with statutory and regulatory filings or engagements. |
(2) | Audit-Related Fees consist of fees for the audit of our employee benefit plan. |
(3) | Tax Fees consist of the aggregate fees billed in 2019 and 2018 for professional services rendered for transfer pricing, tax compliance, tax advice and tax planning. |
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Auditor Services Pre-Approval Policy The audit committee has adopted an auditor services pre-approval policy applicable to services performed for us by our independent auditor. In accordance with this policy, the audit committee’s practice is to approve annually all audit, audit-related and tax and other services to be provided by the independent auditor during the year. If a service to be provided is not pre-approved as part of the annual process or if it may exceed pre-approved fee levels, the service must receive a specific and separate pre-approval by the audit committee, which may delegate authority to grant such pre-approvals during the year to one or more independent members of the audit committee. Any pre-approvals granted pursuant to delegated authority must be reported to the audit committee at its next regular meeting. Our audit committee has determined that the provision of the non-audit services described in the table above was compatible with maintaining the independence of our independent auditor. The audit committee reviews each non-audit service to be provided and assesses the impact of the service on the auditor’s independence. 36
item 2 – ratification of selection of independent auditor |
The audit committee of our board of directors has selected KPMG to serve as our independent auditor for the year ending December 31, 2020. While it is not required to do so, our board of directors is submitting the selection of KPMG for ratification in order to ascertain the views of our stockholders with respect to the choice of audit firm. If the selection is not ratified, the audit committee will reconsider its selection. Representatives of KPMG are expected to be present at the annual meeting, will be available to answer stockholder questions and will have the opportunity to make a statement if they desire to do so. The board of directors recommends that you vote FOR ratification of the selection of KPMG as the independent auditor of SPS Commerce, Inc. and our subsidiaries for the year ending December 31, 2020. Proxies will be voted FOR ratification of this selection unless otherwise specified. 37
item 3 – advisory vote TO approvE the
compensation of the company’s named executive officers |
We are providing our stockholders the opportunity to cast an advisory (non-binding) vote to approve the compensation of our named executive officers as disclosed in this proxy statement (a “Say-on-Pay” vote). As described in the Compensation Discussion and Analysis, we have designed the compensation arrangements for our named executive officers to provide compensation in overall amounts and in forms that attract and retain talented and experienced individuals and motivate our executive officers to achieve the goals that are important to our growth. During 2019, our compensation primarily consisted of base salary, annual cash incentive awards, stock options, RSU awards and PSU awards, which helps align the incentives of our named executive officers with the interests of our stockholders. We ask our stockholders to cast an advisory vote on our executive compensation program at each annual meeting. As a result, we are presenting this proposal, which gives you, as a stockholder, the opportunity to endorse our executive compensation program by voting for or against the following resolution: “RESOLVED, that the stockholders approve the compensation of the SPS Commerce, Inc. named executive officers, as disclosed in the Compensation Discussion and Analysis, the compensation tables, and the related disclosure contained in our 2019 proxy statement.” The compensation committee believes that the executive compensation for 2019 is reasonable and appropriate, is justified by our performance, and is the result of a carefully considered approach. In deciding how to vote on this proposal, the board of directors asks you to consider the key points with regard to our executive compensation program included in the Compensation Discussion and Analysis on pages 19-25 of this proxy statement. Because your vote is advisory, it will not be binding on the board of directors or the compensation committee and will not overrule any decision by the board or the compensation committee or require the board or the committee to take any action. However, the board of directors and the compensation committee will carefully review the voting results. To the extent there is any significant negative vote on this proposal, we may consult directly with stockholders to better understand the concerns that influenced the vote. The board of directors and the compensation committee consider constructive feedback obtained through this process in making future decisions about our executive compensation program. We currently hold our Say-on-Pay vote every year so the next advisory vote on the compensation of our named executive officers will occur at our 2021 Annual Meeting of Stockholders. The next advisory vote regarding the frequency of future Say-on-Pay votes will occur at our 2025 Annual Meeting of Stockholders. The board of directors, upon recommendation of the compensation committee, unanimously recommends a vote “FOR” approval of the compensation of our named executive officers. 38
item 4 – aPPROVAL of An Amendment to our eighth amended and restated certificate of incorporation to increase the number of authorized shares of common stock |
On March 4, 2020, our board of directors adopted, subject to stockholder approval, an amendment to Section 4.1 of our Eighth Amended and Restated Certificate of Incorporation (the “Amendment”) to increase the number of authorized shares of common stock by 55,000,000 shares. The following discussion is qualified by the text of the Amendment, which is set forth in Appendix B attached to this proxy statement. Our board of directors believes that the Amendment is necessary to maintain flexibility to issue shares of common stock for future corporate needs. The additional authorized shares of common stock to be authorized by the Amendment would have rights identical to our current issued and outstanding shares of common stock. Issuance of the additional shares of common stock would not affect the rights of the holders of our issued and outstanding shares of common stock, except for effects incidental to any increase in the number of shares of common stock issued and outstanding, such as dilution of earnings per share and voting rights. If the Amendment is approved by stockholders at the annual meeting, then it will become effective upon filing of a Certificate of Amendment with the Delaware Secretary of State, which filing is expected to occur promptly following the annual meeting. Capitalization Our existing Eighth Amended and Restated Certificate of Incorporation authorizes up to 60,000,000 shares of capital stock, of which 55,000,000 shares shall be shares of common stock, par value $0.001 per share (the “Common Stock”), and 5,000,000 shares shall be shares of preferred stock, par value $0.001 per share (the “Preferred Stock”). As of March 25, 2020, we had no preferred stock issued and outstanding. We estimate that at March 25, 2020, the following shares of common stock were: | | 35,019,093 | issued and outstanding; | 1,456,192 | reserved for issuance upon the exercise of incentiveoutstanding stock options.options; |
(3)569,256 | Includes 1,016,012 shares subject to outstanding and unexercised stock options and 189,042 shares issuable in settlement ofreserved for issuance for restricted stock unit awards.units; |
(4)276,478 | The weighted average exercise price reflects only the outstanding stock options, as the other forms of awards disclosed in this note entail thereserved for issuance of shares for the payment of no consideration.performance share units; and |
(5)13,989,060 | Includes 1,062,482 shares remainingreserved and remain available for future issuancegrants under the Employee Stock Purchaseour 2010 Equity Incentive Plan. |
Accordingly, at March 25, 2020, approximately 3,700,000 shares of common stock remained unreserved and available for future issuance. In consideration of the foregoing, our board of directors approved the Amendment in substantially the form set forth in Appendix B and has recommended that our stockholders do the same. Reasons for the Amendment We believe that the additional shares of authorized common stock are necessary to provide us with appropriate flexibility to utilize equity for business and financial purposes that our board of directors determines to be in our company’s best interests on a timely basis without the expense and delay of a stockholders’ meeting. Our board of directors believes that the remaining authorized common stock is not likely to be sufficient to permit us to respond to potential business opportunities or to pursue important objectives designed to enhance shareholder value. 39
SECURITY OWNERSHIPThe additional authorized shares of common stock will provide us with flexibility to use our common stock, without further shareholder approval (except to the extent such approval may be required by law or by applicable exchange listing standards) for any proper corporate purposes, including, without limitation, raising capital through one or more future public offerings or private placements of equity securities, expanding our business or acquiring assets through future transactions, entering into strategic relationships, providing equity-based compensation and/or incentives to employees, officer or directors, effecting stock dividends or for other general corporate purposes. If the Amendment is approved by our stockholders, our board of directors does not intend to solicit further stockholder approval prior to the issuance of any additional shares of common stock or securities convertible into common stock, except as may be required by applicable, law, regulation, or exchange listing rules.
Possible Effects of the Amendment The increase in authorized shares of our common stock will not have any immediate effect on the rights of existing stockholders. Because the holders of our common stock do not have any preemptive rights, future issuance of shares of common stock or securities exercisable for or convertible into shares of common stock could have a dilutive effect on our earnings per share, book value per share, voting rights of stockholders and could have a negative effect on the price of our common stock. We are not proposing the increase in the number of authorized shares of common stock with the intent of using the additional shares to prevent or discourage any actual or threatened takeover of our company. Under certain circumstances, however, the additional authorized shares could be used in a manner that has anti-takeover effect. For example, the additional shares could be used to dilute the stock ownership or voting rights of persons seeking to obtain control of our company or could be issued to persons allied with the board of directors or management and thereby have the effect of making it more difficult to remove directors or members of management by diluting the stock ownership or voting rights of persons seeking to effect such a removal. Accordingly, if the Amendment is approved by stockholders, the additional shares of authorized common stock may render more difficult or discourage a merger, tender offer or proxy contest, the assumption of control by a holder or group of holders of a large block of common stock, or the replacement or removal of one or more directors or members of management. The following other provisions of our Certificate of Incorporation and Bylaws, in combination with the additional authorized shares may also have an anti-takeover effect of preventing or discouraging a change in control of our company: (i) ability of the board of directors to designate the terms of and issue shares of preferred stock without further stockholder approval; (ii) prohibiting the ability of stockholders to act by written consent without a meeting; and (iii) the absence of cumulative voting rights in the election of directors. The board of directors recommends a vote “FOR” approval of the amendment to our Eighth Amended and Restated Certificate of Incorporation to increase the number of authorized shares of common stock. 40
Security ownership Beneficial Ownership of Directors, Nominees, Executive Officers and Beneficial Owners of More than Five Percent of Our Common Stock The following table shows how many shares of our common stock were beneficially owned as of March 28, 201725, 2020 by each of the persons known by us to be beneficial owners of more than 5% of our common stock, our directors, the director nominees and the executive officers named in the 2019 Summary Compensation Table contained in this proxy statement, and by all of our directors and executive officers as a group. Percentage ownership of our common stock in the table is based on 17,200,52635,019,093 shares of our common stock issued and outstanding on March 28, 2017.25, 2020. Except as otherwise noted below, persons have sole voting and investment power and the address for each director or officer listed in the table is c/o SPS Commerce, Inc., 333 South Seventh Street, Suite 1000, Minneapolis, Minnesota 55402. Name of Beneficial Owner | | Ownership of Common Stock | | | | Number of Shares Deemed Beneficially Owned as a Result of Equity Awards Exercisable or Vesting Within 60 Days of March 25, 2020 | | | | Total Beneficial Ownership | | | Percentage of Outstanding Shares | | Executive Officers and Directors: | | | | | | | | | | | | | | | | | | | Archie C. Black | | | 3,541 | | (1) | | | 288,370 | | (2) | | | 291,911 | | | | * | | James J. Frome | | | 294 | | (3) | | | 148,754 | | (2) | | | 149,048 | | | * | | Martin J. Leestma | | | 13,439 | | | | | 45,952 | | | | | 59,391 | | | * | | Kimberly K. Nelson | | | 68,221 | | (4) | | | 160,644 | | (2) | | | 228,865 | | | * | | James B. Ramsey | | | 5,232 | | | | | 47,074 | | | | | 52,306 | | | * | | Marty M. Reaume | | | 1,733 | | | | | 18,850 | | | | | 20,583 | | | * | | Tami L. Reller | | | 3,655 | | | | | 38,288 | | | | | 41,943 | | | * | | Philip E. Soran | | | 14,470 | | | | | 53,972 | | | | | 68,442 | | | * | | Sven A. Wehrwein | | | 14,470 | | | | | 45,952 | | | | | 60,422 | | | * | | All directors, director nominees, and executive officers as a group (9 persons) | | | 125,055 | | (5) | | | 847,856 | | | | | 972,911 | | | 2.8 | % | | | | | | | | | | | | | | | | | | | | Other beneficial owners: | | | | | | | | | | | | | | | | | | | BlackRock, Inc. | | | 6,017,252 | | (6) | | | — | | | | | 6,017,252 | | | | 17.2 | % | The Vanguard Group | | | 2,506,196 | | (7) | | | — | | | | | 2,506,196 | | | | 7.2 | % |
| | | | | | | | | Name of Beneficial Owner | | Amount and Nature of
Beneficial Ownership | | | Percentage of
Outstanding Shares | | Executive Officers and Directors: | | | | | | | | | Archie C. Black | | | 170,471 | (1) | | | * | | James J. Frome | | | 52,788 | (2) | | | * | | Martin J. Leestma | | | 38,228 | (3) | | | * | | Kimberly K. Nelson | | | 123,883 | (4) | | | * | | James B. Ramsey | | | 16,950 | (5) | | | * | | Tami L. Reller | | | 6,599 | (6) | | | * | | Michael A. Smerklo. | | | 13,449 | (7) | | | * | | Philip E. Soran | | | 37,729 | (8) | | | * | | Sven A. Wehrwein | | | 26,463 | (9) | | | * | | All directors, director nominees, and executive officers as a group (9 persons) | | | 486,560 | | | | 2.8 | % | Other beneficial owners: | | | | | | | | | BlackRock, Inc. | | | 1,707,000 | (10) | | | 9.9 | % | Hound Partners, LLC | | | 989,555 | (11) | | | 5.8 | % | Janus Capital Management LLC | | | 937,882 | (12) | | | 5.5 | % |
(1) | Includes 8001,600 shares owned by Mr. Black’s sons 33,060and 297 shares owned by Mr.held in trust pursuant to our 401(k) plan. |
(2) | Includes 2,492, 1,266, and 1,158 shares for Messrs. Black 133,518 shares subject to options that are exercisable within 60 days of the date of the table, 1,081 sharesand Frome and Ms. Nelson, respectively, of restricted stock that have vested but have not been settled as of the date of the table and 2,012 shares of restricted stock that will vest within 60 days of the date of the table. Mr. Black may be deemed to have shared voting and investment power over the |
(3) | Includes 294 shares held byin trust pursuant to our 401(k) plan. |
(4) | Includes 276 shares held in trust pursuant to our 401(k) plan. |
(5) | Includes the Charitable Trustindirect holdings included in footnotes 1, 2 and his sons, but disclaims beneficial ownership of such shares. Mr. Black has served as our Chief Executive Officer and President and a member of our board of directors since 2001.3. |
(2)(6) | Includes 51,397 shares of Mr. Frome subject to options that are exercisable within 60 days of the date of the table, 464 shares of restricted stock that have vested but have not been settled as of the date of the table and 927 shares of restricted stock that will vest within 60 days of the date of the table. Mr. Frome has served as our Executive Vice President and Chief Operating Officer since August 2012. |
(3) | Includes 3,093 shares owned by Mr. Leestma, and 35,135 shares subject to options that are exercisable within 60 days of the date of the table. |
(4) | Includes 17,623 shares owned by Ms. Nelson, 104,878 shares subject to options that are exercisable within 60 days of the date of the table, 461 shares of restricted stock that have vested but have not been settled as of the date of the table and 921 shares of restricted stock that will vest within 60 days of the date of the table. Ms. Nelson has served as our Executive Vice President and Chief Financial Officer since 2007. |
(5) | Includes 2,590 shares owned by Mr. Ramsey, 14,360 shares subject to options that are exercisable within 60 days of the date of the table. |
(6) | Includes 1,013 shares owned by Ms. Reller, 5,586 shares subject to options that are exercisable within 60 days of the date of the table. |
(7) | Includes 760 shares owned by Mr. Smerklo, 12,689 shares subject to options that are exercisable within 60 days of the date of the table. |
(8) | Includes 5,266 shares owned by Mr. Soran, 32,463 shares subject to options that are exercisable within 60 days of the date of the table. |
(9) | Includes 4,593 shares owned by Mr. Wehrwein, 21,870 shares subject to options that are exercisable within 60 days of the date of the table. |
(10) | The number of shares indicated is based on information reported to the SEC in a Schedule 13G/A filed by BlackRock, Inc. on January 17, 2017,February 4, 2020, and reflects beneficial ownership as of December 31, 2016.2019. BlackRock, Inc. has sole voting power as to 1,671,4755,839,641 shares and sole dispositive power as to 1,707,0006,017,252 shares. The address for BlackRock, Inc. is 55 East 52nd Street, New York, NY 10022.10055. |
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(11)(7) | The number of shares indicated is based on information reported to the SEC in a Schedule 13G13G/A filed by Hound Partners, LLC jointly with Hound Performance, LLC, Jonathan Auerbach and Hound Partners Offshore Fund, LP,The Vanguard Group on January 17, 2017,February 12, 2020, and reflects beneficial ownership as of December 31, 2016. Hound Partners, LLC2019. The Vanguard Group has sole voting power as to 73,336 shares, shared voting power as to 989,5536,144 shares, sole dispositive power as to 2,430,924 shares and shared dispositive power as to 989,55375,272 shares. The address for Hound Partners, LLCThe Vanguard Group is 101 Park Avenue, 47th Floor New York, New York 10178.100 Vanguard Blvd., Malvern, Pennsylvania 19355. Vanguard Fiduciary Trust Company, a wholly-owned subsidiary of The Vanguard Group, Inc., is the beneficial owner of 69,128 shares as a result of it serving as investment manager of collective trust accounts. Vanguard Investments Australia, Ltd., a wholly-owned subsidiary of The Vanguard Group, Inc., is the beneficial owner of 10,352 shares as a result of it serving as investment manager of Australian investment offerings. |
42 (12) | The number of shares indicated is based on information reported to the SEC in a Schedule 13G filed by Janus Capital Management LLC, LLC on February 13, 2017,
certain relationships and reflects beneficial ownership as of December 31, 2016. Janus Capital Management LLC has sole voting power as to 937,882 shares and sole dispositive power as to 937,882 shares. The address for Janus Capital Management LLC, LLC is 151 Detroit Street, Denver, Colorado, 80206. |
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors to file initial reports of ownership of our securities and reports of changes in ownership with the Securities and Exchange Commission. Based on a review of Forms 3, 4 and 5 and on written representations from our executive officers and directors, we believe that all Section 16(a) filing and disclosure requirements applicable to our executive officers and directors for 2015 have been satisfied, except (a) our chief executive officer inadvertently filed (i) a Form 4 two days late that reported fiverelated transactions and (ii) a Form 4 one day late that reported five transactions, (b) our chief operating officer inadvertently filed a Form 4 two business days late that reported two transactions, (c) our chief financial officer inadvertently filed a Form 4 two business days late that reported two transactions and (d) our directors inadvertently failed to file Form 4s reporting their annual option and restricted stock awards granted in connection with their election that were disclosed in our 2015 annual meeting proxy statement. The directors subsequently reported these awards on Form 5s.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Compensation Committee Interlocks and Insider Participation
None of the members of our compensation committee are or has at any time during the last completed fiscal year been an officer or employee of ours. None of our executive officers has served as a member of the board of directors, or as a member of the compensation or similar committee, of any entity that has one or more executive officers who served on our board of directors or compensation committee during the last completed fiscal year.
Transactions with Related Persons We describe below transactions and series of similar transactions, during our last fiscal year, to which we were a party or will be a party, in which: the amounts involved exceeded or will exceed $120,000; and any of our directors, executive officers, holders of more than 5% of our common stock or any member of their immediate family had or will have a direct or indirect material interest. Director Indemnification Agreements We entered into indemnification agreements with each of our directors that provide, in general, that we will indemnify them to the fullest extent permitted by law in connection with their service to us or on our behalf. Policy for Approval of Related Person Transactions The board of directors has adopted a written statement of policy regarding transactions with related persons, which we refer to as our related person policy. Our related person policy requires that any executive officer requesting to enter into a transaction with a “related person” generally must promptly disclose to our audit committee the related person transaction and all material facts with respect thereto. In reviewing a transaction, our audit committee will consider all relevant facts and circumstances, including (1) the commercial reasonableness of the terms, (2) the benefit and perceived benefits, or lack thereof, to us, (3) opportunity costs of alternate transactions and (4) the materiality and character of the related person’s interest, and the actual or apparent conflict of interest of the related person. Our audit committee will not approve or ratify a related person transaction unless it determines that, upon consideration of all relevant information, the transaction is beneficial to our company and stockholders and the terms of the transaction are fair to our company. No related person transaction will be consummated without the approval or ratification of our audit committee. It is our policy that directors interested in a related person transaction will recuse themselves from any vote relating to a related person transaction in which they have an interest. Under our related person policy, a “related person” includes any of our directors, director nominees, executive officers, any beneficial owner of more than 5% of our common stock and any immediate family member of any of the foregoing. Related person transactions exempt from our policy include transactions available to all of our employees and stockholders on the same terms and transactions between us and the related person that, when aggregated with the amount of all other transactions between us and the related person or its affiliates, involve less than $120,000 in a fiscal year.
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AUDIT COMMITTEE REPORT AND PAYMENT OF FEES TO OUR INDEPENDENT AUDITORDelinquent Section 16(a) Reports
Audit Committee Report
The primary functionSection 16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors, and persons who beneficially own more than 10% of our audit committee is oversightcommon stock, to file initial reports of ownership of our financial reporting process, publicly filed financialsecurities and reports internal accounting and financial controls, and the independent audit of our consolidated financial statements. The consolidated financial statements of SPS Commerce, Inc. for the year ended December 31, 2016 were audited by KPMG LLP, independent auditor for the company.
As part of its activities, the audit committee has:
1. Reviewed and discussed with management and the independent auditor the company’s audited financial statements;
2. Discussedchanges in ownership with the independent auditor the matters required to be communicated underStatement on Auditing Standards No. 61 (Communications with Audit Committees); and
3. Received the written disclosures and letter from the independent auditor required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent auditor’s communications with the audit committee concerning independence, and has discussed with the independent auditor the independent auditor’s independence.
Management is responsible for the company’s system of internal controls and financial reporting process. KPMG LLP is responsible for performing an independent audit of the consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board and for issuing a report thereon. Our committee’s responsibility is to monitor and oversee these processes.SEC. Based on the foregoing review and discussions and a review of the report of KPMG LLP with respect to the consolidated financial statements,Forms 3, 4 and relying thereon, we have recommended to the board of directors of SPS Commerce, Inc. the inclusion of the audited consolidated financial statements in SPS Commerce, Inc.’s Annual Report5 and on Form 10-K for the year ended December 31, 2016, for filing with the Securities and Exchange Commission.
Audit Committee of the Board of Directors of SPS Commerce, Inc.
Sven A. Wehrwein,Chairperson
Martin J. Leestma
Tami L. Reller
Philip E. Soran
Auditor Fees
KPMG LLP has served as our independent auditor since June 4, 2013. The following table presents fees for professional audit services rendered by KPMG LLP for 2016 and 2015.
| | | | | | | | | | | | 2016 | | | 2015 | | | | | (KPMG) | | | (KPMG) | | Audit Fees(1) | | $ | 472,000 | | | $ | 384,000 | | Audit-Related Fees | | | — | | | | — | | Tax Fees(2) | | $ | 121,874 | | | $ | 54,790 | | All Other Fees | | | — | | | | — | | | | | | | | | | | Total | | $ | 593,874 | | | $ | 438,790 | | | | | | | | | | |
(1) | Audit Fees consist of fees for the audit of our annual consolidated financial statements, the review of our interim consolidated financial statements, the review of financial information included in our filings with the SEC (including our common stock offerings) and other professional services provided in connection with statutory and regulatory filings or engagements. |
(2) | Tax Fees consist of the aggregate fees billed in 2016 and 2015 for professional services rendered for transfer pricing, tax compliance, tax advice and tax planning. |
Auditor Services Pre-Approval Policy
The audit committee has adopted an auditor services pre-approval policy applicable to services performed for us by our independent auditor. In accordance with this policy, the audit committee’s practice is to approve annually all audit, audit-related and tax and other services to be provided by the independent auditor during the year. If a service to be provided is not pre-approved as part of the annual process or if it may exceed pre-approved fee levels, the service must receive a specific and separate pre-approval by the audit committee, which may delegate authority to grant such pre-approvals during the year to one or more independent members of the audit committee. Any pre-approvals granted pursuant to delegated authority must be reported to the audit committee at its next regular meeting.
Our audit committee has determined that the provision of the non-audit services described in the table above was compatible with maintaining the independence of our independent auditor. The audit committee reviews each non-audit service to be provided and assesses the impact of the service on the auditor’s independence.
ITEM 2 —APPROVAL OF THE AMENDED AND RESTATED MANAGEMENT INCENTIVE PLAN
Introduction
Our compensation committee (the “Committee”) originally adopted the Management Incentive Plan in 2016, and adopted this amendment and restatement of the Management Incentive Plan on February 9, 2017, subject to stockholder approval. We are asking our stockholders to approve the Management Incentive Plan as amended and restated (the “MIP”) in order to permit the Committee to provide annual incentive compensation to certain executive officers that will qualify as “performance-based compensation” under Section 162(m) of the Internal Revenue Code (the “Code”).
Section 162(m) generally does not allow a publicly-held company to obtain a tax deduction for compensation of more than $1,000,000 paid in any fiscal year to “covered employees” unless such compensation is considered “performance-based” for purposes of Section 162(m). Under Section 162(m) as currently interpreted by the Internal Revenue Service, the group of “covered employees” as of the end of any taxable year consists of a company’s chief executive officer and its three other most highly compensated executive officers, other than the chief financial officer.
Various requirements must be satisfied in order to qualify compensation paid to covered employees as performance-based compensation within the meaning of Section 162(m). One such requirement is that the our stockholders must approve the material terms of the plan under which the performance-based compensation is provided, which include a general description of the employees eligible to receive compensation under the plan, a description of the business criteria on which any performance goals are to be based, and the maximum amount of compensation that could be paid to any employee if the applicable performance goals are attained. As a result, when our board of directors adopted the MIP, it made its approval subject to the condition that the MIP be approved by our stockholders at the 2017 annual meeting.
In light of the timing of this stockholder vote, annual cash incentive awards for the 2017 performance period that have been granted towritten representations from our executive officers have been granted under the MIP and made subject to and contingent upon stockholder approvaldirectors, we believe that all of the MIP. If our stockholders do not approve the MIP, the Management Incentive Plan as it existed before this amendment and restatement will continue in effect, and the Committee will consider whether any alternative annual cash incentive compensation arrangements for our executive officers would be appropriate under the circumstances.
Descriptionand directors complied with all Section 16(a) filing requirements during 2019 except that Mr. Black filed one late Form 4 reporting a transfer of the Management Incentive Plan
The following description of the MIP is only a summary of its material terms, and is qualified in its entirety by reference to the actual plan document, which is attached as Appendix A to this proxy statement.
Eligibility to Participate. Any employee of our company or any of its subsidiaries is eligible to participate in the MIP. The Committee will select the participants from among those eligible to participate, and will also designate from among participants who are executive officers those whose awards for that performance period are intended to qualify as performance-based compensation within the meaning of Section 162(m)(3) of the Code (“Performance-Based Compensation”).
Administration. The Committee will administer the MIP, which includes the authority to determine to whom awards will made under the MIP and the terms of those awards, to interpret the MIP, to establish rules and procedures regarding administration of the MIP, to determine whether conditions to payment of compensation
under the MIP have been met, and to exercise discretion to reduce the amount of incentive compensation that would otherwise be payable under the MIP. The Committee may delegate its authority under the MIP to one or more of its members or one or more executive officers of our company with respect to awards to employees who are not executive officers.
Performance Period. Each performance period under the MIP will be a calendar year, beginning with 2017.
Performance Measures. Participants will receive awards under the MIP whose payout will be contingent upon the degree to which one or more performance goals based on performance measures specified by the Committee have been attained over the course of the applicable performance period. The Committee specifies the performance measures and establishes the performance goals within 90 days of the start of each performance period. For any MIP awards that are intended to Performance-Based Compensation, the Committee will specify the applicable performance measure(s) from among the following: (i) net income; (ii) earnings before one or more of interest, taxes, depreciation, amortization and share-based compensation expense; (iii) revenue; (iv) gross profit; (v) operating income; (vi) profitability as measured by return ratios (including, but not limited to, return on assets, return on equity, return on invested capital and return on revenue); (vii) cash flow (including, but not limited to, operating cash flow, free cash flow and cash flow return on capital); (viii) market share; (ix) margins (including, but not limited to, one or more of gross, operating and net earnings margins); (x) stock price; (xi) total stockholder return; (xii) orders; (xiii) cost and expense management; (xiv) economic value added or similar value added measurements; or (xv) implementation or completion of critical projects.
Adjustments to Performance Measures or Goals. In connection with establishing or applying the performance goals applicable to any performance period, the Committee may adjust the performance goals or the performance measures on which they are based to equitably reflect, in the Committee’s judgment, the impact of (i) events during the performance period that are unusual in nature or infrequently occurring (such as acquisitions, divestitures, restructuring activities or asset write-downs), (ii) changes in applicable tax laws or accounting principles, or (iii) equity restructurings, reorganizations or other changes in corporate capitalization. However, no such adjustments may be made to awards intended to be Performance-Based Compensation if they would cause the award to fail to qualify as “performance-based compensation” under Code Section 162(m).
Determining Payment Amounts. Following the completion of each performance period, the Committee will determine the degree to which the applicable performance goals were attained and the corresponding annual incentive amounts that are payable to participants based on such attainment. The Committee has the discretion to reduce the annual incentive amount payable to any participant below the amount otherwise payable based on the attainment of the performance goals, as well the discretion to increase payout amounts in connection with awards that are not Performance-Based Compensation.
Payment of Awards. The amount of any award determined by the Committee to be payableshares to a participant will be paid in a lump sum cash payment (less applicable withholding taxes) no later than March 15 of the calendar year immediately following the end of the applicable annual performance period, assuming the participant continues to be employed by us at that time. The maximum amount that may be paid to any participant in connection with a MIP award that is intended to be Performance-Based Compensation may not exceed $5,000,000 for an annual performance period.trust.
Termination of Employment. If a participant’s employment ends for any reason before the payment date of an award, that participant will forfeit the award and the right to receive payment for that performance period.
Amendment and Term of Plan. The MIP became effective on February 9, 2017, subject to approval by our stockholders at the Annual Meeting. The MIP will remain in effect until terminated by the board of directors or the Committee. The board of directors or the Committee may also amend or suspend the MIP at any time, and any amendment will be subject to stockholder approval only if such approval is necessary to enable compensation provided under the MIP to continue to qualify as performance-based compensation under Section 162(m), or to comply with any other applicable law or regulation.
Forfeiture or Recovery of Compensation. MIP awards and the annual incentive amounts paid or payable under the MIP will be subject to forfeiture, cancellation, reduction or recovery under any compensation recovery adopted by our company.
Federal Income Tax Consequences
Annual incentive compensation payments made in cash under the MIP will be taxed to the recipient as ordinary income in the year of receipt. Assuming that our stockholders approve the MIP and that the operational and other requirements that must be met for compensation provided under the MIP to qualify as performance-based under Section 162(m) are satisfied, we will be entitled to a deduction for federal income tax purposes equal to the amount of income recognized by participants in the MIP in each year that such income is recognized.
Awards Under the Plan
Because all awards under the MIP are discretionary with the Committee, neither the number nor types of future MIP awards to be received by or allocated to particular participants or groups of participants is presently determinable. However, as discussed above, annual cash incentive awards to our executive officersStockholder Proposals for the 2017 performance period have been granted under the MIP, subject to approval of the MIP by our stockholders. The effectiveness of the 2017 awards to our executive officers is expressly contingent upon stockholder approval of the MIP. The following table sets forth the target payout amounts associated with these 2017 MIP awards to our executive officers:
| | | | | Name and Current Position | | Target Payout ($) | | Archie C. Black Chief Executive Officer and President | | $ | 445,000 | | Kimberly K. Nelson Executive Vice President and Chief Financial Officer | | $ | 260,000 | | James J. Frome Executive Vice President and Chief Operating Officer | | $ | 270,000 | |
Actual amounts that would be earned and payable pursuant to these awards assuming stockholder approval of the MIP will be determined in accordance with the process described earlier in this proxy statement under the caption “Compensation Discussion and Analysis — Bonus — 2016 Management Incentive Plan”
As stated above, the MIP is being submitted for stockholder approval so that awards under the MIP can qualify for deductibility by our company under Section 162(m). However, stockholder approval of the MIP is only one of several requirements under Section 162(m) that must be satisfied for awards under the MIP to qualify as performance-based compensation purposes of Section 162(m), and approval of the MIP by our stockholders should not be viewed as a guarantee that all amounts paid under the MIP will, in practice, be deductible by our company.
Recommendation of the Board
The board of directors recommends a vote “FOR” the proposal to approve the adoption of the SPS Commerce, Inc. Amended and Restated Management Incentive Plan and the material terms thereof. Proxies solicited by the board of directors will be voted “FOR” this proposal unless a contrary vote is specified.
ITEM 3 —RATIFICATION OF SELECTION OF INDEPENDENT AUDITOR
The audit committee of our board of directors has selected KPMG LLP to serve as our independent auditor for the year ending December 31, 2017. While it is not required to do so, our board of directors is submitting the selection of KPMG LLP for ratification in order to ascertain the views of our stockholders with respect to the choice of audit firm. If the selection is not ratified, the audit committee will reconsider its selection. Representatives of KPMG LLP are expected to be present at the annual meeting, will be available to answer stockholder questions and will have the opportunity to make a statement if they desire to do so.
The board of directors recommends that you vote FOR ratification of the selection of KPMG LLP as the independent auditor of SPS Commerce, Inc. and our subsidiaries for the year ending December 31, 2017. Proxies will be voted FOR ratification of this selection unless otherwise specified.
ITEM 4 —ADVISORY VOTE ON APPROVAL OF THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS
General Information
We are providing our stockholders the opportunity to cast an advisory (non-binding) vote to approve the compensation of our named executive officers as disclosed in this proxy statement. As described in the Compensation Discussion and Analysis (“CD&A”), we have designed the compensation arrangements for our named executive officers to provide compensation in overall amounts and in forms that attract and retain talented and experienced individuals and motivate our executive officers to achieve the goals that are important to our growth. We typically provide compensation to our named executive officers through a combination of base salary, annual cash bonuses and equity awards. During 2016, our compensation primarily consisted of base salary, annual cash incentive awards, stock option and restricted stock unit awards, which helps align the incentives of our named executive officers with the interests of our stockholders.
Our stockholders have a right to cast an advisory vote on our executive compensation program at the annual meeting. As a result, we are presenting this proposal, which gives you, as a stockholder, the opportunity to endorse our executive compensation program by voting for or against the following resolution:
“RESOLVED, that the stockholders approve the compensation of the SPS Commerce, Inc. named executive officers, as disclosed in the Compensation Discussion and Analysis, the compensation tables, and the related disclosure contained in our 2017 proxy statement.”
The board of directors urges our stockholders to endorse the compensation program for our named executive officers by voting FOR the resolution.
As discussed in the CD&A contained in this proxy statement, the compensation committee of the board of directors believes that the executive compensation for 2016 is reasonable and appropriate, is justified by our performance in an extremely difficult economic environment and is the result of a carefully considered approach. In deciding how to vote on this proposal, the board of directors advises you to consider the following factors related to the compensation paid to our named executive officers in fiscal 2016, each of which is discussed in the CD&A:
Our financial results exceeded the expectations we set at the beginning of the year, with a revenue increase of 22% over 2015, to $193.3 million, and a 17% increase in adjusted EBITDA to $26.5 million. Recurring revenue also increased 16% from 2015.
In 2016, we made only modest base salary increases for our named executive officers of between 10% and 16% per individual compared to 2015.
Because your vote is advisory, it will not be binding on the board of directors and will not overrule any decision by the board or require the board to take any action. However, the board of directors and the compensation committee will carefully review the voting results. To the extent there is any significant negative vote on this proposal, we may consult directly with stockholders to better understand the concerns that influenced the vote. The board of directors and the compensation committee consider constructive feedback obtained through this process in making future decisions about executive compensation programs.
The board of directors, upon recommendation of the compensation committee, unanimously recommends a vote “FOR” approval of the compensation of our named executive officers.
STOCKHOLDER PROPOSALS FOR THE 2018 ANNUAL MEETING2021 Annual Meeting
In order for a stockholder proposal including a director nomination, to be considered for inclusion in our proxy statement for the 20182021 annual meeting of stockholders, the written proposal must be received at our principal executive offices on or before December 1, 2017.7, 2020. The proposal should be addressed to SPS Commerce, Inc., Attention: Chief Financial Officer, 333 South Seventh Street, Suite 1000, Minneapolis, Minnesota 55402. The proposal must comply with Securities and Exchange CommissionSEC regulations regarding the inclusion of stockholder proposals in company-sponsored proxy materials. In accordance with our bylaws, in order to be properly brought before the 20182021 annual meeting, a stockholder’s notice of the matter the stockholder wishes to present must be delivered to our principal executive offices in Minneapolis, Minnesota, at the address identified in the preceding paragraph, not less than 90 nor more than 120 days prior to the first anniversary of the date of this year’s annual meeting. As a result, any notice given by or on behalf of a stockholder pursuant to these provisions of our bylaws (and not pursuant to Rule 14a-8 of the Securities and Exchange Commission)SEC) must be received no earlier than January 23, 2018,21, 2021, and no later than February 22, 2018.20, 2021. Any notice given by or on behalf of a stockholder outside of the dates included in this paragraph and the preceding paragraph is considered untimely. HOUSEHOLDING OF PROXY MATERIALSHouseholding of Proxy 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 the Notice of Internet Availability of Proxy Materials, Proxy Statement, and 20152019 Annual Report to Stockholders, as applicable, is being delivered to multiple stockholders sharing an address unless we have received contrary instructions. We will promptly deliver a separate copy of any of these documents to you if you write to us at SPS Commerce, Inc., 333 South Seventh Street, Minneapolis, Minnesota 55402, Attention: Corporate Secretary or call us at (612) 435-9400. If you want to receive separate copies of the Notice of Internet Availability of Proxy Materials, Proxy Statement, or Annual Report to Stockholders in the future, or if you are receiving multiple copies and would like to receive only one copy for your household, you should contact your bank, broker, or other nominee record holder, or you may contact us at the above address or telephone number. OTHER MATTERSOther Matters
We do not know of any other matters that may be presented for consideration at the annual meeting. If any other business does properly come before the meeting, the persons named as proxies above will vote as they deem in the best interests of SPS Commerce, Inc. | 
| Archie C. Black | President and Chief Executive Officer |
Archie C. Black
President and Chief Executive Officer
Dated: March 31, 2016 April 6, 202044 LOCATION OF
Location of SPS COMMERCE, INC. ANNUAL MEETING OF STOCKHOLDERSCommerce, Inc. Annual Meeting of Stockholders Tuesday,Thursday, May 23, 2017,21, 2020, at 8:00 a.m.
2200 Wells Fargo Center 90 South Seventh Street Minneapolis, MN 55402 Beneficial owners of common stock held in street name by a broker, bank, trust or other nominee may need proof of ownership to be admitted to the meeting. A brokerage statement or letter from the broker, bank, trust or other nominee are examples of proof of ownership. 45
Appendix A RECONCILIATION OF
NON-GAAP FINANCIAL MEASURES Adjusted EBITDA consists of net income adjusted for depreciation and amortization, interest expense, interest income (net), income tax expense, stock-based compensation expense, and other adjustments as necessary for a fair presentation. Other adjustments included the impact of the fair value adjustment for the EDIAdmin earn-out liability, returned escrow shares in 2019 related to the acquisition of ToolBox, loss on disposals in 2019, and impairment of internally developed software in 2019. We use Adjusted EBITDA as a measure of operating performance because it assists us in comparing performance on a consistent basis, as it removes the impact of our capital structure from our operating results. We believe Adjusted EBITDA is useful to an investor in evaluating our operating performance because it is widely used to measure a company’s operating performance without regard to items such as depreciation and amortization, which can vary depending upon accounting methods and the book value of assets, and to present a meaningful measure of corporate performance exclusive of our capital structure and the method by which assets were acquired. The following table provides a reconciliation of net income to Adjusted EBITDA (in thousands): | | Year Ended December 31, | | | | 2019 | | | 2018 | | Net income | | $ | 33,712 | | | $ | 23,872 | | Depreciation and amortization | | | 16,438 | | | | 12,686 | | Interest income, net | | | (2,947 | ) | | | (2,329 | ) | Income tax expense | | | 8,358 | | | | 4,468 | | Stock-based compensation expense | | | 14,690 | | | | 12,510 | | Other | | | (488) | | | | 94 | | Adjusted EBITDA | | $ | 69,763 | | | $ | 51,301 | |
Non-GAAP income per share consists of net income plus stock-based compensation expense, amortization expense related to intangible assets, and other adjustments as necessary for a fair presentation, divided by the weighted average number of shares of common stock outstanding during each period. Other adjustments included the impact of the fair value adjustment for the EDIAdmin earn-out liability, returned escrow shares in 2019 related to the acquisition of ToolBox, depreciation on asset retirements and disposals in 2019, and impairment of internally developed software in 2019. To quantify the tax effects, we recalculate income tax expense excluding the direct book and tax effects of the specific items constituting the non-GAAP adjustments. The difference between this recalculated income tax expense and GAAP income tax expense is presented as the income tax effect of the non-GAAP adjustments. A-1
We believe non-GAAP income per share is useful to an investor because it is widely used to measure a company’s operating performance. The following table provides a reconciliation of net income to non-GAAP income per share (in thousands, except per share amounts): | | Year Ended December 31, | | | | 2019 | | | 2018 | | Net income | | $ | 33,712 | | | $ | 23,872 | | Stock-based compensation expense | | | 14,690 | | | | 12,510 | | Amortization of intangible assets | | | 5,315 | | | | 4,093 | | Other | | | (488) | | | | 94 | | Non-GAAP income as historically reported | | | 53,229 | | | | 40,569 | | Income tax effects of adjustments | | | (7,304) | | | | (6,594) | | Non-GAAP income with tax adjustments | | $ | 45,925 | | | $ | 33,975 | | Shares used to compute non-GAAP income per share | | | | | | | | | Basic | | | 35,024 | | | | 34,392 | | Diluted | | | 36,002 | | | | 35,212 | | Non-GAAP income per share with tax adjustments | | | | | | | | | Basic | | $ | 1.31 | | | $ | 0.99 | | Diluted | | $ | 1.28 | | | $ | 0.96 | |
Shares and per share data have been adjusted for all periods presented to reflect a two-for-one stock split effective August 22, 2019. A-2
Appendix B PROPOSED AMENDMENT TO
SECTION 4.1 OF OUR
EIGHTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION | | | | 4.1. | VOTE BY INTERNET - www.proxyvote.com
Use the InternetAUTHORIZED CAPITAL STOCK. The Corporation shall be authorized to transmit your voting instructionsissue 115,000,000 shares of capital stock, of which 110,000,000 shares shall be shares of common stock, par value $0.001 per share (the “Common Stock”), and for electronic delivery5,000,000 shares shall be shares of information up until 11:59 P.M. Eastern Time on Monday, May 22, 2017. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.
| SPS COMMERCE, INC.
333 SOUTH SEVENTH STREET
SUITE 1000
MINNEAPOLIS, MN 55402
| | ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.
| | | VOTE BY PHONE - 1-800-690-6903
| | | Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time on Monday, May 22, 2017. Have your proxy card in hand when you call and then follow the instructions. | | | VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.preferred stock, par value $0.001 per share (the “Preferred Stock”)
|
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:B-1
KEEP THIS PORTION FOR YOUR RECORDS
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DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For All | | Withhold All | | For All Except | | To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below. | | | | | | | | | | | | | | The Board of Directors recommends you vote FOR the following:
| | | | | | | | | | | | | | | | | | | | | 1. | | Election of Directors | | | | ☐ | | ☐ | | ☐ | | | | | | | | | | | | | | | | | | Nominees
| | | | | | | | | | | | | | | | | | | | | | | | | | 01
06
| | Archie C. Black 02 Martin J. Leestma 03 James B. Ramsey 04 Tami L. Reller 05 Michael A. Smerklo
Philip E. Soran 07 Sven A. Wehrwein
| | | | | | The Board of Directors recommends you vote FOR proposals 2, 3 and 4.
| | For | | Against | | Abstain | | | | | | | | 2
| | Approval of the Amended and Restated Management Incentive Plan.
| | ☐
| | ☐
| | ☐
| | | | | | | | 3
| | Ratification of the selection of KPMG LLP as the independent auditor for the fiscal year ending December 31, 2017.
| | ☐
| | ☐
| | ☐
| | | | | | | | 4
| | Advisory approval of the compensation of our named executive officers.
| | ☐
| | ☐
| | ☐
| | | | | | | | NOTE:Such other business as may properly come before the meeting or any adjournment thereof.
| | 
| | | | For address change/comments, mark here.
(see reverse for instructions)
| | ☐ | | | | | | | | | | | | | | | | | Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name, by authorized officer.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Signature [PLEASE SIGN WITHIN BOX] | | Date | | | | | | | | Signature (Joint Owners) | | Date | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:The Annual Report and Notice & Proxy Statement are available atwww.proxyvote.com.
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | SPS COMMERCE, INC.
| | | | | | | | | | | | | | | | | Annual Meeting of Stockholders | | | | | | | | | | | | | | | | | May 23, 2017 8:00 AM | | | | | | | | | | | | | | | | | This proxy is solicited by the Board of Directors | | | | | | | | | | | | | The stockholder(s) hereby appoint(s) Archie C. Black and Kimberly K. Nelson, or either of them, as proxies, each with the power to appoint (his/her) substitute, and hereby authorizes them to represent and to vote, as designated on the reverse side of this ballot, all of the shares of Common Stock of SPS Commerce, Inc., that the stockholder(s) is/are entitled to vote at the Annual Meeting of Stockholders to be held at 08:00 AM, CT on May 23, 2017 at Faegre Baker Daniels LLP 2200 Wells Fargo Center, 90 South Seventh Street, Minneapolis, MN 55402, and any adjournment or postponement thereof.
| | | | | | | | This proxy, when properly executed, will be voted in the manner directed herein. If no such direction is made, this proxy will be voted in accordance with the Board of Directors’ recommendations.
| | | |  | | | | Address change/comments:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (If you noted any Address Changes and/or Comments above, please mark corresponding box on the reverse side.) | | | | | | | | | | | | | | | | | | | | | | | | | Continued and to be signed on reverse side
| | |
 
SPS COMMERCE, INC. 333 SOUTH SEVENTH STREET SUITE 1000 MINNEAPOLIS, MN 55402 Investor Address Line 1 Investor Address Line 2 Investor Address Line 3 Investor Address Line 4 Investor Address Line 5 John Sample 1234 ANYWHERE STREET ANY CITY, ON A1A 1A1 VOTE BY INTERNET - www.proxyvote.comUse the Internet to transmit your voting instructions and for electronic delivery ofinformation. Vote by 11:59 P.M. ET on 05/15/2020 for shares held in a Plan. Have yourproxy card in hand when you access the web site and follow the instructions to obtainyour records and to create an electronic voting instruction form. ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALSIf you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reportselectronically via e-mail or the Internet. To sign up for electronic delivery, please followthe instructions above to vote using the Internet and, when prompted, indicate that youagree to receive or access proxy materials electronically in future years. VOTE BY PHONE - 1-800-690-6903Use any touch-tone telephone to transmit your voting instructions. Vote by 11:59 P.M. ETon 05/15/2020 for shares held in a Plan. Have your proxy card in hand when you call andthen follow the instructions. VOTE BY MAILMark, sign and date your proxy card and return it in the postage-paid envelope we haveprovided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. The Board of Directors recommends you vote FOR the following: 1. Election of Directors Nominees 1a. Archie C. Black 1b. Martin J. Leestma 1c. James B. Ramsey 1d. Marty M. Reaume 1e. Tami L. Reller 1f. Philip E. Soran 1g. Sven A. Wehrwein For address change/comments, mark here. (see reverse for instructions) For Against 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Abstain 0 0 0 0 0 0 0 0 The Board of Directors recommends you vote FOR proposals 2, 3 and 4. 2. Ratification of the selection of KPMG LLP as the independent auditor of SPS Commerce, Inc. for the fiscal year ending December 31, 2020. 3. Advisory approval of the compensation of the named executive officers of SPS Commerce, Inc. 4. Approval of an amendment to our Eighth Amended and Restated Certificate of Incorporation to increase the number of authorized shares of common stock. NOTE: Such other business as may properly come before the meeting or any adjournment thereof. For Against Abstain 0 0 0 0 0 0 0 0 0 0000443865_1 R1.0.1.18 Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. (If you noted any Address Changes and/or Comments above, please mark corresponding box on the reverse side.) 0000443865_2 R1.0.1.18 Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:The Annual Report, Notice & Proxy Statement is/ are available atwww.proxyvote.com. SPS COMMERCE, INC. Annual Meeting of StockholdersMay 21, 2020 8:00 AMThis proxy is solicited by the Board of Directors Thestockholder(s)herebyappoint(s)ArchieC.BlackandKimberlyK.Nelson,oreitherofthem,asproxies,eachwithfullpowerofsubstitution,andherebyauthorize(s)themtorepresentandtovote,asdesignatedonthereverseside,allofthesharesofCommonStockofSPSCommerce,Inc.,thatthestockholder(s)is/areentitledtovoteattheAnnualMeetingofStockholderstobeheldat8:00AM,CTonMay21,2020attheofficesofFaegreDrinkerBiddle&ReathLLP,2200WellsFargo Center, 90 South Seventh Street, Minneapolis, MN 55402, and any adjournment or postponement thereof. Thisproxy,whenproperlyexecuted,willbevotedinthemannerdirectedherein.Ifnosuchdirectionismade,thisproxy will be voted in accordance with the Board of Directors’ recommendations. Address change/comments: Continued and to be signed on reverse side |
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