Our compensation committee intends to continue to review our compensation peers and the underlying criteria annually to assess
thatwhether it remains appropriate for review and comparison purposes. We also participate in surveys of market compensation practices in our industry and broadly across all industries, and undertake specialized studies of competitive market practices using the most relevant published survey sources and public filings.
When determining 20162019 executive officer compensation opportunities, management presented information to the compensation committee based on compensation peers and
market survey data. Our compensation committee considered this information in making its decision but did not engage in strict benchmarking to a fixed percentile. Instead, our compensation committee, taking into consideration the factors described above, relied on the business experience of its members and on the recommendations of management to craft compensation packages appropriate for our particular executives taking into consideration the factors described above.executives. We believe that the 2019 total target compensation opportunities of our executive officers, including our Named Executive Officers, were competitive with market practices for similarly situated executives of our compensation peers.
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Elements of Pay and 2016 Compensation Decisions
Our executive compensation program is comprised of three components, listed in order of importance:
| | | | |
PAY COMPONENT
| | OBJECTIVE
| | BENEFIT TO STOCKHOLDERS
|
Equity Compensation | | Provides a long-term incentive for executives to focus on stockholder value creation
Vesting schedule encourages retention
Performance-based grants encourage pay for performance
| | Value at time of vesting is based on long-term growth of Twitter’s stock price and/or starting in 2016, meeting corporate performance objectives of Twitter |
| | |
Base Salary | | Provides a measure of stable fixed compensation for performance ofday-to-day services
Amount reflects individual’s performance and scope of responsibilities, as well as the competitive market for executive talent
| | Our base salary levels remain comparatively low as we try to conserve cash resources but at levels that are competitive to help us attract and retain talented executives |
| | |
Benefits and Perquisites | | Provides for the health and welfare of our executives and their families, for protection from unexpected loss, as well as the opportunity to save for retirement | | Competitive benefits help us attract and retain talented executives |
We believe that awarding a significant portion of pay in the form of compensation that is directly linked to our stock price motivates our executive team to focus on growing our business over the long term and aligning our executives’ interests with those of our stockholders. We do not use specific formulas or weightings in determining the allocation
of the various pay elements; rather, each of our Named Executive Officer’s compensation has been individually designed to provide a combination ofat-risk and fixed compensation that is tied to achievement of Twitter’s short- and long-term objectives.
The following chart sets forth the relative weight of 2016 compensation attributable to equity compensation and base salary for our Named Executive Officers on average as a group (excluding our CEO who declined all compensation).
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Equity Compensation.
Phase-in of RSUs and PRSUs.Due to the size and vesting status of our executive team’s existing equity awards, and our desire to incent our executive team to focus on long-term business objectives, the compensation committee, upon recommendation from our senior management, adopted a “gap to target” TDC approach to vesting. Under this approach, we only issue new time vested equity awards when a material gap to targeted TDC exists based on the value of existing awards, including the value of PRSUs at target, and the schedule by which the existing awards vest. The issuance of equity to fill the gap is notautomatic--the compensation committee considers multiple factors, such as business and individual performance, when granting new awards. Each of our Named Executive Officers, with the exception of Mr. Dorsey who declined all compensation and Mr. Kordestani whose 2016 PRSUs were granted pursuant to his employment letter dated October 13, 2015, received equity awards in 2016 to recognize the material change in the scope and responsibility of his or her respective job that occurred in 2016. The same gap to target TDC philosophy
was applied based on the benchmark compensation target for the new role. The compensation committee is currently targeting 15%, 30% and 50% of our executives total equity compensation vesting for 2017, 2018 and 2019 to be in the form of PRSUs to the extent that PRSUs can be granted without having an executive exceed our TDC targets in each of those years. Based on the amount of existing equity vesting each year, including PRSUs at target, the compensation committee granted an award which vesting schedule is customized to fill the gap to target TDC in each year. If an executive’s TDC is above target in one year, no shares are awarded to vest in that given year. We believe this approach limits the amount of incremental compensation received above target TDC and will promote long-term retention by allowing for multiple years between the grant date and the vesting start date before an executive can begin to realize value on his or her equity award. An illustration of how we calculate the gap and determine vesting in any new grants follows in a hypothetical example where we are targeting $5 million per year in TDC for an executive who has a current forecasted TDC in future years as indicated in the first row:
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| | 2017 | | 2018 | | 2019 | | 2020 |
Forecasted TDC with existing equity | | | | $5.2M | | | $4.8M | | $2.0M | | $300K |
Value of Proposed RSU Grant | | | | -0- | | | $140K | | $1.5M | | $2.35M |
Vesting Schedule | | | | N/A | | | 25% per quarter, commencing Q1, 2018 | | 25% per quarter, commencing Q1, 2019 | | 25% per quarter commencing Q1, 2020 |
Value of Proposed PRSU Grant at Target (1 year performance period) (% of total equity) | | | | N/A | | | $60K (30%) | | $1.5M (50%) | | $2.35M (50%) |
Total Target TDC with Proposed Equity Grant | | | | $5.2M | | | $5.0M | | $5.0M | | $5.0M |
RSUs.
For 2016, the majority of the compensation opportunities for each of our executive officers, including each of our Named Executive Officers, is delivered through RSU awards. As RSU awards have value to the recipient even in the absence of stock price appreciation, RSUs help us retain and incentivize employees during periods of market volatility, and also result in our granting fewer shares of common stock than through stock options of equivalent grant date fair value. Our RSU awards typically vest over a four-year period and we believe that, like stock options, they help incentivize our executives to build value that can be sustained over time. In addition to the initial equity grant that each executive officer receives as part of his or her new hire package, the compensation committee may grant our executive officers additional equity
awards each year as business needs dictate given the nature of our rapidly changing business. When determining the number of RSUs to issue under both new hire and ongoing awards, we assess the value of the awards based on a variety of potential future stock prices to attempt to mitigate the risk of materially over-compensating our executives if our stock price increases significantly. We also factor in the weighting of the split between RSUs and PRSUs based on our phase in approach of performance-based equity over time. The size of awards that have been granted to our executive team, including our Named Executive Officers, have not been determined based on a specific formula, but rather on our board of directors’ or compensation committee’s business judgment regarding the appropriate level of compensation for the position as compared to those in our compensation peers or those companies that we consider direct
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
competitors for talent; the critical nature of the position and the anticipated potential future impact; the size of each executive’s base salary due to the fact that we do not have a cash based bonus program; and the vested and unvested equity held by executives. On occasion, we issue options to purchase shares of Twitter stock, either in the form of incentive stock options ornon-qualified stock options, to incentivize those executives who have a direct impact on our financial growth.
PRSUs.
For 2016 we started to award long-term performance-based compensation in the form of PRSUs to our executive officers (other than Mr. Dorsey who declined all compensation and Mr. Kordestani whose 2016 PRSUs were granted pursuant to his employment letter dated October 13, 2015). Subject to the terms of the 2013 Plan, the PRSUs were eligible to vest based upon our achievement of certain performance targets over aone-year performance period. The compensation committee set the performance targets for the performance period in early Q1 2016 and assessed achievement against those performance targets in February 2017. Given that this is our initial roll out of the program, we chose a one year performance period to assess the impact of the plan on performance. We intend to reassess the performance metrics and performance period in future years.
For more information relating to the granting of these RSU and PRSU awards, including the vesting schedules, see the section titled “Executive Compensation—Compensation Tables—Grants of Plan-Based Awards in Fiscal Year 2016” table below.
2016 Equity Grants.
Jack Dorsey. Mr. Dorsey declined all compensation for 2016 (including equity awards).
Anthony Noto. In recognition of Mr. Noto’s increased scope and responsibility including his leadership on our Live initiatives and subsequent promotion to COO in November 2016 and his gap to targeted TDC based on the COO role, he was granted a total of 1,258,750 RSUs and 22,500 PRSUs at target for performance year 2016. 52,500 RSUs vested quarterly over 2016, 207,500 RSUs will vest quarterly over
2017, 248,750 RSUs will vest quarterly over 2018, 425,000 RSUs will vest quarterly over 2019 and 325,000 RSUs will vest quarterly over 2020.
Omid Kordestani. Pursuant to Mr. Kordestani’s original employment letter dated October 13, 2015, we granted him 100,000 PRSUs at target for performance year 2016. Mr. Kordestani did not receive additional grants in 2016.
Vijaya Gadde. In recognition of Ms. Gadde’s increased scope and responsibility and her gap to targeted TDC based on the General Counsel role, she received a grant of 600,000 RSUs and 20,000 PRSUs at target for performance year 2016. 140,000 RSUs vested quarterly over 2016, 140,000 RSUs will vest quarterly over 2017, 200,000 RSUs will vest quarterly over 2018 and 120,000 RSUs will vest quarterly over 2019.
Adam Bain. In recognition of Mr. Bain’s promotion to COO in September 2015 and his gap to targeted TDC based on the COO role, he received a grant of 1,850,000 RSUs and 40,000 PRSUs at target for performance year 2016. 527,500 RSUs vested quarterly over 2016, 527,500 RSUs were scheduled to vest quarterly over 2017, 465,000 RSUs were scheduled to vest quarterly over 2018 and 330,000 RSUs were scheduled to vest quarterly over 2019. Mr. Bain resigned from the company on November 30, 2016 and all unvested equity was forfeited as of his date of termination, including the aforementioned grants vesting in 2017 – 2019 and PRSUs.
Adam Messinger. In recognition of Mr. Messinger’s appointment as our head of engineering, product development (other than the product teams related to monetization efforts), and design in addition to his role as Chief Technology Officer in January 2016 and his gap to targeted TDC based on the head of engineering, product development (other than the product teams related to monetization efforts), and design role, he received a grant of 1,250,000 RSUs and 25,000 PRSUs at target for performance year 2016. 360,000 RSUs vested quarterly over 2016, 360,000 RSUs were scheduled to vest quarterly over 2017, 320,000 RSUs were scheduled to vest quarterly over 2018 and 210,000 RSUs were scheduled to vest quarterly over 2019. Mr. Messinger resigned from the company on December 22, 2016 and all unvested equity was forfeited as of his date of termination, including the aforementioned grants vesting in 2017 – 2019 and PRSUs.
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Performance-Based Restricted Stock Units for 2016. For fiscal 2016, the compensation committee granted PRSUs, as described above, to our executive officers that would vest based on our performance during the fiscal year compared topre-established target levels for two equally weighted measures—GAAP revenue and Adjusted EBITDA. The compensation committee believed that these metrics and this weighting were appropriate to influence executive performance in achieving certain annual corporate
performance goals that further our strategy and that are used by investors to evaluate our financial performance. The compensation committee believes that targets for performance-based equity compensation should be rigorous and challenging and therefore set the targets indicated below. No vesting of the PRSUs would occur until a minimum performance threshold was achieved and the PRSUs had a maximum vesting payout capped at 2x target outlined below.
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MEASURE | | WEIGHTING | | TARGET (100% VESTING) | | ACTUAL PERFORMANCE | | ACTUAL VESTING |
2016 GAAP Revenue | | | | 50 | % | | | $ | 2,864 million | | | | $ | 2,530 million | | | 0% |
2016 Adjusted EBITDA | | | | 50 | % | | | $ | 690 million | | | | $ | 751 million | | | 142% |
For these purposes, “2016 GAAP Revenue” is defined as our GAAP revenues, as may be adjusted for certain acquisitions. “2016 Adjusted EBITDA” is defined as net loss (income) adjusted to exclude stock-based compensation expense, depreciation and amortization expense, interest and other expenses, provision (benefit) for income taxes and restructuring charges, but excluding recorded costs resulting from any business acquired by us (other than acquisitions with a total deal consideration as approved by the board of
directors or one of its committees and set forth in a definitive agreement (not including new stock based awards granted to target’s continuing employees) of less than $50 million).
The following table sets forth the total PRSUs granted to our Named Executive Officers at target and the number of PRSUs that vested as a result of our performance against our targets in 2016:
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NAMED EXECUTIVE OFFICER1 | | PRSU GRANT FOR 2016 PERFORMANCE (AT THRESHOLD) | | PRSU GRANT FOR 2016 PERFORMANCE (AT TARGET) | | PRSU GRANT FOR 2016 PERFORMANCE (AT MAXIMUM) | | PRSU GRANT FOR 2016 PERFORMANCE (ACTUAL) |
Anthony Noto | | | | 0 | | | | | 22,500 | | | | | 45,000 | | | | | 15,984 | |
Omid Kordestani | | | | 0 | | | | | 100,000 | | | | | 200,000 | | | | | 71,040 | |
Vijaya Gadde | | | | 0 | | | | | 20,000 | | | | | 40,000 | | | | | 14,208 | |
1 | Messrs. Bain and Messinger were awarded PRSUs with 2016 targets, but those PRSUs did not vest as Messrs. Bain and Messinger resigned prior to the date on which the compensation committee determined the performance of the company’s performance against targets. |
Base Salary.The salaries of our executive team, including our Named Executive Officers, have remained below market due to the fact that until October 2013, we were a privately-held company with the potential for significant equity upside coupled with our desire to maintain internal pay equity between executive officers and other senior level individuals. Starting in 2014, our compensation committee agreed that the base salaries for our executive team, including our Named Executive Officers, should gradually increase to market competitive levels and accordingly in 2014, we raised base salaries to the lesser of 80% of market target or 150% of current base. In 2016, we made further adjustments both in recognition of certain Named Executive Officer promotions as well as to continue to close the gap on market normative
levels of base pay; even with the 2016 increases, our executive officers still remain well below our compensation peers. The following table shows the base salary rates in effect for 2016 (Mr. Dorsey declined a base salary for 2016):
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NAME | | 2016 BASE
SALARY RATE ($)
|
Jack Dorsey
| | | | —
| |
Omid R. Kordestani
| | | | 50,000
| |
Anthony Noto
| | | | 500,000
| |
Vijaya Gadde
| | | | 500,000
| |
Adam Bain
| | | | 500,000
| |
Adam Messinger
| | | | 500,000
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Benefits.Twitter executives, including the Named Executive Officers, participate in the same benefits plans and programs that all other Twitter employees in the same geographies they are based. These plans include medical, dental, and vision care plans, flexible spending accounts for health and dependent care, life, accidental death and dismemberment, disability, and travel insurance, employee assistance programs, employee stock purchase plan and paid time off.
In addition, we maintain a tax qualified 401(k) retirement savings plan that contains both apre-tax and anafter-tax savings feature for the benefit of eligible U.S. employees, including our Named Executive Officers. In 2016, we implemented a discretionary employer matching contribution program by which the company will make a contribution of $.50 for every dollar an employee contributes in either thepre-tax orpost-tax Roth account up to a maximum company contribution of $1,500 per year per eligible employee, including our Named Executive Officers. In order to receive the company contribution, the employee must be employed as of December 31 of the applicable plan year and have at least 6 months of continuous service. We believe that a company contribution encourages all eligible U.S. employees to contribute to long-term retirement savings. The 2016 contribution was fully vested as of the December 31 contribution date and is deductible by us.
Perquisites. Consistent with the practices of many companies in our peer group, we provide limited perquisites, mainly in the form of personal security, to several of our Named Executive Officers. We believe that the personal safety of our Named Executive Officers is paramount to Twitter and believe that the cost of the security measures are appropriate and necessary. With respect to Mr. Dorsey, we paid for the costs of security personnel. None of the security related costs constitute taxable income to our Named Executive Officers.
Other Compensation Information
Employment Arrangements.Each of our Named Executive Officers has entered into a written,
at-will employment offer letter with us. For a summary of the material terms and conditions of these employment offer letters, see the section titled “Executive Compensation—Compensation Discussion and Analysis—Other Compensation Information—Executive Officer Employment Letters.”
Post-Employment Compensation.Each of our Named Executive Officers participates in our Change of Control and Involuntary Termination Protection Policy (the “Severance
Policy”), which provides standardized payments and benefits to the Named Executive Officers in the event of ana termination without “cause” by Twitter or termination for “good reason” by the participant, whether or not in connection with a change of control, to make these benefits consistent among the executives who have these arrangements. Our compensation committee approves all plan participants and the level of benefit applicable to each plan participant. We believe that the
change of control benefits in the Severance Policy assist to maximize stockholder value and maintain executive focus in the immediate period prior to, during and after the change of control event.
The material terms of these post-employment arrangements are set forth in “Executive Compensation—Compensation Tables—Potential Payments Upon Termination or Change of Control” below.
Clawback Policy. We believe that it is important to foster and maintain a culture that emphasizes integrity and accountability. Our Clawback Policy permits the company to require that any current or former officer of the company who is (or was) subject to Section 16 of the Exchange Act, repay certain cash-based incentive compensation or performance-based equity compensation to the company if the compensation committee determines that such participant’s actions caused or partially caused the company to restate all or a portion of its financial statements within the three-year period from the original filing date of the restated financial statements. If the compensation committee determines that any such cash-based incentive compensation or performance-based equity compensation would have been less had they been calculated based on the restated results, and further determines that fraud, gross negligence, or intentional misconduct by any such participant caused or partially caused such restatement and it is in our best interests to recover all or a portion of the excess amount of cash-based incentive compensation or performance-based equity compensation received (or to be received) by such participant, the compensation committee may seek to recover the difference between the amounts awarded or paid (or to be awarded or paid) and the amounts that would have been awarded or paid based on the restated results.
When the SEC adopts final clawback policy rules under the Dodd-Frank Wall Street Reform and Consumer Protection Act, we will review and may revise our Clawback Policy to the extent required to comply with such rules.
Accounting Treatment. We recognize anon-cash charge to earnings for accounting purposes for equity awards. We expect that our compensation committee will continue to review and