•annual bonus tied to the achievement of corporate goals under our Corporate Incentive Compensation Plan (“CICP”);
•additional individual incentive compensationcash incentives tied to the achievement of individual, business unit, and/or corporate goals by our executive officers, the attainment of which supports our achievement of our corporate goals;
•equity awards comprised of both stock options and RSUs that vest over time; and
The Board of Directors and the Compensation Committee believe that our performance-based executive compensation program effectively correlates pay with performance, and, in doing so, aligns the interests of our
stockholdersshareholders and executives. The program ties significant variable compensation, such as annual bonus opportunities, as well as equity awards, with our achievement of our corporate goals. By linking executive compensation with corporate performance, our executive compensation program promotes
stockholdershareholder value and our continued growth and success.
Information About Our Executive Officers
The names of our executive officers and certain information about them are set forth below as of
FebruaryApril 1,
2020:2021:
Alan Trefler, age 63,65, founder of Pegasystems, has served as Chief Executive Officer and Chairman of the Board of Directors since the Company was organized in 1983. Prior to 1983, he managed an electronic funds transfer product for TMI Systems Corporation, a software and services company. Mr. Trefler holds a B.A. degree in economics and computer science from Dartmouth College.
Kenneth Stillwell, age 49,50, joined Pegasystems in July 2016 as Senior Vice President, Chief Financial Officer, and Chief Administrative Officer. In April 2021, Mr. Stillwell was promoted to Chief Operating Officer in addition to his role as Chief Financial Officer. Mr. Stillwell previously served as Senior Vice President and Chief Financial Officer of Dynatrace, a leader in digital performance management solutions and Executive Vice President and Chief Financial Officer of SOVOS, a financial compliance SaaS provider. Prior to SOVOS, Mr. Stillwell was at PTC, a publicly-traded software provider, where he served as Division CFO. Mr. Stillwell holds a B.S. in business/economics from the University of Pittsburgh and an M.S. in accounting and finance from the University of South Carolina. Mr. Stillwell is a Certified Public Accountant.Efstathios Kouninis
Kerim Akgonul, age 58,50, joined Pegasystems in 1992 and has served as Senior Vice President of Engineering since January 2014. On April 1, 2021, Mr. Akgonul was named Chief Product Officer. Mr. Akgonul’s professional background encompasses almost thirty years of software development and managerial experience over his tenure at the Company. Mr. Akgonul holds a B.S. in mathematics and computer science from Indiana University of Pennsylvania.
Efstathios Kouninis, age 59, joined Pegasystems in April 2008 as Vice President of Finance. The Board of Directors appointed Mr. Kouninis as the Company’s Chief Accounting Officer in May 2008 and Treasurer in January 2014. From February 2006 to April 2008, Mr. Kouninis served as Chief Financial Officer and Treasurer of Tasker Products Corporation, a publicly-traded manufacturer of antimicrobial chemicals. From November 2004 to February 2006, Mr. Kouninis served on the Staff of the Division of Corporation Finance of the U.S. Securities and Exchange Commission. Mr. Kouninis holds a B.S. from the University of Massachusetts, a Post Baccalaureate in accounting, and an M.S. in taxation from Bentley College.Douglas Kra, age 57, joined Pegasystems in November 2004 as Vice President of Global Services. In January 2010, Mr. Kra was promoted to Senior Vice President of Global Services. In July 2014, the Company
re-organized its sales and consulting services functions along geographic regions, and Mr. Kra was promoted to Senior Vice President of Global Customer Success for international regions. From 2002 to 2004, Mr. Kra served as Vice President at eLoyalty Corp., a consulting company specializing in customer relationship management. From 2000 to 2001, Mr. Kra served as President of Zefer Corp., an internet consulting firm. Prior to Zefer, Mr. Kra spent ten years at Cambridge Technology Partners Inc. in a variety of senior roles. Mr. Kra holds a B.A. in computer science from Brandeis University and an M.B.A. in finance from the New York University Stern School of Business.
Michael Pyle, age 65,66, joined Pegasystems in 1985 and has served as Senior Vice President of Engineering since August 2000. As of April 1, 2021, Mr. Pyle was appointed to serve as Pega’s Chief Technology Strategist. Mr. Pyle’s professional background encompasses more than forty years of software development and managerial experience throughout Europe and the U.S.United States. Mr. Pyle completed his B.C.S. specializing in computer science and systems programming at the Civil Service College in London.
Leon Trefler
Hayden Stafford, age 59,50, joined Pegasystems in April 1998June 2020 as an Account Executive for StrategicPresident of Global Client Engagement. Mr. Stafford served as Corporate Vice President – Global Microsoft Business Development. Since then, he has held various senior sales management positions across the CompanyApplications at Microsoft Corporation from August 2017 to June 2020 and in Channel Sales. In 2002, he launched the commercialization of PegaRULES Process Commander, the predecessor to the Pega Platform. From April 2007 to January 2010, Mr. Treflerpreviously served as Vice President, ofGlobal Enterprise Sales, North America, and in January 2010,Microsoft Dynamics at Microsoft from May 2014 to August 2017. Prior to that, from June 2012 to May 2014, Mr. Trefler was promoted toStafford worked at salesforce.com, inc. as Senior Vice President – Industry Business Sales. Mr. Stafford previously worked at IBM in a variety of Sales. In July 2014, the Companyre-organized its salespositions from 2001 to 2012 and consulting services functions along geographic regions, andat Ernst & Young as a management consultant from 1994 to 2000. Mr. Trefler was promoted to Senior Vice President of Global Customer Success for the Americas. Mr. TreflerStafford holds a B.A. degreeB.S. in biology and chemistry from Dartmouth College.Alan TreflerSt. Lawrence University and Leon Trefler are brothers. There are no other family relationships among anyan M.B.A. in strategy and business policy from the Weatherhead School of our executive officers or directors.
Advisory Vote on Executive Compensation, “Say on Pay”
Management at Case Western Reserve University.
ADVISORY VOTE ON EXECUTIVE COMPENSATION, “SAY ON PAY”
In
2019,2020, pursuant to the requirements of Section 14A of the Exchange Act, which was implemented by the Dodd-Frank Act, we conducted an advisory vote of our
stockholdersshareholders on our executive compensation program for our named executive officers, sometimes called “Say on Pay.” Each year, our
stockholdersshareholders have overwhelmingly approved our executive compensation programs with more than
98%97% of the votes cast at our
20192020 Annual Meeting voting to adopt our “Say on Pay” resolution. We value the feedback of our
stockholders.shareholders. As a result, our compensation program continues to be modeled on the same principles that received the strong support of our
stockholdersshareholders last year. We plan to hold the next shareholder advisory vote on the frequency of voting on “say on pay” at our 2023 annual meeting of shareholders.
Oversight of Compensation Programs
OVERSIGHT OF COMPENSATION PROGRAMS
The Compensation Committee
The Compensation Committee oversees all the compensation programs that we offer to our executive officers. In
2019,2020, the Compensation Committee’s schedule of meetings, as well as the agenda items for those meetings, was established by our
Senior Vice President, Chief People Officer, Adriana Bokel Herde. Ms. Bokel Herde
respectively received input from the Chair of the Compensation Committee, Sharon Rowlands, and our Chief Executive Officer, Alan Trefler. During
2019,2020, the Compensation Committee met six times. At those meetings, the Compensation Committee addressed the following matters, among others: discussion and review of the compensation paid to our executive officers, including review and approval of the
20192020 base salaries, target bonuses and the CICP for executive officers in addition to
20192020 equity awards granted to our executive officers; review of our
20192020 strategic goals and achievement of
2018our 2019 strategic goals; analysis and approval of the bonus payments under the
20182019 CICP; review and approval of the
20192020 CICP, including approval of the
20192020 CICP RSU grants; review and approval of base salary increase budgets for our employees; approval of all grants of stock options and RSUs to our employees; review of the Company’s 401(k)
plan,plan; review of the Company’s Employee Stock Purchase Plan (“ESPP”), including amending its terms to
provideincrease the purchase discount from 5% to 15%, change the offering periods from semi-annually to quarterly, and to add a
quarterly, rather than annual employer matching contribution;one-year holding period; and review and approval of the
20202021 CICP and
20202021 equity award budget. Ms. Rowlands has served as the Chair of the Compensation Committee since January 2017.
To facilitate the Compensation Committee’s review of each of the elements of the compensation paid to the executive officers, and to assist with the Compensation Committee’s determination of compensation for 2019,2020, management provided the Compensation Committee with “tally sheets.” These tally sheets detailed each executive officer’s total compensation in 2019,2020, including the cash value of each element of that total
compensation, including salary, bonus, additional incentives, equity awards, our 401(k) plan matching contribution, Company-paid parking, and Company-paid health, dental, and other insurance premiums. The Compensation Committee also considered more detailed information regarding the equity components of executive compensation, including the total value of outstanding“in-the-money” “in-the-money” vested stock options and unvested stock options and RSUs and the retention value of such awards.
The Compensation Committee considers the data provided on the tally sheets and the organizational summaries, along with benchmarking information for the role of each executive officer, as further detailed in the “Objectives of Compensation Programs
—– Benchmarking” section below, when setting executive compensation for the year. The Compensation Committee uses this information to ensure that the total amount of compensation paid to the executive officers is consistent with our total compensation philosophy, rather than focusing only on the base salaries and bonuses of the executive officers.
Compensation and Other Consultants
In
2019,2020, our management continued to utilize Arthur J. Gallagher & Co. and The Kelliher Group of Morgan Stanley for consulting services related to our 401(k) defined contribution retirement plan. In
2019,2020, the
Company’sCompany spent approximately
$444,000$486,000 on Arthur J. Gallagher & Co. and approximately
$168,000$176,000 on The Kelliher Group of Morgan Stanley. Arthur J. Gallagher & Co. assisted with benefit plan design, vendor assessment, cost considerations, and benefit plan oversight, while members of The Kelliher Group participated in meetings of our Retirement Committee, which is composed of representatives from our Finance Department and
internal People Organization, and provided fund guidance and regulatory updates.
The Compensation Committee may retain the services of compensation advisors for the purposes of assisting in the determination of executive compensation, and it has the budgetary authority to hire such advisors as it deems necessary, although it did not do so in
2019.2020. The Compensation Committee does not currently engage its own outside consultant for advice because its members are comfortable with the benchmarking data and other supporting information provided by our management and believes they are adequately experienced and equipped to address the relevant issues and provide appropriate executive compensation market data. The Compensation Committee also believes that outside consultants are unnecessary at this time because our executive officers’ compensation is primarily composed of base salary, bonus, and stock option and RSU grants, and does not include more complex elements such as performance-based equity
plans.awards.
Role of Executives in Establishing Compensation
In
2019,2020, our People Organization researched appropriate types and levels of compensation for our executive officers and created preliminary recommendations that were presented to Alan Trefler. Mr. Trefler reviewed that data and presented his recommendations to the Compensation Committee in executive session to determine final compensation for our executive officers. Mr. Trefler, along with Ms. Bokel Herde, and other members of our People Organization management team, attended meetings of the Compensation Committee as required.
The Compensation Committee may form and delegate its authority to one or more subcommittees of members of the Compensation Committee as it deems appropriate from time to time under the circumstances, including a subcommittee consisting of a single member of the Compensation Committee. The Compensation Committee generally does not delegate decisions regarding the compensation of executive officers to management, except that the attainment of each executive officer’s annual cash bonus is tied to that individual’s level of contribution to our strategic goals as determined by Mr. Trefler in consultation with the Compensation Committee and as further described below in this “Compensation“Compensation Discussion and Analysis”Analysis” section. Additionally, Mr. Stafford, President of Global Client Engagement, and Leon Trefler and Mr. Kra, our Senior Vice Presidents, Global CustomerClient Success, will be provided an opportunity in 2020, as they have in past years,2021 to receive additional performance-based compensation tied to the attainment of individual, business unit, and/or corporate goals established by Mr.Alan Trefler, as further described below in this “Compensation“Compensation Discussion and Analysis”Analysis” section. Objectives of Compensation Programs
OBJECTIVES OF COMPENSATION PROGRAMS
The objective of our executive compensation program is to align executive compensation with the achievement of our strategic and financial goals. The program focuses on long-term indicators of the underlying success of our business, rather than on ancillary indicators such as our stock price or earnings per share that may be influenced by other factors and may not necessarily demonstrate the underlying success of our business. Our compensation philosophy is built upon principles of internal equity with respect to each executive’s role relative to others within the
company,Company, external competitiveness, recognition of performance against short and long-term goals, and the sharing of success. Therefore, our compensation program is primarily focused on internal and external benchmarking, and the level of attainment of target goals, most of which are shared goals relating to our overall performance.
Our compensation program is designed to reward superior performance by our executive officers. In measuring the contribution of the executive officers to Pegasystems, the Compensation Committee considers their performance relative to the applicable unit goals such as license signings, profit margins, additional financial metrics, and other specific objectives set by management. While compensation surveys are useful guides for comparative purposes, the Compensation Committee believes that a successful compensation program also requires the application of judgment and subjective determinations of individual and company performance. Therefore, the Compensation Committee applies its judgment when reconciling the program’s objectives with the realities of retaining valued employees.
In making compensation decisions, management and the Compensation Committee compare each element of total cash compensation against a peer group ofbusiness-to-business software companies that the Compensation Committee believes compete with us for executive talent and have similar present and/or projected revenue. These benchmarking companies are listed below. In general, with the exception of our Chief Executive Officer, due to his status as a significant shareholder, the Compensation Committee targets total cash compensation, consisting of base salary and bonuses (“Total Cash Compensation”) to our executive officers that is within the range ofthe 50th to 75th percentile of the Total Cash Compensation paid to the executive officers of the benchmark companies,companies. In 2020, the target Total Cash Compensation of our named executive officers generally fell within that range, with the exception of our Chief Executive Officer who is compensated below the 50th percentile due to his status as a significant stockholder.shareholder.
We believe that it is helpful to utilize data from a wide array of comparable companies in order to determine the best pay scales to apply to our executive compensation program. We primarily considered data from Radford, which we believe to have the most relevant and comprehensive data for this purpose.
Generally, the Radford surveys included data and breakout information from software companies based upon annual revenue. The surveys analyze compensation data from several hundred technology companies and provide specific data based on each executive officer’s role. Our primary benchmarks are from software companies with annual revenue ranging from
$200 million$1 billion to
$5$1.5 billion, which we believe is the most relevant benchmark data for our executive compensation program, as we believe this accurately represents the companies from where we attract talent.
In addition to our standard benchmarking industry survey mentioned above, we review compensation practices of a select group of similar companies, which are benchmarked through the use of proxy statements, because one or more of the following applies: (a) they are of comparable size and revenue; (b) they are in a comparable industry; (c) they are within our geographic market; or (d) they compete with us for talent.
The list of companies below was used as our compensation benchmarking peer group for reviewing and evaluating our 20192020 compensation program for our executive officers where there was data for comparable positions:
| | | | | | | | |
Akamai TechnologiesGuidewire Software | | Aspen Technology | | Autodesk | RealPage | Fair Isaac Corporation |
Guidewire Software | | Microstrategy | PTC | Nuance Communications | | Oracle |
PTC | | RealPage | | Salesforce.com | | ServiceNow |
| Splunk | | Tableau Software | | Verint Systems | | WorkdayZendesk |
Our senior management uses this benchmarking data to review and recommend compensation levels for executive compensation and the Compensation Committee evaluates this data to determine whether the recommended levels of compensation are reasonable and consistent with the goal of providing Total Cash Compensation that is targeted within the 50th to 75th percentile of the Total Cash Compensation paid to the executive officers of the benchmark companies or industry surveys. In 2019, the target Total Cash Compensation of our named executive officers generally fell within that range, with the exception of our Chief Executive Officer who is compensated below the 50th percentile due to his status as a significant stockholder.
Elements of compensation for our executive officers consist of the following: base salary; annual bonus tied to the achievement of corporate goals; additional
individual incentive compensationcash incentives opportunities tied to the achievement of specific individual, business unit and/or corporate goals by our executive officers, the attainment of which supports our achievement of our corporate goals; equity awards comprised of both stock options and RSUs that vest over time; and other perquisites such as health, disability and life insurance, a match by Pegasystems of 401(k) defined contribution plan contributions, and Company-paid parking. Further analysis and discussion of each element are described in the chart below and the discussion that follows.
| | | | | | | | | | | | | | |
| | Objective | | Fixed/Variable |
Base Salary | | Attract and retain highly qualified leaders with market-competitive compensation structure. | | Fixed |
| Bonus – CICP | | |
Bonus — CICP
| | Link pay with our performance. Reward achievement of our financial and strategic goals. | | Variable |
| Additional Cash Incentives | | |
Additional Individual Incentive Compensation
| | Link pay with individual, business unit and/or corporate performance. Reward achievement of specific goals. | | Variable |
| | |
Equity Awards (Stock Options and RSUs) | | Link pay with our long-term performance. Reward stock price appreciation, promote long-term retention and permit executives to accumulate equity ownership. | | Variable |
| | |
Other Perquisites | | Retain talent by providing financial protection and security. | | Fixed |
Cash compensation in the form of base salary is intended to reflect an executive’s knowledge, skills, and level of responsibility, as well as the economic and business conditions affecting Pegasystems. In determining the salary of each executive officer, the Compensation Committee reviews compensation for comparable positions in other software companies and in othersimilarly-sized companies contained in published surveys or gleaned from the public disclosure filings of publicly-traded companies, as noted in the “Benchmarking” section above. As discussed above, the Compensation Committee’s approach in 20192020 was that Total Cash Compensation for our executive officers should be targeted between the 50th and 75th percentile of the Total Cash Compensation for similarly situated executives in comparable companies with the exception of our Chief Executive Officer who is compensated below the 50th percentile. On average, the base salaries of the executive officers for 2019, other than the Chief Executive Officer, comprise approximately 53% of their target Total Cash Compensation, with the remainder provided in the bonus portion of such compensation. The base salary of the Chief Executive Officer is
50% of his target Total Cash Compensation. Base salaries are set for our named executive officers at a regularly scheduled meeting of our Compensation Committee in the first quarter of the year. The Compensation Committee also approves the bonus payments based on the prior year’s results and the target bonus levels for the current year.
Annual cash bonuses are intended to reward executive officers for the achievement of our financial and strategic goals. The mechanism that we use to determine whether, and to what extent, annual cash bonuses are paid to our executive officers is the CICP for executive officers, or the Executive Incentive Plan, that is approved by the Compensation Committee each year at a regularly scheduled meeting generally occurring in the first quarter of the year.
For purposes of the Executive Incentive Plan, the performance goals are divided into two categories. The first category is comprised of the corporate financial goals related to bookings and operating income, as approved by the Board of Directors in connection with establishing our annual budget, in the aggregate weighted at 70% of total achievement with, in
2019,2020, bookings weighted at 45% and operating income weighted at 25%. The second category is comprised of the qualitative strategic goals as approved by the Board of Directors as part of our annual strategic planning, with the strategic goals in the aggregate weighted at 30% of total achievement. Together, these two categories make up a single performance target under the Executive Incentive Plan, or the Corporate Performance Target.
The percentage achievement of the Corporate Performance Target, or the Funding Percentage, determines the extent to which the Executive Incentive Plan is funded. The Executive Incentive Plan is funded with an amount equal to the aggregate target cash bonus amount for our named executive officers multiplied by the Funding Percentage, except that if the Funding Percentage is less than 70%
(“threshold funding”) then the Executive Incentive Plan is not funded at all. In
2019,2020, if the Corporate Performance Target had been exceeded, the percentage achievement of the Corporate Performance Target for purposes of funding the Executive Incentive Plan would have been deemed equal to 100% with an opportunity for an enhanced incentive as determined by the Board of Directors in its discretion.
Once the Funding Percentage is determined, the actual bonus payment for each executive officer is subject to adjustment to reflect each individual’s level of contribution to our strategic goals, as determined by the Compensation Committee. Our strategic goals are established each year by our senior management team and describe our key operational initiatives related to strategy and
organization alignment, sellingorganizational effectiveness, go-to-market transformation and product and
delivery transformation.service leadership. The Chief Executive Officer assesses each executive officer’s contribution to the overall operational plan and to such executive officer’s specific functional unit. The Compensation Committee determines and approves executive officer compensation and has the discretion to modify individual payout amounts to reflect an individual’s performance.
The target bonus levels established for our executive officers represent management’s and the Compensation Committee’s assessment of a very high level of achievement of specific goals. Where target bonus levels relate to financial goals that are also the subject of our published financial guidance, these goals are generally established at levels that represent over-performance in relation to the guidance that we publish at the beginning of each calendar year. For
2019,2020, the Funding Percentage was
90%80%, which was consistent with our level of achievement of the Corporate Performance Target for the year.
Additional
Individual Incentive CompensationCash Incentives
Additional cash incentives have historically been available to several executives other than our Chief Executive Officer based on the achievement of specific individual, business unit, and/or corporate performance goals established by Mr.Alan Trefler. In addition, in 2019,2020, Mr. Stafford, Leon Trefler and Mr. Kra were eligible for sales incentive compensation related to the achievement of sales objectives set by our Chief Executive Officer.
The Compensation Committee utilizes stock options and RSUs as long-term,
non-cash incentives and as a means of aligning the long-term interests of executives and
stockholders.shareholders. In the case of stock options, this is because they do not become valuable to the holder unless the price of our stock increases above the fair market value of our stock on the date of grant. In the case of RSUs, an RSU delivers more value than a stock option to the holder if the price of our stock remains constant, but the value to the holder increases if our stock price increases over time.
Stock options deliver to the recipient a right to receive an option to purchase a specified number of shares of our common stock upon vesting, while RSUs deliver to the recipient a right to receive a specified number of shares of our common stock upon vesting. Unlike stock options, which require payment of the exercise price to purchase shares, RSUs do not require an additional payment by the executive officer at the time shares are issued. Therefore, RSUs provide value to our executives even if our stock price remains constant. Additionally, RSUs, while more expensive than options to the Company by approximately a three to one ratio, can be more efficient based upon the benefit to the executive in comparison to the cost to the Company. RSU grants do not result in the same amount of dilution upon issuance to our investors’ ownership as is caused by stock options, because the same incentive associated with options can be provided to the executive with RSUs, but with fewer shares ultimately issued. In determining the value of equity grants to recipients, we value our RSUs at the fair value of our common stock on the grant date, which is the closing price of our common stock on that date, less the present value of expected dividends, as the executive officers or other employees are not entitled to dividends during the requisite vesting period. We value our stock options using a Black-Scholes option valuation model. Equity awards for employees typically vest over a five-year period.
Executive officers and other employees may elect to receive 50% of their target incentive compensation under the Executive Incentive Plan in the form of RSUs instead of cash. As an added incentive, the number of RSUs receivable by executive officers and other employees is determined by dividing 50% of his or her target incentive compensation by an amount equal to 85% of the closing price of our common stock on the date of grant.
If elected pursuant to the Executive Incentive Plan, the equity grant occurs during the open trading period following the public release of our financial results for the prior year and vests 100% on the first anniversary of the date of grant. This typically coincides with the cash payout date for all participants. Vesting is conditioned upon threshold funding of the Executive Incentive Plan, and status as an active employee in good standing with satisfactory performance as of the vesting date. If these conditions are not met, the equity grant does not vest and expires.
Equity Award Granting Practices
Executive officers, and most employees, have typically received an initial equity grant upon joining
us.Pegasystems. Grants to newly hired employees are determined based upon a target financial value associated with their job type, rather than a predetermined number of options or RSUs based on an individual’s level of job responsibilities, which we believe improves our ability to more effectively communicate the value of equity grants to our employees. For all employee positions which are at the director level or above, 50% of the target value is typically granted in stock options and 50% is granted in RSUs. For those employees who hold positions below the director level, equity
isgrants are typically awarded 100% in RSUs.
The Compensation Committee also makes periodic grants of stock options and RSUs to the executive officers, typically on an annual basis. For periodic grants, the number of stock options and RSUs granted to an executive officer is determined by taking into consideration factors such as: (i) equity awards previously granted to the executive; (ii) the executive’s remaining equity awards exercisable and the value of those equity awards; (iii) the performance of the executive; (iv)��the anticipated value that an executive will add to Pegasystems in the future; (v) the target value, as discussed above; (vi) the retentive value of equity awards; and (vii) competitive external market data. We expect to continue to grant periodic equity awards in the future.
In addition to the elements of compensation discussed above, we offer the executive officers Company-paid parking at our
home office location in Cambridge, Massachusetts, and contributions towards medical, dental, vision, life, accidental death and dismemberment, and disability insurance premiums. We do not offer deferred compensation of any kind, nor do we offer retirement benefits other than a 401(k) defined contribution plan. We typically match,
on a quarterly basis, 50% of contributions made by executive officers and other employees to the 401(k) plan, up to 6% of the executive officer’s or employee’s base salary.
In 2019, the Compensation Committee approved quarterly, instead of annual, company matching contributions to the 401(k) plan for executives as well as employees.Executive Incentive Plan
EXECUTIVE INCENTIVE PLAN
In February 2019,2020, the Compensation Committee adopted the 20192020 Executive Incentive Plan which covered the period from January 1 through December 31, 2019,2020, or the Incentive Period. The 20192020 Executive Incentive Plan was designed to establish a pool of funds to be available for making bonus payments to the executive officers if we achieved certain performance goals during the Incentive Period. The aggregate 20192020 target cash bonus amount for our named executive officers was $1,360,450.$1,397,000. For our Chief Executive Officer, the target bonus represented 100% of his earned base salary; for our Chief Financial Officer, the target bonus represented 65% of his earned base salary; for our Senior Vice President, Engineering, the target bonus represented 60%70% of his earned base salary; and for each of our Senior Vice Presidents, Global CustomerClient Success, the target bonus represented 50% of their earned base salary given their additional opportunities to earn additional cash compensation in the form of individual incentive compensation and sales commissions as described further below. When Mr. Stafford joined in June as President of Global Client Engagement, his target bonus was set at 50% of his earned base salary. Based on our performance, the Board of Directors and Compensation Committee determined that the 20192020 Funding Percentage would be 90%80%.
The Compensation Committee has approved the
20202021 Executive Incentive Plan. Under the
20202021 Executive Incentive Plan,
45%25% of the plan funding will
remainbe based on the attainment of
bookings, or the total value of license signings,Sales Commissionable Value (“SCV”), 25% based on
operating income,Annual Contract Value growth, 25% on margin, and
30%25% based on the attainment of strategic
as-a-service initiatives. Historically, the Compensation Committee has also approved a similar plan for our employees, with the exception of certain of our sales employees who are enrolled in a sales incentive compensation plan.
Chief Executive Officer Compensation
CHIEF EXECUTIVE OFFICER COMPENSATION
The Compensation Committee believes that the Chief Executive Officer continued to perform at a high level in
2019,2020, and that his performance is not reflected in his salary. The Chief Executive Officer’s comparatively low salary has historically reflected his status as a significant
stockholder,shareholder, and, as such, his personal wealth is tied directly to sustained increases in our value.
In
2019,2020, the Chief Executive Officer’s salary
remained $485,000.increased to $495,000. Under the
20192020 Executive Incentive Plan the target bonus for the Chief Executive Officer was 100% of his earned base salary. In determining the Chief Executive Officer’s bonus for
2019,2020, the Compensation Committee considered the factors described above and ultimately determined that he should be granted a bonus of
$436,500$396,000 under the
20192020 Executive Incentive Plan, representing a payment that is consistent with the
20192020 Funding Percentage. Under the
20202021 Executive Incentive Plan, the target bonus for the Chief Executive Officer will continue to be 100% of his earned base salary.
In 2019,2020, in recognition of the Chief Executive Officer’s leadership driving our continued growth and market position and low to market cash compensation, which falls between the 25th and 50th percentile of the market range, the Compensation Committee provided Mr. Trefler with an equity grant valued at $5,000,000, which falls
at approximately the 50th percentile. In 2020,2021, the Compensation Committee also provided Mr. Trefler with a periodic equity grant valued at $5,000,000,$6,500,000, in consideration of the above factors. Mr. Trefler’s equity awards are comprised of 50% stock options and 50% RSUs and vest on a five-year schedule.
Compensation for Other Named Executive Officers
COMPENSATION FOR OTHER NAMED EXECUTIVE OFFICERS
For
2019,2020, the Compensation Committee authorized base salaries for our named executive officers (other than our Chief Executive Officer) as follows:
| | | | | | | | | | | | |
| | | 2019 | | | 2018 | | | % Increase | |
Douglas Kra | | $ | 360,000 | | | $ | 350,000 | | | | 2.9 | % |
Michael Pyle | | $ | 377,000 | | | $ | 370,000 | | | | 1.9 | % |
Kenneth Stillwell | | $ | 445,000 | | | $ | 440,000 | | | | 1.1 | % |
Leon Trefler | | $ | 360,000 | | | $ | 350,000 | | | | 2.9 | % |
| | | | | | | | | | | | | | | | | |
| 2020 | | 2019 | | % Increase |
| Kenneth Stillwell | $ | 460,000 | | | $ | 445,000 | | | 3.4 | % |
| Douglas Kra | $ | 365,000 | | | $ | 360,000 | | | 1.4 | % |
| Hayden Stafford* | $ | 430,000 | | | $ | — | | | * |
| Leon Trefler | $ | 365,000 | | | $ | 360,000 | | | 1.4 | % |
*Hayden Stafford joined Pegasystems in June 2020
The base salaries of the named executive officers were increased effective January 1,
2019.2020.
Under the
20192020 Executive Incentive Plan, our Chief Financial Officer’s target bonus represented
65%70% of his earned base salary; our
Senior Vice President
Engineering’s,of Global Client Engagement’s target bonus represented
60%50% of his earned base
salary;salary given his opportunity to earn additional cash incentives in the form of sales commissions as described further below; and for
each of Leon Trefler and Mr. Kra, our Senior Vice Presidents, Global
CustomerClient Success, the target bonus represented 50% of his earned base salary given his opportunity to earn additional cash
compensationincentives in the form of individual incentive compensation and sales commissions as described further below. For
2019,2020, the Compensation Committee approved bonuses for our named executive officers under the
20192020 Executive Incentive Plan consistent with the
20192020 Funding Percentage. In
2019, Mr. Pyle,2020, Mr. Stillwell, and Leon Trefler opted to receive 50% of their CICP payment in RSUs. Accordingly, for
2019 Mr. Kra received a cash bonus of $162,000; Mr. Pyle received a cash bonus of $101,790;2020, Mr. Stillwell received a cash bonus of
$130,163;$128,735; and Leon Trefler received a cash bonus of
$81,000.$73,000.
Under the
20202021 Executive Incentive Plan, the target
bonusesbonus for Mr. Stillwell
and Mr. Pyle will represent 70%
and 60% of
those executive officers’his earned base
salaries, respectively.salary. For
each ofMr. Stafford, Leon Trefler, and Mr. Kra,
our Senior Vice Presidents, Global Customer Success, the target
bonusbonuses will represent 50% of
histheir earned base salary given
histheir opportunity to earn additional cash
compensation in the form of individual incentive compensation and sales commissions.incentives.
Additional Cash Incentives
Individual Incentive Compensation
In
2019,2020, Leon Trefler and Douglas Kra, our Senior Vice Presidents, Global
CustomerClient Success, were each eligible to receive
additional individual incentive compensation based upon the achievement of specific performance goals established by our Chief Executive Officer. Both
Leon Trefler’s and Mr. Kra’s
and Leon Trefler’s targets were $50,000 in
additional individual incentive compensation for the achievement of operational metrics set by our Chief Executive Officer. For
2019,2020, Leon Trefler received $36,000 and Mr. Kra received
$23,525 and Leon Trefler received $43,250.$25,000.
In
addition, in 2019, Leon Trefler and Mr. Kra each had a target sales commission of $257,759 and $190,588, respectively, in additional incentive compensation related to the value of bookings achieved by us. For 2019, Leon Trefler’s and Mr. Kra’s actual additional incentive compensation in the form of sales commissions related to this goal was $261,411 and $165,160, respectively.In 2020,2021, Leon Trefler and Mr. Kra are also eligible to receive additionalindividual incentive paymentscompensation based upon the performance of specific individual, business unit and/or corporate goals tied to the achievement of operational
objectives. In 2020,2021, Leon Trefler’s and Mr. Kra’s targets are $50,000 in additionalindividual incentive payments.compensation. The executive officers will be eligible for these additionalindividual incentive paymentscompensation based upon the level of achievement of their respective objectives. Our Chief Executive Officer will review each executive officer’s respective performance towards achieving these individual, business unit and/or corporate goals.
Sales Commissions
In 2020, Mr. Stafford, Leon Trefler, and Mr. Kra each had a target sales commission of $516,000, $310,000, and $228,000, respectively, related to the SCV of cloud, license, and maintenance sales. For 2020, Mr. Stafford’s, Leon Trefler’s, and Mr. Kra’s actual sales commissions were $323,000, $277,000, and $151,000, respectively.
In 2021, Mr. Stafford, Leon Trefler, and Mr. Kra will
also have target sales commissions of
$516,000, $310,000 and $228,000, respectively.
In March 2019,2020, the Compensation Committee approved a periodic equity grant for our named executive officers in the form of 50% stock options and 50% RSUs. All grants vest over the period of five years, with the exceptionyears.
| | | | | | | | | | | | | | | | | |
| 2020 | | 2019 | | % Increase |
| Kenneth Stillwell | $ | 2,500,000 | | | $ | 1,000,000 | | | 150.0 | % |
| Douglas Kra | $ | 850,000 | | | $ | 850,000 | | | 0.0 | % |
| Hayden Stafford* | $ | 6,500,000 | | | $ | — | | | * |
| Leon Trefler | $ | 1,200,000 | | | $ | 850,000 | | | 41.2 | % |
*Hayden Stafford joined Pegasystems in June 2020. The above amount consists of Mr. Pyle’s 2018 grant, which vests over atwo equity grants effective as of two-year period. | | | | | | | | | | | | |
| | | 12/31/2019 | | | 12/31/2018 | | | % Increase | |
Douglas Kra | | $ | 850,000.00 | | | $ | 850,000.00 | | | | 0.0 | % |
Michael Pyle | | $ | 600,000.00 | | | $ | 300,000.00 | | | | 100.0 | % |
Kenneth Stillwell | | $ | 1,100,000.00 | | | $ | 1,000,000.00 | | | | 10.0 | % |
Leon Trefler | | $ | 1,000,000.00 | | | $ | 850,000.00 | | | | 17.6 | % |
Severance, Retention,July 1, 2020 and Change in Control Benefits
August 1, 2020.
SEVERANCE, RETENTION, AND CHANGE IN CONTROL BENEFITS
We have entered into employment offer letters with Messrs. Kra,
Stafford, and Stillwell containing provisions for additional cash compensation upon termination of employment under certain circumstances. Specifically, each of these agreements
provideprovides for a
lump-sum severance payment equal to six months of then-current base salary in the event that such officer’s employment is terminated by us without cause. In Mr. Stillwell’s
and Mr. Stafford’s agreement, an additional month of severance will be paid for each year of service with a maximum of 12 months total severance. In addition, for Mr. Stillwell
and Mr. Stafford, in the event of a sale of Pegasystems (as defined in our 2004 Long-Term Incentive Plan, as amended and restated, or the 2004 Long-Term Incentive Plan) and termination of
Mr. Stillwell’stheir employment,
as Chief Administrative Officer, Chief Financial Officer, and Senior Vice President, all unvested stock options and RSUs would be subject to immediate full acceleration of vesting. The terms of these agreements are more fully described in the “Potential Payments upon Termination or Change in Control” section below.
Our primary rationale for these payments is that we believe that it is standard in our industry to provide a reasonable severance payment to certain high ranking executive officers in the event that they are terminated without cause, and that the absence of such arrangements might jeopardize our chances of hiring and retaining such executives. We limit such post-termination compensation arrangements to situations in which such executive officers are actually terminated, rather than those in which there is a mere change of control.
While these offer letters, which were previously filed with the SEC, do not specifically define what constitutes a termination “without cause,” in this context, we believe that the term “cause” would be construed consistently with Massachusetts case law, which generally defines it to mean, in this context, that we had a reasonable good faith basis for dissatisfaction with the employee, due to lack of capacity or diligence, failure to conform to usual standards of conduct, or other culpable or inappropriate behavior, or grounds for discharge reasonably related, in our good faith judgment, to the needs of the business. There are, or were, no other conditions to the payment of the severance amount.
Under our 2004 Long-Term Incentive Plan, in the event of the sale of Pegasystems, the Board of Directors, acting through a majority of directors who are determined to be “independent directors” under the applicable Nasdaq rules, may, in its discretion, provide that all outstanding RSUs, unvested stock options or other stock-based awards granted under the plan shall be assumed or an equivalent option, right, unit, or restricted stock be substituted by the successor entity; accelerated in full prior to the effective date of the sale of Pegasystems; or cancelled as of the effective date of the sale of Pegasystems; or the Board of Directors may apply any combination of the foregoing.
Potential Payments Upon Termination or Change in Control
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
As discussed above, under the terms of their employment offer letters, if either Mr. Kra,
Mr. Stafford or Mr. Stillwell is terminated without cause, he would receive a
lump-sum severance payment equal to six months of his then-current base salary. In addition,
Mr. Stafford and Mr. Stillwell would receive an additional month of severance for each year of service with a maximum of 12 months total severance. By way of example, if Mr. Kra had been terminated without cause on December 31,
2019,2020, he would have received a severance payment of
$180,000.$182,500. If Mr.
StillwellStafford had been terminated without cause on December 31,
2019,2020, he would have received a severance payment of
$333,750.$215,000. In addition, in the event of a sale of Pegasystems and the termination of Mr.
Stillwell’sStafford’s employment,
as Chief Administrative Officer, Chief Financial Officer, and Senior Vice President, all his unvested stock options and RSUs would be subject to immediate full acceleration of vesting. If, on December 31,
2019,2020, Mr. Stafford had been terminated following a sale of Pegasystems, the value of his accelerated RSUs would have been $4,526,975, and the value of his accelerated stock options would have been $2,367,284, excluding out-of-the-money options. If Mr. Stillwell had been terminated without cause on December 31, 2020, he would have received a severance payment of $383,333. In addition, in the event of a sale of Pegasystems and the termination of Mr. Stillwell’s employment, all his unvested stock options and RSUs would be subject to immediate full acceleration of vesting. If, on December 31, 2020, Mr. Stillwell had been terminated following a sale of Pegasystems, the value of his accelerated RSUs would have been
$2,657,362.95,$4,361,067, and the value of his accelerated stock options would have been
$4,808,780.16,$8,169,735, excluding
out-of-the-money options. The value of accelerated unvested options as of December 31,
20192020 is calculated by taking the difference between the closing price of our common stock on NASDAQ Global Select Market on the last trading day of the fiscal year ($
79.65133.26 on December 31,
2019)2020) and the option exercise price and multiplying it by the number of accelerated options. For RSUs, the value represents the closing price of our common stock on the last trading day of the fiscal year multiplied by the number of accelerated units.
Additionally, as noted above, under our 2004 Long-Term Incentive Plan, in the event of the sale of the Company, the Board of Directors may provide that all outstanding RSUs, unexercised stock options or other stock-based awards granted under the plan would accelerate in full prior to the effective date of the sale of the Company. The table entitled “Outstanding Equity Awards at Fiscal
Year-End” lists all outstanding equity awards held by our named executive officers as of December 31,
2019.Impact of Regulatory Requirements
2020.
IMPACT OF REGULATORY REQUIREMENTS
Our stock option and RSU grant policies are impacted by FASB ASC 718, formerly FAS 123(R), which we adopted on January 1, 2006. As a result of the adoption of this accounting policy, we have generally reduced the number of stock options granted to employees, as has been the case with many companies of similar size in our industry.
Prior to 2018, Section 162(m) of the Internal Revenue Code of 1986, as amended, or the Code, generally disallowed a tax deduction to public companies for compensation over
$1 million$1,000,000 paid to its chief executive officer and its three other most highly compensated executive officers, other than its chief financial officer. Performance-based compensation was excluded from the compensation taken into account for purposes of the $1 million limit if certain requirements were met. Effective in 2018, the Tax Cuts and Jobs Act of 2017 modified Section 162(m) of the Code to eliminate the exception for performance-based compensation, subject to transition relief for certain grandfathered arrangements in effect as of November 2, 2017. In addition, the
$1 million$1,000,000 limit now applies to all named executive officers, including the chief financial officer, and to any individual who was a named executive officer in any tax year beginning after December 31, 2016. The Compensation Committee will continue to award compensation to our executive officers as it deems appropriate, even though it may not be fully deductible for purposes of Section 162(m). Accordingly, compensation attributable to our Executive Incentive Plan, additional
individual incentive compensation,cash incentives, equity awards, or severance may not be fully deductible for the purposes of Section 162(m).
Compensation Practices Risk Assessment
COMPENSATION PRACTICES RISK ASSESSMENT
We have conducted a risk assessment of our compensation programs for executive officers and all other employees. Our Finance, Legal, People Organization, Sales, and Compliance functions reviewed our compensation programs, practices and policies, referred to as the Compensation Programs. Management reviewed and discussed the findings of this review with the Compensation Committee, and with our Disclosure Committee, consisting of representatives from our Finance, Legal, Internal Audit, and Compliance departments.
Based upon this assessment, we have concluded that our Compensation Programs are balanced and do not, by design, motivate excessive risk taking by management and other employees.
As part of our risk assessment, we review our Compensation Programs to ensure they are consistent with current market practices. In determining that the programs contained an appropriate mix of risk and reward in relation to our strategy and long-term goals without encouraging excessive risk taking by management and other employees, the following elements were considered:
•In general, compensation consists of a balanced mix of fixed and variable compensation. The fixed component, base salary, provides a stable income stream to employees, including management and executives, while variable compensation, consisting of annual bonuses, commissions for sales and certain services employees, provides compensation opportunities tied to our company performance and strategic initiatives;
•Annual incentive payments, or bonuses, provide the potential for variable pay based upon the achievement of our annual financial and strategic business objectives. These objectives are set at the company level and are not based upon the results for any one individual, team or division. Our Board of Directors reviews and approves the corporate funding percentage. Moreover, the Compensation Committee determines and approves executive officer compensation and has the discretion to modify individual payout amounts to reflect an individual’s performance;
•The incentive plans for our sales force align variable compensation with both short- and long-term goals. Commissions are payable on contract signing; however, our incentive plans permit us to recover the value of payments on sales commissions for clientnon-payment. Corporate controls require a risk-based approach for review and approveapproval of customer contracts by Finance, Legal, and Sales management prior to execution. Our senior management also reviews and approves material nonstandard contract terms; and
•Equity awards, which are granted to most employees, may consist of both stock options and RSUs, and align employee equity compensation with our long-term success. Additionally, senior level employees receive equity compensation in both RSUs and stock options to further align their interests with those of our stakeholders, including our stockholders.shareholders. Equity awards typically vest over five years and increase in value if our stock price increases over time. To further mitigate against risk, our equity incentive plan allows for the cancellation and forfeiture, as well as the clawback, of equity awards for employee misconduct.
As required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of Regulation
S-K, we are providing the following information about the relationship of the annual total compensation of our employees and the annual total compensation of our Chief Executive Officer. For
2019,2020, our last completed fiscal year:
•The median of the annual total compensation of all employees (excluding the Chief Executive Officer) (the “median employee”) was $128,252;$144,952; and
•The annual total compensation of our Chief Executive Officer, as reported in the Summary Compensation Table included elsewhere in this proxy statement, was $5,933,824.
$5,903,647.Based on this information, for
20192020 the ratio of the annual total compensation of our Chief Executive Officer to the median employee was approximately
4641 to 1.
During 2019,2020, there have been no changes to our employee population or employee compensation arrangements that we reasonably believe would result in a significant change to our pay ratio disclosure and there was no
change in the circumstances of the employee identified as the median employee in 2018. Therefore, as permitted by SEC rules, we used the same median employee as disclosed in our Proxy Statementproxy statement filed in 2019.
2020.
We combined all elements of the median employee’s compensation for 20192020 in accordance with the requirements of Item 402(c)(2)(x) ofRegulation S-K, resulting in annual total compensation of $128,252.$144,952. With respect to the annual total compensation of our Chief Executive Officer, we used the amount reported in the “Total” column of our “Summary Compensation Table” included in this proxy statement under the heading “Executive Compensation.“Executive Compensation.” The pay ratio reported above is a reasonable estimate calculated in a manner consistent with SEC rules, based on our internal records and the methodology described above. The SEC rules for identifying the median compensated employee allow companies to adopt a variety of methodologies, to apply certain exclusions and to make reasonable estimates and assumptions that reflect their employee populations and compensation practices. Accordingly, the pay ratio reported by other companies may not be comparable to the pay ratio reported above, as other companies have different employee populations and compensation practices and may use different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios.
Equity Compensation Plan Information
EQUITY COMPENSATION PLAN INFORMATION
The following table provides certain information with respect to our equity compensation plans in effect as of December 31,
2019: | | | | | | | | | | | | |
| (in thousands, except per share amounts) | | (a) Number of Shares of
Common Stock to be
Issued Upon Exercise of
Outstanding Stock
Options and Vesting of
RSUs(4) (5) | | | (b) Weighted-average
Exercise price per
Share of Outstanding
Stock Options (6) | | | (c) Number of Shares
of Common
Stock Remaining
Available for Future
Issuance (excluding
those in column (a)) (7) | |
Equity compensation plans approved by
stockholders(1) | | | 9,986 | | | $ | 44.76 | | | | 6,484 | |
Equity compensation plans not approved by stockholders(2) (3) | | | 15 | | | $ | 13.81 | | | | — | |
(1) | We currently maintain two equity compensation plans: the 2004 Long-Term Incentive Plan as amended and restated, the (“2004 Plan”) and the 2006 Employee Stock Purchase Plan as amended (“2006 ESPP”). In addition to the issuance of stock options, the 2004 Plan allows for the issuance of stock purchase rights and other stock-based awards, including RSUs. Our stockholders previously approved each of these plans and all amendments that were subject to stockholder approval. See “13. Stock-Based Compensation” in Item 8 of our Annual Report filed on Form10-K for the year ended December 31, 2019 for additional information.
|
(2) | Includes stock options assumed in connection with our acquisition of Chordiant in 2010 and originally granted under the Chordiant Software, Inc. 2005 Equity Incentive Plan (“2005 Plan”). No additional awards were or may be granted under the 2005 Plan following the date of acquisition. This plan was not approved by our stockholders since it was adopted on the date of acquisition. In connection with our acquisition of Chordiant, all outstanding equity awards issued under the 2005 Plan with an exercise price of $3.00, on a post-split basis, or lower were assumed by us and converted into the right to receive 0.13 shares of Pegasystems common stock for every share of Chordiant common stock covered by such awards. All other outstanding equity awards issued under the 2005 Plan were cancelled. The 2005 Plan was approved by Chordiant’s stockholders and provided for the grant of incentive stock options, nonstatutory stock options, stock purchase awards, RSAs, RSUs, and other forms of equity compensation. Awards granted under the 2005 Plan generally expire four to ten years after the grant date and generally become exercisable over a period of two to four years, with either yearly or monthly vesting.
|
(3) | In connection with our acquisition of In the Chat Communications Inc. on May 10, 2019 and in reliance on the Regulation D exemption from registration requirements under the Securities Act, we granted an employee the right to obtain up to 14,497 shares of our common stock, which will be issued in five equal tranches contingent upon continued employment. No general solicitation or advertising to market the securities occurred.
|
(4) | The number of shares of common stock issued upon exercise of vested stock options and vesting of RSUs will be less than the 10 million shown above because of the “net settlement” feature of most of these stock options and RSUs. This feature enables the Company to withhold shares to cover the cost to exercise stock options and, if applicable, to cover taxes due (in the case of stock options and RSUs) based on the fair value of the shares at the exercise date (in the case of stock options) or vesting date (in the case of RSUs), instead of selling all the shares on the open market to satisfy these obligations. The settlement of exercised stock options and vested RSUs on a net share basis will result in fewer shares issued by the Company.
|
2020:(5) | During 2019, stock option and RSU holders net settled stock options and RSUs representing the right to purchase a total of 2.6 million shares, of which only 1.4 million were issued to the stock option and RSU holders, and the balance of the shares were surrendered to the Company to pay for the exercise price (in the case of stock options) and the applicable taxes (in the case of stock options and RSUs).
|
(6) | The weighted-average exercise price does not consider the shares issuable upon vesting of outstanding RSUs, which have no exercise price.
|
(7) | Includes approximately 0.6 million shares remaining available for issuance as of December 31, 2019 under the 2006 ESPP.
|
| | | | | | | | | | | | | | | | | |
(in thousands,
except per share amounts) | (a) Number of Shares of Common Stock to be Issued Upon Exercise of Outstanding Stock Options and Vesting of RSUs(3) (4) | | (b) Weighted-average Exercise price per Share of Outstanding Stock Options(5) | | (c) Number of Shares of Common Stock Remaining Available for Future Issuance (excluding those in column (a))(6) |
Equity compensation plans approved by shareholders(1) | 9,841 | | | $ | 59.88 | | | 11,063 | |
Equity compensation plans not approved by shareholders(2) | 12 | | | $ | — | | | — | |
(1) We currently maintain two equity compensation plans: the 2004 Long-Term Incentive Plan as amended and restated, the (“2004 Plan”) and the 2006 Employee Stock Purchase Plan as amended (“2006 ESPP”). In addition to the issuance of stock options, the 2004 Plan allows for the issuance of stock purchase rights and other stock-based awards, including RSUs. Our shareholders previously approved each of these plans and all amendments that were subject to shareholder approval. See "14. Stock-Based Compensation" in Item 8 of our Annual Report filed on Form 10-K for the year ended December 31, 2020 for additional information.
(2) In connection with our acquisition of In the Chat Communications Inc. on May 10, 2019 and in reliance on the Regulation D exemption from registration requirements under the Securities Act, we granted an employee the right to obtain up to 14 thousand shares of our common stock, which will be issued in five equal tranches contingent upon continued employment. No general solicitation or advertising to market the securities occurred.
(3) The number of shares of common stock issued upon exercise of vested stock options and vesting of RSUs will be less than the 9.8 million shown above because of the “net settlement” feature of most of these stock options and RSUs. This feature enables the Company to withhold shares to cover the cost to exercise stock options and, if applicable, to cover taxes due (in the case of stock options and RSUs) based on the fair value of the shares at the exercise date (in the case of stock options) or vesting date (in the case of RSUs), instead of selling all the shares on the open market to satisfy these obligations. The settlement of exercised stock options and vested RSUs on a net share basis will result in fewer shares issued by the Company.
(4) During 2020, stock option and RSU holders net settled stock options and RSUs representing the right to purchase a total of 2.8 million shares, of which only 1.6 million were issued to the stock option and RSU holders, and the balance of the shares were surrendered to the Company to pay for the exercise price (in the case of stock options) and the applicable taxes (in the case of stock options and RSUs).
(5) The weighted-average exercise price does not consider the shares issuable upon vesting of outstanding RSUs, which have no exercise price.
(6) Includes approximately 0.5 million shares remaining available for issuance as of December 31, 2020 under the 2006 ESPP.
EXECUTIVE COMPENSATION
Summary Compensation Table
SUMMARY COMPENSATION TABLE
The following table sets forth information required under applicable SEC rules about the compensation for
2020, 2019,
2018 and
20172018 of our named executive officers:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year | | | Salary | | | Bonus(1) | | | Stock
Awards (2) | | | Option
Awards (3) | | | Non-Equity
Incentive Plan
Compensation (4) | | | All Other
Compensation (5) | | | Total | |
Alan Trefler
Chairman and Chief Executive Officer | | | 2019 | | | $ | 485,000 | | | $ | — | | | $ | 2,500,006 | (6) | | $ | 2,500,018 | (6) | | $ | 436,500 | | | $ | 12,300 | | | $ | 5,933,824 | |
| | | 2018 | | | $ | 485,000 | | | $ | — | | | $ | — | | | $ | — | | | $ | 485,000 | | | $ | 11,250 | | | $ | 981,250 | |
| | | 2017 | | | $ | 470,000 | | | $ | — | | | $ | — | | | $ | — | | | $ | 399,500 | | | $ | 10,800 | | | $ | 880,300 | |
| | | | | | | | |
Kenneth Stillwell
Chief Administration Officer, Chief Financial Officer and Senior Vice President | | | 2019 | | | $ | 445,000 | | | $ | — | | | $ | 720,229 | (6)(7) | | $ | 550,004 | (6) | | $ | 130,163 | (8) | | $ | 12,300 | | | $ | 1,857,696 | |
| | | 2018 | | | $ | 440,000 | | | $ | — | | | $ | 655,388 | (7)(9) | | $ | 500,446 | (9) | | $ | 132,000 | (8) | | $ | 11,250 | | | $ | 1,739,084 | |
| | | 2017 | | | $ | 415,000 | | | $ | — | | | $ | 271,549 | (7)(10) | | $ | 125,046 | (10) | | $ | 105,825 | (8) | | $ | 10,800 | | | $ | 928,220 | |
| | | | | | | | |
Douglas Kra
Senior Vice President, Global Customer Success | | | 2019 | | | $ | 360,000 | | | $ | 188,685 | | | $ | 425,038 | (6) | | $ | 425,012 | (6) | | $ | 162,000 | | | $ | 12,300 | | | $ | 1,573,035 | |
| | | 2018 | | | $ | 350,000 | | | $ | 167,430 | | | $ | 425,050 | (9) | | $ | 425,388 | (9) | | $ | 175,000 | | | $ | 11,250 | | | $ | 1,554,118 | |
| | | 2017 | | | $ | 350,000 | | | $ | 194,491 | | | $ | 325,028 | (10) | | $ | 325,104 | (10) | | $ | 140,000 | | | $ | 10,800 | | | $ | 1,345,423 | |
| | | | | | | | |
Michael Pyle
Senior Vice President, Engineering | | | 2019 | | | $ | 377,000 | | | $ | — | | | $ | 433,201 | (6)(7) | | $ | 300,015 | (6) | | $ | 101,790 | (8) | | $ | 12,300 | | | $ | 1,224,306 | |
| | | 2018 | | | $ | 370,000 | | | $ | — | | | $ | 430,694 | (7)(9) | | $ | — | | | $ | 111,000 | (8) | | $ | 11,250 | | | $ | 922,944 | |
| | | 2017 | | | $ | 363,000 | | | $ | — | | | $ | 328,206 | (7)(10) | | $ | — | | | $ | 92,565 | (8) | | $ | 10,800 | | | $ | 794,571 | |
| | | | | | | | |
Leon Trefler
Senior Vice President, Global Customer Success | | | 2019 | | | $ | 360,000 | | | $ | 304,661 | | | $ | 605,968 | (6)(7) | | $ | 500,007 | (6) | | $ | 81,000 | (8) | | $ | 12,300 | | | $ | 1,863,936 | |
| | | 2018 | | | $ | 350,000 | | | $ | 288,713 | | | $ | 528,061 | (7)(9) | | $ | 325,104 | (9) | | $ | 87,500 | (8) | | $ | 11,250 | | | $ | 1,590,628 | |
| | | 2017 | | | $ | 350,000 | | | $ | 158,901 | | | $ | 407,424 | (7)(10) | | $ | 300,050 | (10) | | $ | 16,800 | (8) | | $ | 10,800 | | | $ | 1,243,975 | |
(1) | Represents (i) additional individual incentive compensation payments and (ii) sales commissions for Mr. Kra and Leon Trefler, which were earned during the year shown.
|
(2) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Year | | Salary | | Bonus | | Stock Awards(1) | | Option Awards(2) | | Non-Equity Incentive Plan Compensation(3) | | All Other Compensation(4) | | Total | Alan Trefler
Chairman and Chief Executive Officer | 2020 | | $ | 495,000 | | | $ | — | | | | $ | 2,500,057 | | (5) | | $ | 2,500,022 | | (5) | | $ | 395,938 | | | | $ | 12,630 | | | $ | 5,903,647 | | | 2019 | | $ | 485,000 | | | $ | — | | | | $ | 2,500,006 | | (6) | | $ | 2,500,018 | | (6) | | $ | 436,500 | | | | $ | 12,300 | | | $ | 5,933,824 | | | 2018 | | $ | 485,000 | | | $ | — | | | | $ | — | | | | $ | — | | | | $ | 485,000 | | | | $ | 11,250 | | | $ | 981,250 | | Kenneth Stillwell Chief Operating Officer and Chief Financial Officer | 2020 | | $ | 460,000 | | | $ | — | | | | $ | 1,439,512 | | (5)(7) | | $ | 1,250,022 | | (5) | | $ | 128,735 | | (8) | | $ | 12,630 | | | $ | 3,290,899 | | | 2019 | | $ | 445,000 | | | $ | — | | | | $ | 720,229 | | (6)(7) | | $ | 550,004 | | (6) | | $ | 130,163 | | (8) | | $ | 12,300 | | | $ | 1,857,696 | | | 2018 | | $ | 440,000 | | | $ | — | | | | $ | 655,388 | | (7)(9) | | $ | 500,446 | | (9) | | $ | 132,000 | | (8) | | $ | 11,250 | | | $ | 1,739,084 | | Douglas Kra
Senior Vice President, Global Client Success | 2020 | | $ | 365,000 | | | $ | 176,822 | | (10) | | $ | 425,051 | | (5) | | $ | 425,021 | | (5) | | $ | 145,985 | | | | $ | 12,630 | | | $ | 1,550,509 | | | 2019 | | $ | 360,000 | | | $ | 188,685 | | (10) | | $ | 425,038 | | (6) | | $ | 425,012 | | (6) | | $ | 162,000 | | | | $ | 12,300 | | | $ | 1,573,035 | | | 2018 | | $ | 350,000 | | | $ | 167,430 | | (10) | | $ | 425,050 | | (9) | | $ | 425,388 | | (9) | | $ | 175,000 | | | | $ | 11,250 | | | $ | 1,554,118 | | Hayden Stafford President of Global Client Engagement(11) | 2020 | | $ | 248,077 | | | $ | 923,307 | | (12) | | $ | 3,750,162 | | (13) | | $ | 2,750,041 | | (13) | | $ | 99,231 | | | | $ | 496 | | | $ | 7,771,314 | | | 2019 | | $ | — | | | $ | — | | | | $ | — | | | | $ | — | | | | $ | — | | | | $ | — | | | $ | — | | | 2018 | | $ | — | | | $ | — | | | | $ | — | | | | $ | — | | | | $ | — | | | | $ | — | | | $ | — | | Leon Trefler
Senior Vice President, Global Client Success | 2020 | | $ | 365,000 | | | $ | 312,890 | | (10) | | $ | 707,491 | | (5)(7) | | $ | 600,005 | | (5) | | $ | 72,985 | | (8) | | $ | 12,630 | | | $ | 2,071,001 | | | 2019 | | $ | 360,000 | | | $ | 304,661 | | (10) | | $ | 605,968 | | (6)(7) | | $ | 500,007 | | (6) | | $ | 81,000 | | (8) | | $ | 12,300 | | | $ | 1,863,936 | | | 2018 | | $ | 350,000 | | | $ | 288,713 | | (10) | | $ | 528,061 | | (7)(9) | | $ | 325,104 | | (9) | | $ | 87,500 | | (8) | | $ | 11,250 | | | $ | 1,590,628 | |
(1) These amounts reflect the dollar amount of the aggregate grant date fair value of RSU awards granted in the years ended December 31, 2019, 2018 and 2017, in accordance with FASB ASC Topic 718. The calculation of the fair value of RSU awards is set forth in Note 13 of the Notes to Consolidated Financial Statements included in our Annual Report on Form10-K for the year ended December 31, 2019 filed with the SEC on February 12, 2020. |
(3) | These amounts reflect the dollar amount of the aggregate grant date fair value of stock option awards granted in years ended December 31, 2019, 2018 and 2017 in accordance with FASB ASC Topic 718. The assumptions used to calculate the value of option awards are set forth in Note 13 of the Consolidated Financial Statements included in our Annual Report on Form10-K for the year ended December 31, 2019 filed with the SEC on February 12, 2020.
|
(4) | Represents cash bonuses earned under the CICP in the year shown and paid in the following year.
|
(5) | These amounts are comprised of our 401(k) match and Company-paid parking.
|
(6) | Represents RSU and option awards granted in March 2019 as part of the named executive officer’s 2018 compensation package.
|
(7) | These amounts include the named executive officer’s election to receive 50% of his target incentive compensation under the CICP in the year shown in the form of RSUs instead of cash.
|
(8) | Represents 50% of bonuses earned under the CICP in the year shown and paid in the following year due to the named executive officer’s election to receive 50% of his target incentive compensation under the CICP in the year shown in the form of RSUs and included in “Stock Awards”.
|
(9) | Represents RSU and option awards granted in March 2018 as part of the named executive officer’s 2017 compensation package.
|
(10) | Represents RSU and option awards granted in March 2017 as part of the named executive officer’s 2016 compensation package.
|
Grants of Plan-Based Awards
the aggregate grant date fair value of RSU awards granted in the years ended December 31, 2020, 2019, and 2018 in accordance with FASB ASC Topic 718. The calculation of the fair value of RSU awards is set forth in "14. Stock-Based Compensation" in Item 8 of our Annual Report filed on Form 10-K for the year ended December 31, 2020 filed with the SEC on February 17, 2021.
(2) These amounts reflect the dollar amount of the aggregate grant date fair value of stock option awards granted in years ended December 31, 2020, 2019, and 2018 in accordance with FASB ASC Topic 718. The assumptions used to calculate the value of option awards are set forth in "14. Stock-Based Compensation" in Item 8 of our Annual Report filed on Form 10-K for the year ended December 31, 2020 filed with the SEC on February 17, 2021.
(3) Represents cash bonuses earned under the CICP in the year shown and paid in the following year.
(4) These amounts are comprised of our 401(k) match and Company-paid parking.
(5) Represents RSU and option awards granted in March 2020 as part of the named executive officer’s 2019 compensation package.
(6) Represents RSU and option awards granted in March 2019 as part of the named executive officer’s 2018 compensation package.
(7) These amounts include the named executive officer’s election to receive 50% of his target incentive compensation under the CICP in the year shown in the form of RSUs instead of cash.
(8) Represents 50% of bonuses earned under the CICP in the year shown and paid in the following year due to the named executive officer’s election to receive 50% of his target incentive compensation under the CICP in the year shown in the form of RSUs and included in “Stock Awards”.
(9) Represents RSU and option awards granted in March 2018 as part of the named executive officer’s 2017 compensation package.
(10) Represents additional cash incentives for the achievement of operational metrics and sales commissions earned during the year shown.
(11) Mr. Stafford joined the Company in June 2020.
(12) Represents additional cash incentives for the achievement of operational metrics, sales commissions earned during the year shown, and a sign-on bonus which is repayable to the Company in the event of voluntary termination or involuntary termination for cause within 12 months of Mr. Stafford’s date of hire.
(13) Represents Mr. Stafford’s equity award granted in July 2020 in the form of 60% RSUs and 40% stock options and his equity award granted in August 2020 in the form of 50% RSUs and 50% stock options.
GRANTS OF PLAN-BASED AWARDS
The following table sets forth certain information with respect to the plan-based awards granted during or for the fiscal year ended December 31,
20192020 to each of the named executive officers:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Estimated Future Payouts Under(1) | | | All Other
Stock
Awards:
Number
of Shares
of Stock
or Units (3) | | | All Other
Option
Awards:
Number of
Securities
Underlying
Options(3) | | | Exercise
or Base
Price of
Option
Awards | | | Grant Date
Fair Value
of Stock
and Option
Awards(4) | |
| | | | | | Non-Equity Incentive Plan Awards | | | Equity Incentive Plan Awards | |
| | | Grant
Date | | | Threshold | | | Target | | | Maximum (2) | | | Threshold | | | Target | | | Maximum | |
Alan Trefler | | | | | | $ | 339,500 | | | $ | 485,000 | | | $ | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 3/6/2019 | | | | | | | | | | | | | | | | | | | $ | 2,500,006 | | | | | | | | 39,026 | | | | | | | | | | | $ | 2,500,006 | |
| | | 3/6/2019 | | | | | | | | | | | | | | | | | | | $ | 2,500,018 | | | | | | | | | | | | 132,909 | | | $ | 64.35 | | | $ | 2,500,018 | |
Kenneth Stillwell | | | | | | $ | 101,238 | (5) | | $ | 144,625 | (5) | | $ | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 3/6/2019 | | | | | | | | | | | | | | | | | | | $ | 170,210 | | | | | | | | 2,650 | (5) | | | | | | | | | | $ | 170,210 | |
| | | 3/6/2019 | | | | | | | | | | | | | | | | | | | $ | 550,019 | | | | | | | | 8,586 | | | | | | | | | | | $ | 550,019 | |
| | | 3/6/2019 | | | | | | | | | | | | | | | | | | | $ | 550,004 | | | | | | | | | | | | 29,240 | | | $ | 64.35 | | | $ | 550,004 | |
Douglas Kra | | | | | | $ | 126,000 | | | $ | 180,000 | | | $ | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 3/6/2019 | | | | | | | | | | | | | | | | | | | $ | 425,038 | | | | | | | | 6,635 | | | | | | | | | | | $ | 425,038 | |
| | | 3/6/2019 | | | | | | | | | | | | | | | | | | | $ | 425,012 | | | | | | | | | | | | 22,595 | | | $ | 64.35 | | | $ | 425,012 | |
Michael Pyle | | | | | | $ | 79,170 | (5) | | $ | 113,100 | (5) | | $ | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 3/6/2019 | | | | | | | | | | | | | | | | | | | $ | 133,149 | | | | | | | | 2,073 | (5) | | | | | | | | | | $ | 133,149 | |
| | | 3/6/2019 | | | | | | | | | | | | | | | | | | | $ | 300,052 | | | | | | | | 4,681 | | | | | | | | | | | $ | 300,052 | |
| | | 3/6/2019 | | | | | | | | | | | | | | | | | | | $ | 300,015 | | | | | | | | | | | | 16,770 | | | $ | 64.35 | | | $ | 300,015 | |
Leon Trefler | | | | | | $ | 63,000 | (5) | | $ | 90,000 | (5) | | $ | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 3/6/2019 | | | | | | | | | | | | | | | | | | | $ | 105,915 | | | | | | | | 1,649 | (5) | | | | | | | | | | $ | 105,915 | |
| | | 3/6/2019 | | | | | | | | | | | | | | | | | | | $ | 500,052 | | | | | | | | 7,806 | | | | | | | | | | | $ | 500,052 | |
| | | 3/6/2019 | | | | | | | | | | | | | | | | | | | $ | 500,007 | | | | | | | | | | | | 26,582 | | | $ | 64.35 | | | $ | 500,007 | |
(1) | All awards were made pursuant to our 2019 CICP.
|
(2) | There is no maximum payout amount, as additional incentives can be earned for performance above targets, as determined by the Board of Directors in its discretion.
|
(3) | All equity awards were made pursuant to our 2004 Long-Term Incentive Plan.
|
(4) | The amounts in the “Grant Date Fair Value of Stock and Option Awards” reflect the dollar amount of the aggregate grant date fair value for the option and RSU awards granted in 2019, in accordance with FASB ASC Topic 718.
|
(5) | Reflects the named executive officer’s election to receive 50% of his target incentive compensation under the 2019 CICP in the form of RSUs instead of cash. The number of RSUs granted will be determined by dividing 50% of the employee’s annual Target Incentive Opportunity by 85% of the closing price of our stock on the date of grant, less the present value of expected dividends during the vesting period. The 15% discount to the closing price, which is used to calculate the number of RSUs granted, provides an additional incentive to employees to acquire our stock.
|
Outstanding Equity Awards at Fiscal | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Estimated Future Payouts Under | | All Other Stock Awards: Number of Shares of Stock or Units(2) | | All Other Option Awards: Number of Securities Underlying Options(2) | | Exercise or
Base Price
of Option Awards | | Grant Date Fair Value of Stock and Option Awards(3) |
| | | | Non-Equity Incentive Plan Awards(1) | | Equity Incentive Plan Awards | | | | |
| Grant
Date | | Threshold | | Target | | Maximum | | Threshold | | Target | | Maximum | |
| Alan Trefler | | | $ | 346,500 | | | | $ | 495,000 | | | | $ | — | | (4) | | | | | | | | | | | | | | | |
| 3/3/2020 | | | | | | | | | | | | | $ | 2,500,057 | | | | | 27,862 | | | | | | | | $ | 2,500,057 | |
| 3/3/2020 | | | | | | | | | | | | | $ | 2,500,022 | | | | | | | | 110,425 | | | $ | 90.05 | | | $ | 2,500,022 | |
| Kenneth Stillwell | | | $ | 112,700 | | (6) | | $ | 161,000 | | (6) | | $ | — | | (4) | | | | | | | | | | | | | | | |
| 3/3/2020 | | | | | | | | | | | | | $ | 189,483 | | | | | 2,107 | | (6) | | | | | | $ | 189,483 | |
| 3/3/2020 | | | | | | | | | | | | | $ | 1,250,029 | | | | | 13,931 | | | | | | | | $ | 1,250,029 | |
| 3/3/2020 | | | | | | | | | | | | | $ | 1,250,022 | | | | | | | | 55,213 | | | $ | 90.05 | | | $ | 1,250,022 | |
| Douglas Kra | | | $ | 127,750 | | | | $ | 182,500 | | | | $ | — | | (4) | | | | | | | | | | | | | | | |
| 3/3/2020 | | | | | | | | | | | | | $ | 425,051 | | | | | 4,737 | | | | | | | | $ | 425,051 | |
| 3/3/2020 | | | | | | | | | | | | | $ | 425,021 | | | | | | | | 18,773 | | | $ | 90.05 | | | $ | 425,021 | |
Hayden Stafford(5) | | | $ | 86,827 | | | | $ | 124,038 | | | | $ | — | | (4) | | | | | | | | | | | | | | | |
| 7/1/2020 | | | | | | | | | | | | | | | | | 29,404 | | | | | | | | 3,000,090 | |
| 7/1/2020 | | | | | | | | | | | | | | | | | | | | 69,601 | | | 102.34 | | 2,000,021 | |
| 8/3/2020 | | | | | | | | | | | | | | | | | 6,356 | | | | | | | | 750,072 | |
| 8/3/2020 | | | | | | | | | | | | | | | | | | | | 22,748 | | | 118.32 | | 750,020 | |
| Leon Trefler | | | $ | 63,875 | | (6) | | $ | 91,250 | | (6) | | $ | — | | (4) | | | | | | | | | | | | | | | |
| 3/3/2020 | | | | | | | | | | | | | $ | 107,466 | | | | | 1,195 | | (6) | | | | | | $ | 107,466 | |
| 3/3/2020 | | | | | | | | | | | | | $ | 600,025 | | | | | 6,687 | | | | | | | | $ | 600,025 | |
| 3/3/2020 | | | | | | | | | | | | | $ | 600,005 | | | | | | | | 26,502 | | | $ | 90.05 | | | $ | 600,005 | |
(1) All awards were made pursuant to our 2020 CICP.
(2) All equity awards were made pursuant to our 2004 Long-Term Incentive Plan.
(3) Reflect the dollar amount of the aggregate grant date fair value for the option and RSU awards granted in 2020, in accordance with FASB ASC Topic 718.
(4) There is no maximum payout amount, as additional incentives can be earned for performance above targets, as determined by the Board of Directors in its discretion.
(5) Mr. Stafford joined the Company in June 2020.
(6) Reflects the named executive officer’s election to receive 50% of his target incentive compensation under the 2020 CICP in the form of RSUs instead of cash. The RSUs granted were determined by dividing 50% of the employee's annual Target Incentive Opportunity by 85% of the closing price of our stock on the date of grant, less the present value of expected dividends during the vesting period. The 15% discount to the closing price, which is used to calculate the number of RSUs granted, provides an additional incentive to employees to acquire our stock.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The following table sets forth certain information with respect to the value of outstanding equity awards at December 31,
2019,2020, previously granted to the named executive officers. All equity awards were granted under our 2004 Long-Term Incentive Plan.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Option Awards | | | Stock Awards | |
| | | Number of Securities Underlying Unexercised
Options | | | Option
Exercise
Price | | | Option
Expiration
Date(1) | | | 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) | |
| | Exercisable | | | Unexercisable | |
Alan Trefler | | | — | | | | 132,909 | | | $ | 64.35 | | | | 3/6/2029 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | 39,026 | | | $ | 3,108,421 | |
Kenneth Stillwell | | | — | | | | 74,031 | | | $ | 27.74 | | | | 8/1/2026 | | | | | | | | | |
| | | — | | | | 4,221 | | | $ | 44.30 | | | | 3/2/2027 | | | | | | | | | |
| | | — | | | | 17,838 | | | $ | 58.95 | | | | 3/5/2028 | | | | | | | | | |
| | | — | | | | 29,240 | | | $ | 64.35 | | | | 3/6/2029 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | 15,307 | | | $ | 1,219,203 | |
| | | | | | | | | | | | | | | | | | | 1,279 | | | $ | 101,872 | |
| | | | | | | | | | | | | | | | | | | 5,541 | | | $ | 441,341 | |
| | | | | | | | | | | | | | | | | | | 8,586 | | | $ | 683,875 | |
| | | | | | | | | | | | | | | | | | | 2,650 | (4) | | $ | 211,073 | |
Douglas Kra | | | 13,700 | | | | — | | | $ | 18.03 | | | | 3/7/2022 | | | | | | | | | |
| | | 26,026 | | | | — | | | $ | 20.05 | | | | 3/7/2024 | | | | | | | | | |
| | | 28,846 | | | | 1,519 | | | $ | 20.49 | | | | 3/2/2025 | | | | | | | | | |
| | | 24,264 | | | | 8,089 | | | $ | 25.20 | | | | 3/9/2026 | | | | | | | | | |
| | | 13,410 | | | | 10,972 | | | $ | 44.30 | | | | 3/2/2027 | | | | | | | | | |
| | | 8,164 | | | | 15,163 | | | $ | 58.95 | | | | 3/5/2028 | | | | | | | | | |
| | | — | | | | 22,595 | | | $ | 64.35 | | | | 3/6/2029 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | 558 | | | $ | 44,445 | |
| | | | | | | | | | | | | | | | | | | 2,762 | | | $ | 219,993 | |
| | | | | | | | | | | | | | | | | | | 3,325 | | | $ | 264,836 | |
| | | | | | | | | | | | | | | | | | | 4,710 | | | $ | 375,152 | |
| | | | | | | | | | | | | | | | | | | 6,635 | | | $ | 528,478 | |
Michael Pyle | | | 13,700 | | | | — | | | $ | 18.03 | | | | 3/7/2022 | | | | | | | | | |
| | | 22,772 | | | | — | | | $ | 20.05 | | | | 3/7/2024 | | | | | | | | | |
| | | 28,846 | | | | 1,519 | | | $ | 20.49 | | | | 3/2/2025 | | | | | | | | | |
| | | 17,647 | | | | 5,883 | | | $ | 25.20 | | | | 3/9/2026 | | | | | | | | | |
| | | — | (6) | | | 16,770 | (6) | | $ | 64.35 | | | | 3/6/2029 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | 558 | | | $ | 44,445 | |
| | | | | | | | | | | | | | | | | | | 2,009 | | | $ | 160,017 | |
| | | | | | | | | | | | | | | | | | | 2,550 | (5) | | $ | 203,108 | |
| | | | | | | | | | | | | | | | | | | 4,681 | (6) | | $ | 372,842 | |
| | | | | | | | | | | | | | | | | | | 2,073 | (4) | | $ | 165,114 | |
Leon Trefler | | | 59,165 | | | | — | | | $ | 11.05 | | | | 12/12/2022 | | | | | | | | | |
| | | 24,553 | | | | — | | | $ | 20.05 | | | | 3/7/2024 | | | | | | | | | |
| | | 28,678 | | | | 1,687 | | | $ | 20.49 | | | | 3/2/2025 | | | | | | | | | |
| | | 26,471 | | | | 8,824 | | | $ | 25.20 | | | | 3/9/2026 | | | | | | | | | |
| | | 13,410 | | | | 10,972 | | | $ | 44.30 | | | | 3/2/2027 | | | | | | | | | |
| | | 8,164 | | | | 15,163 | | | $ | 58.95 | | | | 3/5/2028 | | | | | | | | | |
| | | — | | | | 26,582 | | | $ | 64.35 | | | | 3/6/2029 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | 620 | | | $ | 49,383 | |
| | | | | | | | | | | | | | | | | | | 3,013 | | | $ | 239,985 | |
| | | | | | | | | | | | | | | | | | | 3,325 | | | $ | 264,836 | |
| | | | | | | | | | | | | | | | | | | 4,710 | | | $ | 375,152 | |
| | | | | | | | | | | | | | | | | | | 7,806 | | | $ | 621,748 | |
| | | | | | | | | | | | | | | | | | | 1,649 | (4) | | $ | 131,343 | |
(1) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Option Awards | | Stock Awards | | Number of Securities
Underlying Unexercised Options | | Option
Exercise Price | | Option Expiration Date(1) | | 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) | | Exercisable | | | Unexercisable | | | | | | Alan Trefler | 46,518 | | | | 86,391 | | | | $ | 64.35 | | | 3/6/2029 | | | | | | | — | | | | 110,425 | | | | $ | 90.05 | | | 3/3/2030 | | | | | | | | | | | | | | | | 25,367 | | | | $ | 3,380,406 | | | | | | | | | | | | 27,862 | | | | $ | 3,712,890 | | | Kenneth Stillwell | — | | | | 31,728 | | | | $ | 27.74 | | | 8/1/2026 | | | | | | | — | | | | 2,345 | | | | $ | 44.30 | | | 3/2/2027 | | | | | | | — | | | | 12,350 | | | | $ | 58.95 | | | 3/5/2028 | | | | | | | — | | | | 19,006 | | | | $ | 64.35 | | | 3/6/2029 | | | | | | | — | | | | 55,213 | | | | $ | 90.05 | | | 3/3/2030 | | | | | | | | | | | | | | | | 6,560 | | | | $ | 874,186 | | | | | | | | | | | | 711 | | | | $ | 94,748 | | | | | | | | | | | | 3,836 | | | | $ | 511,185 | | | | | | | | | | | | 5,581 | | | | $ | 743,724 | | | | | | | | | | | | 13,931 | | | | $ | 1,856,445 | | | | | | | | | | | | 2,107 | | (5) | | $ | 280,779 | | | Douglas Kra | 30,735 | | | | 1,618 | | | | $ | 25.20 | | | 3/9/2026 | | | | | | | 18,286 | | | | 6,096 | | | | $ | 44.30 | | | 3/2/2027 | | | | | | | 12,829 | | | | 10,498 | | | | $ | 58.95 | | | 3/5/2028 | | | | | | | 7,908 | | | | 14,687 | | | | $ | 64.35 | | | 3/6/2029 | | | | | | | — | | | | 18,773 | | | | $ | 90.05 | | | 3/3/2030 | | | | | | | | | | | | | | | | 553 | | | | $ | 73,693 | | | | | | | | | | | | 1,847 | | | | $ | 246,131 | | | | | | | | | | | | 3,261 | | | | $ | 434,561 | | | | | | | | | | | | 4,313 | | | | $ | 574,750 | | | | | | | | | | | | 4,737 | | | | $ | 631,253 | | Hayden Stafford(4) | 3,481 | | (6) | | 66,120 | | (6) | | $ | 102.34 | | | 7/1/2030 | | | | | | | 1,138 | | (6) | | 21,610 | | (6) | | $ | 118.32 | | | 8/3/2030 | | | | | | | | | | | | | | | | 27,933 | | (6) | | $ | 3,722,352 | | | | | | | | | | | | 6,038 | | (6) | | $ | 804,624 | | | Leon Trefler | 37,665 | | | | — | | | | $ | 11.05 | | | 12/12/2022 | | | | | | | 24,553 | | | | — | | | | $ | 20.05 | | | 3/7/2024 | | | | | | | 30,365 | | | | — | | | | $ | 20.49 | | | 3/2/2025 | | | | | | | 33,530 | | | | 1,765 | | | | $ | 25.20 | | | 3/9/2026 | | | | | | | 18,286 | | | | 6,096 | | | | $ | 44.30 | | | 3/2/2027 | | | | | | | 12,829 | | | | 10,498 | | | | $ | 58.95 | | | 3/5/2028 | | | | | | | 9,304 | | | | 17,278 | | | | $ | 64.35 | | | 3/6/2029 | | | | | | | — | | | | 26,502 | | | | $ | 90.05 | | | 3/3/2030 | | | | | | | | | | | | | | | | 603 | | | | $ | 80,356 | | | | | | | | | | | | 1,847 | | | | $ | 246,131 | | | | | | | | | | | | 3,261 | | | | $ | 434,561 | | | | | | | | | | | | 5,074 | | | | $ | 676,161 | | | | | | | | | | | | 6,687 | | | | $ | 891,110 | | | | | | | | | | | | 1,195 | | (5) | | $ | 159,246 | |
(1) Unless otherwise noted, stock options vest on a five-year schedule, with 20% vesting after one year and the remaining 80% vesting in equal quarterly installments over the remaining four years. Options expire ten years from the grant date. |
(2) | Unless otherwise noted, RSUs vest on a five-year schedule, with 20% vesting after one year and the remaining 80% vesting in equal quarterly installments over the remaining four years.
|
(3) | Market value is calculated using a share price of $79.65, the closing price of our common stock on the NASDAQ Global Select Market on December 31, 2019.
|
(4) | Includes RSUs granted in connection with the named executive officer’s election to receive 50% of his target incentive compensation under the 2019 CICP in the form of RSUs instead of cash, which vests in full one year from the grant date.
|
(5) | Includes RSUs which vest 50% one full year from the grant date and the remaining 50% vest two full years from the grant date.
|
(6) | Includes awards which vest on a four-year schedule, with 20% vesting after one year and the remaining 80% vesting in equal quarterly installments over the remaining three years. Options expire ten years from the grant date.
|
Option Exercises and Stock Vested Table
the remaining 80% vesting in equal quarterly installments over the remaining four years. Options expire ten years from the grant date.
(2) Unless otherwise noted, RSUs vest on a five-year schedule, with 20% vesting after one year and the remaining 80% vesting in equal quarterly installments over the remaining four years.
(3) Market value is calculated using a share price of $133.26, the closing price of our common stock on the NASDAQ Global Select Market on December 31, 2020.
(4) Mr. Stafford joined the Company in June 2020.
(5) RSUs granted in connection with the named executive officer’s election to receive 50% of his target incentive compensation under the 2020 CICP in the form of RSUs instead of cash, which vests in full one year from the grant date.
(6) Includes awards that vest in equal quarterly installments over five years.
OPTION EXERCISES AND STOCK VESTED TABLE
The following table sets forth certain information with respect to stock option exercises and
the vesting of restricted stock
unitsunit vestings for each of the named executive officers during the fiscal year ended December 31,
2019: | | | | | | | | | | | | | | | | |
| | | Option Awards | | | Stock Awards | |
| | | Number of Shares
Acquired on Exercise | | | Value Realized on Exercise (1) | | | Number of Shares
Acquired on Vesting | | | Value Realized on Vesting (2) | |
Alan Trefler | | | — | | | $ | — | | | | — | | | $ | — | |
Kenneth Stillwell | | | 57,065 | | | $ | 2,072,111 | | | | 14,938 | | | $ | 1,031,021 | |
Douglas Kra | | | 25,064 | | | $ | 1,424,363 | | | | 8,955 | | | $ | 626,006 | |
Michael Pyle | | | 25,272 | | | $ | 1,436,300 | | | | 11,313 | | | $ | 761,215 | |
Leon Trefler | | | 19,010 | | | $ | 1,039,009 | | | | 11,154 | | | $ | 771,453 | |
(1) | This amount is equal to the difference between the fair market value of the shares acquired upon exercise on the exercise date less the exercise price, multiplied by the number of options exercised.
|
(2) | This amount is the closing price per share of our common stock on the vesting date, multiplied by the number of shares vested.
|
2020:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Option Awards | | Stock Awards |
| Number of Shares
Acquired on Exercise | | Value Realized on Exercise(1) | | Number of Shares
Acquired on Vesting | | Value Realized on Vesting(2) |
| Alan Trefler | — | | | $ | — | | | 13,659 | | | $ | 1,373,905 | |
| Kenneth Stillwell | 59,901 | | | $ | 3,941,618 | | | 16,675 | | | $ | 1,668,839 | |
| Douglas Kra | 70,091 | | | $ | 6,480,695 | | | 8,016 | | | $ | 848,410 | |
Hayden Stafford (3) | — | | | $ | — | | | 1,789 | | | $ | 214,111 | |
| Leon Trefler | 21,500 | | | $ | 1,870,192 | | | 10,338 | | | $ | 1,061,335 | |
(1) This amount is equal to the difference between the fair market value of the shares acquired on the exercise date less the exercise price, multiplied by the number of options exercised.
(2) This amount is the closing price per share of our common stock on the vesting date, multiplied by the number of shares vested.
(3) Mr. Stafford joined the Company in June 2020.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of our Compensation Committee for the year ended December 31,
20192020 were, and to date are, Sharon Rowlands (Chair), Richard Jones, Dianne Ledingham and Larry Weber. None of the members of our Compensation Committee were, at any time during
2019,2020, an officer or employee of Pegasystems or any of its subsidiaries. Richard Jones served as our President and Chief Operating Officer from October 1999 to September 2002, and was a part-time employee of Pegasystems from July 2002 to July 2007. Neither Dianne Ledingham, Sharon Rowlands nor Larry Weber has ever been an officer or employee of the Company or any of its subsidiaries. None of the members of our Compensation Committee had any relationship with us during
20192020 that was required to be disclosed under Item 404 of Regulation
S-K under the Exchange Act.
None of our executive officers served as a director or member of the Compensation Committee (or other committee serving an equivalent function) of any other entity, whose executive officers served on our Board of Directors or Compensation Committee.
DELINQUENT SECTION 16(a) REPORTS
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors, executive officers, and the holders of more than 10% of our common stock, to file reports with the SEC disclosing their ownership of our stock and changes in such ownership. Directors, executive officers, and 10% stockholdersshareholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. To our knowledge, based solely on review of our records and written representations by persons required to file these reports, during 2019,2020, all filing requirements under Section 16(a) were complied with in a timely fashion, with the exception of threefour late Section 16(a) filings, including: one transaction reported on a Form 4/A filed on March 18, 2019February 14, 2020 on behalf of
Richard H. Jones, one transaction reported on a Form 4/A filed on June 5, 2019March 4, 2020 on behalf of Kenneth Stillwell,Leon Trefler, one transaction reported on a Form 4/A filed on March 4, 2020 on behalf of Michael Pyle, and one transaction reported on a Form 4 filed on June 12, 2019March 10, 2020 on behalf of Alan Trefler.
The following reports by our Compensation Committee and Audit Committee shall not be deemed to be (i) “soliciting material,” (ii) “filed” with the SEC, (iii) subject to Regulations 14A or 14C of the Exchange Act, or (iv) subject to the liabilities of Section 18 of the Exchange Act. The reports shall not be deemed incorporated by reference into any of our other filings under the Exchange Act or the Securities Act of 1933, as amended, except to the extent we specifically incorporate any such report by reference into such filing.
Report of the Compensation Committee
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis, with management, and, based on such review and discussion, recommended to the Board of Directors its inclusion in this proxy statement.
Sharon Rowlands, Chair
Richard Jones
Dianne Ledingham
Larry Weber
Report of the Audit Committee
REPORT OF THE AUDIT COMMITTEE
The Audit Committee oversees our financial reporting process on behalf of the Board of Directors. Management has the primary responsibility for the financial statements and the reporting process including the systems of internal controls. The primary duties and responsibilities of the Audit Committee are to: (1) select and engage our independent registered public accounting firm; (2) serve as an independent and objective party to monitor our internal controls over financial reporting and disclosure controls; (3) review and appraise the audit efforts of our independent registered public accounting firm and internal audit functions; (4) review the independent registered public accounting firm’s fees; (5) ensure professional handling of employee complaints through our hotline process for the reporting of concerns regarding questionable accounting or auditing matters which is monitored by our compliance team; and (6) provide an open avenue of communication among the independent registered public accounting firm, financial and senior management, and the Board of Directors. The Audit Committee is also responsible for overseeing legal compliance and risk management matters, including our Code of Conduct.
The Audit Committee consists of three members, each of whom is an “independent director” as defined by Nasdaq Rule 5605(c)(2). The Board of Directors has determined that the members of the Audit Committee satisfy the requirements of the Nasdaq Rules as to independence, financial sophistication, and expertise. In addition, the Board of Directors has determined that
Messrs. O’Halloran andMr. Lafond
are eachis an “audit committee financial expert” as defined by SEC rules. The Audit Committee operates under a written charter, approved by the Board of Directors, which was last reviewed and amended
by the Audit Committee in
August 2019.July 2020.
In fulfilling its oversight responsibilities regarding our 20192020 financial statements, the Audit Committee reviewed and discussed with management the audited financial statements in the Annual Report, including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements. The Audit Committee’s review included discussion with the independent registered public accounting firm of matters required to be discussed pursuant to Auditing Standard No. 1301 —– Communications with Audit Committees, issued by the Public Company Accounting Oversight Board
(United (United States), and SEC RegulationS-X Rule2-07, including the process used by management in formulating particularly sensitive accounting estimates (including significant tax positions) and the basis for the conclusions of the independent registered public accounting firm regarding the reasonableness of those estimates.
The Audit Committee reviewed and discussed with the independent registered public accounting firm, which is responsible for expressing an opinion on the conformity of those audited financial statements with accounting principles generally accepted in the United States of America, their judgment as to the quality, not just the acceptability, of our accounting principles and such other matters as are required to be discussed with the Audit Committee under the standards of the Public Company Accounting Oversight Board (United States) and the requirements of the Securities and Exchange Commission. In addition, the Audit Committee has received the written disclosures and the letter from the independent registered accounting firm required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence, and has discussed with the independent registered public accounting firm its independence from management and Pegasystems, consistent with the applicable requirements of the Public Company Accounting Oversight Board.
The Audit Committee discussed with our independent registered public accounting firm the overall scope and plans for its audits in
2019.2020. The Audit Committee meets with the independent registered public accounting firm, with and without management present, to discuss the results of its audits, the understanding of our internal controls, and the overall quality of our financial reporting. The Audit Committee held four meetings during
2019.2020.
In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Annual Report on Form
10-K for the fiscal year ended December 31,
2019.2020. The Audit Committee has also selected Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31,
2020.2021.
Audit
Committee:James O’Halloran,Committee
Christopher Lafond, Chair
Peter Gyenes
Christopher Lafond
Ronald Hovsepian
PROPOSAL 3
— APPROVAL OF THE AMENDED AND RESTATED 2004 LONG-TERM INCENTIVE PLANAt the Annual Meeting, our stockholders will be asked to approve the amended and restated Pegasystems Inc. 2004 Long-Term Incentive Plan (the “Plan”). The Plan was originally approved by our stockholders in June 2004. As originally approved, the total number of authorized shares available for grant under the Plan was 7,000,000, and the Plan’s term would run until March 10, 2014. The Plan was amended and approved by our stockholders in July 2011. As amended and approved in 2011, 5,000,000 shares were added to the authorized grant amount to increase that amount to 12,000,000 shares, and the term was extended to May 18, 2021. In 2014, our Board of Directors approved atwo-for-one stock split of our common stock. As a result, the amount of shares authorized for issuance under the Plan doubled from 12,000,000 to 24,000,000. The Plan was approved by the stockholders on June 10, 2016. As amended and approved in 2016, 6,000,000 shares were added to the authorized grant amount to increase that amount to 30,000,000 shares, and the term was extended to June 10, 2026. The Plan was amended and adopted by the Board on May 23, 2017. As amended and adopted in 2017, changes were made to termination of employment, death or disability, and retirement sections.
If this proposal is approved, 6,000,000 shares will be added to the authorized grant amount to increase that amount to 36,000,000 shares. We estimate that we will have used approximately 25,909,613 shares by March 31, 2020 from our current authorization of 30,000,000 shares, leaving approximately 4,090,387 remaining shares authorized under the Plan (including shares from cancellations of stock options and RSUs). We believe that the proposed increase in shares will suffice for the Plan for at least the next three years. In addition, this year, together with legal counsel, we identified a number of provisions in the Plan to be removed in response to changes to Section 162(m) of the Internal Revenue Code made by federal tax legislation commonly referred to as the Tax Cuts and Jobs Act of 2017. Although not all these changes are required to be approved by stockholders under applicable law or regulation, we have included these discretionary amendments in a single amendment and restatement of the Plan that we are submitting for stockholder approval at the Annual Meeting. The Plan is also being amended to permit delegation by the Compensation Committee to our employees, in accordance with applicable law, of the authority to approve awards under the Plan.
In summary, the proposed amendments to the Plan would:
increase the total number of authorized shares under the Plan by 6,000,000 shares, so that the aggregate number of awards that may be granted under the Plan is 36,000,000 shares;
extend the term of the Plan from June 10, 2026 through June 23, 2030;
remove certain 162(m)-related plan provisions that are now outdated due to changes in applicable law.
We believe that our ability to attract and retain qualified, high-performing employees is vital to our success and growth as a Company. Equity awards are a very effective retention tool that encourages and rewards employee performance that aligns with stockholders’ interests. We believe that the Plan as proposed to be amended and restated is an essential,up-to-date platform to accomplish these objectives, and we request your approval of the Plan.
On April 28, 2020, our Board of Directors adopted, subject to stockholder approval, the amended and restated Plan described above. The above summary of the Plan, as so amended and restated, does not purport to be complete and is qualified in its entirety by reference to the full text of the Plan, which is attached asAppendix Ato this proxy statement.
The Board of Directors recommends that you vote FOR the approval of the Plan, and proxies solicited by the Board will be voted in favor of the Plan unless a stockholder has indicated otherwise on the proxy.
Purposes
The purposes of the Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to employees, directors and consultants, to promote the success of our business, and to continue to link employee compensation with our performance. Options, RSUs, stock purchase rights and other stock-based awards may be granted under the Plan.
Administration
Subject to the provisions of the Plan, the Committee has authority in its discretion to: (1) determine fair market value of our common stock; (2) select employees, directors and consultants to whom awards may be granted; (3) determine the number of shares covered by awards; (4) approve forms of agreements for use under the Plan; (5) determine the terms and conditions of awards; (6) determine whether and under what circumstances an option may be settled in cash instead of common stock; (7) reduce the exercise price or purchase price of any award to the then fair market value if the fair market value has declined since the date of grant (with shareholder approval); (8) initiate a program whereby outstanding options are exchanged for options with a lower exercise price (with shareholder approval); (9) prescribe, amend or rescind rules and regulations relating to the Plan; (10) construe and interpret the terms of the Plan and awards granted pursuant to the Plan; (11) subject awards granted pursuant to the Plan to forfeiture, setoff, recoupment or other recovery if the Committee determines in good faith that such action is required by applicable law or Company policy; and (12) modify terms of the Plan or adopt additional terms and conditions in order to facilitate the granting of awards in foreign jurisdictions. In addition, to the extent permitted by applicable law, the Committee may delegate to one or more employees of the Company the power to grant awards and exercise such other powers under the Plan as the Committee may determine; provided, however, that the Committee shall fix the maximum number of shares issuable to any one participant pursuant to awards granted by such employee.
Shares Subject to the Plan
The stock subject to options and awards under the Plan is authorized but unissued shares of our common stock or shares of treasury common stock. Any shares subject to an option that for any reason expires or is terminated unexercised as to such shares and any restricted stock that is forfeited and repurchased by us at not more than its exercise price as a result of the exercise of a repurchase option may again be the subject of an option or award under the Plan. The number of shares of common stock that may be issued under the Plan may not exceed 36,000,000 shares, subject to adjustment, as described below. On March 31, 2020, the closing sale price of our common stock was $71.23 per share.
Non-employee Director Limits
In addition, the maximum number of shares subject to awards granted during a single fiscal year to anynon- employee director under this plan and under any other equity plan maintained by us, taken together with any cash fees paid to suchnon-employee director during the fiscal year, shall not exceed $500,000 in total value (calculating the value of any such awards based on the grant date fair value of such awards for financial reporting purposes and excluding, for this purpose, the value of any dividend equivalent payments paid pursuant to any award granted in a previous fiscal year).
Eligibility
Nonstatutory stock options, or NSOs, RSUs, stock purchase rights and other stock-based awards (other than incentive stock options) may be granted to employees, directors, and consultants. Incentive stock options, or ISOs, may be granted only to employees. Each option will be designated in the stock option agreement as either an ISO or a NSO. Notwithstanding the terms of any award under the Plan, in the event of certain misconduct by a participant, all awards to that participant will be terminated and all shares acquired by the participant under the Plan will be subject to repurchase by us at any time within 180 days after we have knowledge of such
misconduct. In addition, awards under the Plan and shares obtained pursuant to or upon exercise of such awards are subject to forfeiture, setoff, recoupment or other recovery if the Committee determines in good faith that such action is required by applicable law or Company policy.
Terms and Conditions of Options
Exercise Price.The exercise price for shares issued upon exercise of options will be determined by the Committee. The exercise price of ISOs may not be less than 100% of the fair market value on the date the option is granted. The exercise price of ISOs granted to a 10% or greater stockholder may not be less than 110% of the fair market value on the date of grant.
Form of Consideration.The means of payment for shares issued upon exercise of an option will be specified in each option agreement. The Plan permits payment to be made by cash, check, promissory note of the participant, wire transfer, other shares of our common stock (with some restrictions), consideration received by us under a cashless exercise program implemented by us in connection with the Plan, or any combination of the foregoing.
Term of Options.The term of an option may be no more than ten years from the date of grant, except that the term of an incentive stock option granted to a 10% or greater stockholder may not exceed five years from the date of grant.
Termination of Service.No option may be exercised more than three months following termination other than by reason of the participant’s death, disability or retirement, or such other period as set forth in the option agreement. If, on the date of termination, a participant is not fully vested, the shares covered by the unvested portion will revert to the Plan unless the Committee has determined that all or part of the unvested portion of the Option will continue to vest following termination of Service, in which the case the Shares covered by portion of the Option that will continue to vest will not revert to the Plan until the vesting of those Shares is no longer possible. If, after termination of Service, the Participant does not exercise his or her Option within the time specified in the Stock Option Agreement, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.
Death or Disability.An option is exercisable for 12 months following death of the participant or 24 months following termination for a disability or such other period as set forth in the option agreement. If, on the date of death or termination, a participant is not fully vested, the shares covered by the unvested portion will revert to the Plan on the last day of the 12th month following the date of the Participant’s death unless the Committee earlier determines that all or part of the unvested portion of the Option will become vested as the date of the Participant’s death and/or will continue to vest following the death of the Participant, in which case the Shares covered by the unvested portion of the Option will not revert to the Plan until the vesting of those Shares is no longer possible. If the Option is not so exercised within the time specified in the Stock Option Agreement, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.
Retirement.Upon retirement at or after the age of 60, with no intention to continue to provide services, whether as an employee, director, independent contractor or otherwise, to any other person or entity and with the intention of concluding the Employee or Director’s working or professional career, an option is exercisable for 24 months following retirement or such other period as set forth in the option agreement. If, on the date of retirement, a participant is not fully vested, the shares covered by the unvested portion will revert to the Plan unless the Committee has determined that all or part of the unvested portion of the Option will continue to vest following termination of Service, in which case the Shares covered by the portion of the Option that will continue to vest will not revert to the Plan until the vesting of those Shares is no longer possible. If after termination of Service, the Participant does not exercise his or her Option within the time specified in the Stock Option Agreement, the Option shall terminate, and the Shares covered by such Option shall revert to the plan.
Other Provisions.The stock option agreement for each option grant may contain other terms, provisions and conditions not inconsistent with the Plan, as may be determined by the Committee.
Restricted Stock Units
The Committee may grant RSUs under the Plan with such terms and conditions as the Committee shall determine. Each RSU represents the right to acquire a share of our common stock in the future, with the future delivery of the shares subject to a risk of forfeiture or other restrictions that will lapse upon the satisfaction of one or more specified conditions. A participant may not vote the shares represented by an RSU, but an RSU award may provide a participant with the right to receive dividend equivalent payments with respect to the common stock subject to the award (both before and after such common stock is vested).
Terms and Conditions of Stock Purchase Rights
Rights to Purchase.Stock purchase rights may be issued either alone, in addition to, or in tandem with, other awards granted under the Plan and/or cash awards made outside of the Plan.
Right of Repurchase.Unless the Committee determines otherwise, the stock purchase agreement will grant us the right to repurchase the stock sold upon the termination of the participant’s service to us or upon the failure to satisfy any performance objectives or other conditions specified in the stock purchase agreement. The repurchase price will be the purchase price paid by the participant or the purchase price for Restricted Shares repurchased pursuant to the Right of Repurchase shall be the purchase price paid by the Purchaser or such other price determined by the Committee and set forth in the Stock Purchase Agreement, and may be paid by cancellation of any indebtedness of the Purchaser to the Company. The repurchase right will lapse upon such conditions or at such rate as the Committee may determine and set forth in the stock purchase agreement.
Other Stock-Based Awards
The Committee will have the right to grant other awards based upon our common stock, having such terms and conditions as the Committee may determine, including the grant of shares based upon certain conditions, the grant of securities convertible into common stock and the grant of stock appreciation rights.
Adjustments
Changes in Capitalization.In the event of a stock split, reverse stock split, stock dividend, recapitalization, combination of shares, reclassification of shares,spin-off or other similar change in capitalization or event, or any distribution to holders of common stock other than a normal cash dividend, (1) the number and class of securities available under the Plan, (2) theper-participant limit and thenon-employee director limit, (3) the number and class of securities and exercise price per share subject to each outstanding award, (4) the price per share at which outstanding restricted shares may be repurchased, and (5) the terms of each other outstanding award shall be appropriately adjusted (or substituted awards may be made, if applicable) to the extent that the administrator of the Plan shall determine, in good faith, is necessary and appropriate.
Dissolution or Liquidation.The Committee in its discretion may provide for a participant to have the right to exercise his or her award until 15 days prior to any dissolution or liquidation of Pegasystems. To the extent not previously exercised, an award will terminate immediately prior to the consummation of any proposed dissolution or liquidation.
Sale of the Company.Except as otherwise provided in any stock option agreement, stock purchase agreement, RSU agreement or other document evidencing such rights, in the event a third party acquires a majority of the voting power of Pegasystems, whether through the sale of substantially all our assets, the sale of our voting securities or a merger or consolidation, the Committee, in its discretion, may provide for the assumption, substitution or adjustment of each outstanding award, accelerate the vesting of options or RSUs and terminate any restrictions on stock awards, or cancel awards for a cash payment to the participant.
Limits on Transferability
An ISO granted under the Plan may not be transferred during a participant’s lifetime and will not be transferable other than by will or by the laws of descent and distribution following the participant’s death. With the permission of the Committee, NSOs, stock purchase rights, RSUs or shares granted under the Plan may be assigned during a participant’s lifetime to members of the participant’s family or to a trust established for such family members or the participant’s former spouse pursuant to the participant’s estate plan or pursuant to a domestic relations order.
Amendment and Termination
Our Board may at any time amend, alter, suspend or terminate the Plan. The Board will obtain stockholder approval of any Plan amendment to the extent necessary and desirable to comply with applicable laws. Except as otherwise provided in the Plan, no amendment, alteration, suspension or termination of the Plan shall materially and adversely impair the rights of any participant, unless mutually agreed in writing.
Federal Income Tax Consequences
Incentive Stock Options (“ISOs”)
The following general rules are applicable under current United States federal income tax law to ISOs granted under the Plan:
| 1. | In general, no taxable income results to the optionee upon the grant of an ISO or upon the exercise of the ISO, and no corresponding federal tax deduction is allowed to the Company upon either grant or exercise of an ISO.
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| 2. | If shares acquired upon exercise of an ISO are not disposed of within (i) two years following the date the option was granted or (ii) one year following the date the shares are issued to the optionee pursuant to the ISO exercise (the “Holding Periods”), the difference between the amount realized on any subsequent disposition of the shares and the exercise price will generally be treated as long-term capital gain or loss to the optionee.
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| 3. | If shares acquired upon exercise of an ISO are disposed of before the Holding Periods are met (a “Disqualifying Disposition”), then in most cases the lesser of (i) any excess of the fair market value of the shares at the time of exercise of the ISO over the exercise price or (ii) the actual gain on disposition will be treated as compensation to the optionee and will be taxed as ordinary income in the year of such disposition.
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| 4. | In any year that an optionee recognizes ordinary income as the result of a Disqualifying Disposition, the Company generally should be entitled to a corresponding deduction for federal income tax purposes.
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| 5. | Any excess of the amount realized by the optionee as the result of a Disqualifying Disposition over the sum of (i) the exercise price and (ii) the amount of ordinary income recognized under the above rules will be treated as capital gain to the optionee.
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| 6. | Capital gain or loss recognized by an optionee upon a disposition of shares will be long-term capital gain or loss if the optionee’s holding period for the shares exceeds one year.
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| 7. | An optionee may be entitled to exercise an ISO by delivering shares of the Company’s common stock to the Company in payment of the exercise price, if so provided by the Committee. If an optionee exercises an ISO in such fashion, special rules will apply.
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| 8. | In addition to the tax consequences described above, the exercise of an ISO may result in additional tax liability to the optionee under the alternative minimum tax rules. The Code provides that an alternative minimum tax (at a maximum rate of 28%) will be applied against a taxable base which is equal to
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| “alternative minimum taxable income” reduced by a statutory exemption. In general, the amount by which the value of the common stock received upon exercise of the ISO exceeds the exercise price is included in the optionee’s alternative minimum taxable income. A taxpayer is required to pay the higher of his or her regular tax liability or the alternative minimum tax. A taxpayer that pays alternative minimum tax attributable to the exercise of an ISO may be entitled to a tax credit against his or her regular tax liability in later years. |
| 9. | Special rules apply if the stock acquired is subject to vesting, or is subject to certain restrictions on resale under federal securities laws applicable to directors, officers or 10% stockholders.
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Nonstatutory Stock Options (“NSOs”)
The following general rules are applicable under current federal income tax law to NSOs granted under the Plan:
| 1. | The optionee generally does not realize any taxable income upon the grant of a NSO, and the Company is not allowed a federal income tax deduction by reason of such grant.
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| 2. | The optionee generally will recognize ordinary income at the time of exercise of a NSO in an amount equal to the excess, if any, of the fair market value of the shares on the date of exercise over the exercise price.
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| 3. | When the optionee sells the shares acquired pursuant to a NSO, he or she generally will recognize a capital gain or loss in an amount equal to the difference between the amount realized upon the sale of the shares and his or her basis in the shares (generally, the exercise price plus the amount taxed to the optionee as ordinary income). If the optionee’s holding period for the shares exceeds one year, such gain or loss will be a long-term capital gain or loss.
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| 4. | The Company generally should be entitled to a corresponding tax deduction for federal income tax purposes when the optionee recognizes ordinary income.
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| 5. | An optionee may be entitled to exercise a NSO by delivering shares of the Company’s common stock to the Company in payment of the exercise price, if so provided by the Committee. If an optionee exercises a NSO in such fashion, special rules will apply.
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| 6. | Special rules apply if the stock acquired is subject to vesting, or is subject to certain restrictions on resale under federal securities laws applicable to directors, officers or 10% stockholders.
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Awards and Purchases
The following general rules are applicable under current federal income tax law to awards of RSUs or the granting of opportunities to make direct stock purchases under the Plan:
| 1. | The recipient of RSUs will not recognize taxable income at the time of a grant of a RSU, and the Company will not be entitled to a tax deduction at that time. The recipient will recognize compensation taxable as ordinary income, however, at the time of the settlement of the award, equal to the fair market value of any shares delivered and the amount of cash paid.
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| 2. | The purchaser of unrestricted shares will recognize compensation taxable as ordinary income at the time of the grant, equal to the excess of the fair market value of the shares at such time over the amount, if any, paid for such shares.
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| 3. | The purchaser of restricted shares will not recognize taxable income at the time of a grant of shares of restricted shares, and the Company will not be entitled to a tax deduction at such time, unless the participant makes an election under Section 83(b) of the Code to be taxed at that time. If that election is made, the participant will recognize compensation taxable as ordinary income at the time of the grant, equal to the excess of the fair market value of the shares at such time over the amount, if any, paid for such shares. If such election is not made, the participant will recognize compensation taxable as ordinary income at the time the restrictions lapse, in an amount equal to the excess of the fair market value of the shares at such time over the amount, if any, paid for such shares.
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| 4. | In addition, a participant receiving dividends with respect to restricted shares for which the above-described election has not been made, and prior to the time the restrictions lapse, will recognize compensation taxable as ordinary income rather than dividend income.
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Other Tax Considerations
A participant who receives accelerated vesting, exercise or payment of awards contingent upon or in connection with a change of control may be deemed to have received an “excess parachute payment” under Section 280G of the Code. In such event, the participant may be subject to a 20% excise tax and the Company may be denied a tax deduction for such payments.
It is the intention of the Company that awards will comply with Section 409A of the Code regarding nonqualified deferred compensation arrangements or will satisfy the conditions of applicable exemptions. However, if an award is subject to and fails to comply with the requirements of Section 409A, the participant may recognize ordinary income on the amounts deferred under the award, to the extent vested, prior to the time when the compensation is received. In addition, Section 409A imposes a 20% penalty tax, as well as interest, on the participant with respect to such amounts.
The foregoing general tax discussion is intended for the information of the Company’s shareholders considering how to vote with respect to this proposal, and not as tax guidance to participants in the Plan.
PROPOSAL 4 —– ADVISORY(NON-BINDING) SHAREHOLDER PROPOSAL REGARDING SIMPLE MAJORITY VOTE
SHAREHOLDER PROXY ACCESS
A shareholder of the Company has advised the Company that the shareholder intends to present the proposal set forth below at the
20202021 Annual Meeting. The name and address of, and the number of shares owned by, such shareholder will be provided upon written request to the Corporate Secretary.
In accordance with the proxy regulations of the Securities and Exchange Commission, the following is the complete text of the proposal exactly as submitted to the Company, for which the Company accepts no responsibility. The proposal is required to be voted upon at the
20202021 Annual Meeting only if properly presented
asat the meeting. As an advisory vote, the results of this vote will not be binding on the Board or the Company.
As explained below, the Board unanimously recommends that you vote “AGAINST” the proposal.
Proposal
4 — Phase in Simple Majority VoteRESOLVED,3 – Shareholder Proxy Access
Resolved: Shareholders of Pegasystems Inc (“PEGA” or “Company”Company”) shareholders request that our board of directors take each stepthe steps necessary so that each voting requirementto enable as many shareholders as may be needed to aggregate their shares to equal 3% of our stock owned continuously for 3-years in our charterorder to enable shareholder proxy access with the following provisions:
Nominating shareholders and bylaws that callsgroups must have owned at least 3% of the outstanding shares of common stock of the Company continuously for a greater than simple majority voteperiod of at least 3-years. Such shareholders shall be eliminated, and replaced byentitled to nominate a requirement for a majoritytotal of up to 25% of the authorized directors.
Supporting Statement: Proxy access for shareholders enables shareholders to put competing director candidates on the company ballot to see if they can get more votes castthan some of management’s director candidates. A competitive election is good for and against applicable proposals, oreveryone. This proposal can help ensure that our management will nominate directors with outstanding qualifications in order to avoid giving shareholders a simple majorityreason to exercise their right to use proxy access.
Under this proposal it is likely that the number of shareholders who participate in compliance with applicable lawsthe aggregation process would still be a modest number due to take effect within four years. This means the closest standardadministrative burden on shareholders to qualify as one of the aggregation participants. Plus, it is easy for management to reject potential aggregating shareholders because the administrative burden on shareholders leads to a majoritynumber of potential technical errors by shareholders that management can readily detect.
Proxy Access in the United States: Revisiting the Proposed SEC Rule (http://www.cfapubs.org/doi/pdf/10.2469/ccb.v2014.n9.1) a cost- benefit analysis by CFA Institute, found proxy access would “benefit both the markets and corporate boardrooms, with little cost or disruption,” raising US market capitalization by up to $140.3 billion. Public Versus Private Provision of Governance: The Case of Proxy Access (http://ssrn.com/abstract=2635695) found a 0.5 percent average increase in shareholder value for proxy access targeted firms.
Proxy access has been adopted by 580 major companies, including 75% of the
votes cast for and against such proposals consistent with applicable laws. It is also important that our company take each step necessary to avoid a failed vote onS&P 500, since 2015. Adoption of this proposal
topic.Supporting Statement: Shareowners are willing to pay a premium for shares of companies that have excellentwill make our Company more competitive in its corporate governance. Supermajority voting requirements have been found to
This proposal should be
one of six entrenching mechanisms that are negatively related to company performance according to “What Mattersseen in
Corporate Governance” by Lucien Bebchuk, Alma Cohen and Allen Ferrell of the
Harvard Law School (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=593423).Large funds, such as T. Rowe Price, BlackRock, SSgA and Northern Trust generally support elimination of supermajority requirements, since most view them as an entrenchment device for management. For example, BlackRock’s Proxy Voting Guidelines for U.S. Securities(https://www.blackrock.com/corporate/literature/fact-sheet/blk-responsible-investment-guidelines-us.pdf) includes the following:
We generally favor a simple majority voting requirement to pass proposals. Therefore, we will support the reduction or the elimination of supermajority voting requirements to the extent that we determine shareholders’ ability to protect their economic interests is improved.
Last proxy season, according to data obtained through ProxyInsight, shareholder proposals on this topic won over:
90% of the votecontext shareholders at Legg Mason, Axon Enterprise, L Brands, Skyworks Solutions, Leidos Holdings.
70% of the vote at Netflix, New York Community Bancorp, Xerox, OGE Energy, Dean Foods, Sonoco Products.
Consideration should also be given to the fact that PEGA shareholdersour Company have no right to proxy access to nominate directors and have very limited written consent andcall a special meeting rights.
Shareholders needor right to act by written consent. Additionally, a real voice through governance reforms, including a Simple Majoritysupermajority vote is required to change provisions.
Enhance Shareholder Value, Vote standard, to take effect within four years. Please vote to enhance shareholder value.
Phase in Simple Majority Vote —FOR
Shareholder Proxy Access - Proposal 4
3
Shareholder Proxy Access – Proposal 3
Pegasystems Opposing Statement
The Board has carefully considered this proposal and, for the reasons set forth below, does not believe it is in the best interests of the Company, its shareholders and all Pegasystems constituencies.
A simple majority vote requirement already applies
Pegasystems is committed to moststrong corporate matters submittedgovernance practices, including meaningful shareholder rights and robust engagement measures, but this particular proposal is fundamentally flawed.
Nominations to our Board are handled by our Nominating and Corporate Governance Committee (“NGC”) who review possible candidates – including those proposed by our shareholders – and propose nominees to our Board. The NGC is required by its charter to evaluate each candidate’s reputation for integrity and honesty, willingness and ability to contribute to our decision-making and long-term objectives, commitment to understand us and our industry, diversity, and potential conflicts of interests, among other things. Underlying this is the fiduciary duty of our Board to act in the best interests of Pegasystems and our shareholders and all Pegasystems constituencies.
In contrast, the proposal has the following flaws:
•No Fiduciary Duty: The proposal enables individuals or groups of shareholders to nominate directors who advance their own specific agenda, without regard to the fiduciary duties or corporate governance policies and practices in our current process. Our Board believes it is important for Board candidates to be selected not on the basis of individual self-interest but rather based on the best interests of Pegasystems, including, as contemplated by Massachusetts law, its constituencies.
•No Aggregation Limit: The proposal contains no cap on how many shareholders may join together to meet the 3% threshold to propose nominees. Permitting shareholders, each with a votevery small ownership share, to use the Pegasystems proxy to advance individual agendas increases the likelihood of successive contested elections, which would prove a meaningful distraction and may deter highly qualified directors from serving.
•Disproportionate Representation: Allowing up to 25% of the Company’sBoard to be nominated through proxy access each year could disenfranchise other shareholders. However,The proposal is also unclear whether there could be multiple 3% shareholder groups, each entitled to nominate up to 25% of the Company’s articlesBoard, or whether that is the maximum number of organizationnominees for all 3% shareholder groups. Either way, our Board favors its current practice of engagement with shareholders and bylaws and/consideration of all candidates they put forward, and believes the overwhelming support of Board nominees in prior year elections shows our shareholders support this practice.
At its core, the proposal advances individual shareholder interests, not the best interests of Pegasystems, our shareholders as a whole or
Massachusetts law provide for higher voting requirements in narrow circumstances, such as: | a. | acquisition of the Company by merger, share exchange or sale of assets (Massachusetts law requires approval bytwo-thirds of all the shares entitled to vote on the transaction or such lesser percentage vote provided for in the Company’s articles of organization) [See MGL Ch. 156D, Sections 11.04(5) and 12.02(c)];
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| b. | certain business combination transactions with an “interested shareholder” (subject to certain exceptions, Massachusetts law requires such transactions to be approved by the holders of at leasttwo-thirds of the outstanding stock (excluding shares held by the interested shareholder) unless the Company has elected to“opt-out” in its articles of organization or bylaws);
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| c. | amendments of certain fundamental provisions of the Company’s articles of organization (Massachusetts law requires approval bytwo-thirds of all shares entitled to vote or such lesser percentage vote provided for in the Company’s articles of organization) [See MGL Ch. 156D, Section 10.03(e).];
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| d. | voluntary dissolution of the Company (Massachusetts law requires approval bytwo-thirds of all the votes entitled to be cast or such lesser percentage vote provided for in the Company’s articles of organization) [See MGL Ch. 156D, Section 14.02(e).];
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| e. | action by written consent of shareholders (the Company’s bylaws require such consent to be unanimous);
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| f. | action taken at a shareholder meeting (other than election of directors) on a matter not approved by the Board (the Company’s bylaws require approval by the holders of shares representing a majority of the votes entitled to be cast);
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| g. | conflict of interest transactions involving a director of the Company (Massachusetts law and the Company’s bylaws provide for such transactions not to be voidable if approved by the holders of a majority of shares entitled to be cast (excluding shares owned by or voted under the control of the conflicted director)); and
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| h. | election of directors (the Company’s bylaws provide for directors to be elected by a majority of votes entitled to be cast in an election of directors by all issued and outstanding shares).
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Theother Pegasystems constituencies, and it is an unnecessary threat to our “brand promise” of independence that our Board believes thatis a key element of the Company’s current and future successsuccess.
The proposal is
its “brand promise” of independence. The Company’s software is strategic and clients and prospects depend on its ongoing enhancement. Thus, the possibility of the Company being acquired is of great concernin direct contrast to the
Company’s prospects, clientsfiduciary duties and
staff. This concern is understandable since it is common, after such acquisitions, for product/technical leadership to leave and for innovation to slow.The higher voting requirements described in (a) — (f) above are intended to support our brand promise of independence and relate to fundamental elements of our corporate governance. These provisions are not intended to, and do not, preclude unsolicited,non-abusive offers to acquire the Company at a fair price. They are designed instead to encourage a potential acquiror to negotiate directly with the Board, which the Board believes is in the best position to evaluate the adequacy and fairness of proposed offers, to negotiate on behalf of the Company, its
shareholders and all Pegasystems constituencies, and to protect against abusive takeover tactics. Each of these voting requirements has been in effect since before the Company’s initial public offering in 1996.
The Board believes that the higher voting requirements described in (g) and (h) are consistent with good corporate governance.
governance practices that underlie our existing process for evaluating potential Board candidates.
Accordingly, the Board recommends that shareholders vote AGAINST this proposal.
PROPOSAL
5 —4 – RATIFICATION OF THE SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Our Audit Committee has selected Deloitte & Touche LLP, independent registered public accounting firm, to audit our financial statements for the fiscal year ending December 31,
2020.2021. Deloitte & Touche LLP audited our financial statements for the fiscal year ended December 31,
2019.2020. Although
stockholdershareholder approval of the selection of Deloitte & Touche LLP is not required by law, our Board of Directors believes that it is advisable to give
stockholdersshareholders the opportunity to ratify this selection. We expect that representatives of Deloitte & Touche LLP will be present at the Annual Meeting, with the opportunity to make a statement if they so desire, and will be available to respond to appropriate questions from
stockholders.shareholders.
The Board of Directors recommends that you vote FOR the ratification of the selection of Deloitte & Touche LLP as our independent registered public accounting firm, and proxies solicited by the Board of Directors will be voted in favor thereof unless a
stockholdershareholder has indicated otherwise on the proxy.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FEES AND SERVICES
Deloitte & Touche LLP, independent registered public accounting firm, audited our financial statements for the fiscal years ended December 31,
20192020 and December 31,
2018.2019.
The following table shows the fees for audit and other services provided by Deloitte & Touche LLP:
| | | | | | | | |
| (in thousands) | | 2019 | | | 2018 | |
Audit fees(1) | | $ | 2,550 | | | $ | 2,410 | |
Audit related fees(2) | | | — | | | | 256 | |
Tax fees(3) | | | 330 | | | | 216 | |
All other fees(4) | | | 90 | | | | 25 | |
| | | | | | | | |
| | $ | 2,970 | | | $ | 2,907 | |
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(1) | Represents fees billed for professional services provided in connection with the annual audit, including the audit of internal control over financial reporting, the reviews of our quarterly reports on Form | | | | | | | | | | | | | (in thousands) | 2020 | | 2019 | Audit fees(1) | $ | 2,886 | | | $ | 2,550 | | Tax fees(2) | 386 | | | 330 | | All other fees(3) | 11 | | | 90 | | | $ | 3,283 | | | $ | 2,970 | |
(1) Represents fees billed for professional services provided in connection with the annual audit, including the audit of internal control over financial reporting, the reviews of our quarterly reports on Form 10-Q, and statutory audits required internationally.
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(2) | Represents fees billed for professional services provided in connection with the adoption of Accounting Standards Update2014-09 “Revenue from Contracts with Customers (Topic 606)” issued by the Financial Accounting Standards Board.
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(3) | Represents fees billed in the applicable year for tax compliance, tax advice and tax planning services.
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(4) | Represent fees billed for advisory services in 2019, the subscription to an online accounting research tool and registration for a human resources conference in 2019 and 2018 and the the subscription to a human resources tool in 2018.
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Audit CommitteePre-Approval Policy and Procedures
statutory audits required internationally.
(2) Represents fees billed in the applicable year for tax compliance, tax advice, and tax planning services.
(3) Represents fees billed for advisory services and the subscription to an online accounting research tool in 2020 and 2019, and registration for a human resources conference in 2019.
AUDIT COMMITTEE PRE-APPROVAL POLICY AND PROCEDURES
Our Audit Committeepre-approves all services provided by our independent registered public accounting firm, for the purpose of maintaining the independence of our independent registered public accounting firm, a Public Company Accounting Oversight Board Registered Firm. For audit services, each year the independent registered public accounting firm provides the Audit Committee with an engagement letter outlining the scope of the audit services proposed to be performed during the year, which must be accepted by the Audit Committee. The independent registered public accounting firm also submits an audit services fee proposal, which also must be approved by the Audit Committee before the audit commences.
Management also submits to the Audit Committee a description ofnon-audit services that it recommends the independent registered public accounting firm to perform, and provides an estimate of the fees to be paid for each. Management and the independent registered public accounting firm must each confirm to the Audit Committee that the performance of thenon-audit services would not compromise the independence of the auditors and would be permissible under all applicable legal requirements. The Audit Committee must approve both thenon-audit services and the budget for each such service before commencement of the work. Management and the independent registered public accounting firm report to the Audit Committee periodically as to thenon-audit services actually provided by the independent registered public accounting firm and the approximate fees incurred by us for those services.
All audit andnon-audit services provided by Deloitte & Touche LLP in 2020 and 2019 and 2018 werepre-approved by the Audit Committee.
APPENDIX A
PEGASYSTEMS INC.
2004 LONG-TERM INCENTIVE PLAN
(as amended and restated and adopted by the Board on April 28, 2020 Approved by the stockholders on June XX, 2020)
1. Purposes of the Plan. The purposes of this 2004 Long-Term Incentive Plan, as amended and restated, are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees, Directors and Consultants, and to promote the success of the Company’s business. Options, Stock Purchase Rights, Restricted Stock Units, and other stock-based awards may be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
(a) “Applicable Laws” means the requirements relating to the administration of equity incentive plans under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any other country or jurisdiction where Awards are granted under the Plan.
(b) “Award” means any Option, Stock Purchase Right, Restricted Stock Unit, or other stock-based award granted pursuant to the Plan.
(c) “Board” means the Board of Directors of the Company, as constituted from time to time.
(d) “Code” means the Internal Revenue Code of 1986, as amended, or any successor statute or statutes thereto. Reference to any particular Code section shall include any successor section.
(e) “Committee” means a committee of Directors appointed by the Board in accordance with Section 5(a) hereof.
(f) “Common Stock” means the Common Stock, $0.01 par value per share, of the Company.
(g) “Company” means Pegasystems Inc., a Massachusetts corporation.
(h) “Consultant” means any consultant or adviser if: (i) the consultant or adviser renders bona fide services to a Related Company; (ii) the services rendered by the consultant or adviser are not in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for a Related Company’s securities; and the consultant or adviser is a natural person who has contracted directly with a Related Company to render such services.
(i) “Director” means a member of the Board.
(j) “Disability” means permanent and total disability as defined in Section 22(e)(3) of the Code.
(k) “Employee” means any person, including Officers and Directors, employed by a Related Company who is subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance. An Employee shall not cease to be an Employee in the case of (i) any leave of absence approved by a Related Company or (ii) transfers between locations of a Related Company or between the Related Companies, or any successor. For purposes of Incentive Stock Options, no such leave may exceed
three (3) months, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of leave of absence approved by the Related Company is not so guaranteed, any Incentive Stock Option held by the Participant shall cease to be treated as an Incentive Stock Option on the first day immediately following the date that is six (6) months after such leave commenced and shall be treated for tax purposes as a Nonstatutory Stock Option. Neither service as a Director nor payment of a director’s fee by the Company shall be sufficient to constitute “employment” by the Company.
(l) “Exchange Act” means the Securities Exchange Act of 1934, as amended, or any successor statute or statutes thereto. Reference to any particular Exchange Act section shall include any successor section.
(m) “Exercise Price” or “Purchase Price” means the per Share price to be paid by a Participant or Purchaser to exercise an Option or Stock Purchase Right.
(n) “Fair Market Value” means, as of any date, the value of a share of Common Stock determined as follows:
i. | If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq Global Market or the Nasdaq Capital Market of the Nasdaq Stock Market (“Nasdaq”), (a) for purposes of determining the exercise price of an Option on the date of grant, Fair Market Value shall be the closing price (excluding “after hours” trading) for a share of such stock on that day (or, if the Common Stock is not traded on that day, on the last trading day preceding such date), and (b) for all other purposes, Fair Market Value shall be the closing price (excluding “after hours” trading) for a share of such stock on the last trading day preceding such date, in each case as reported inThe Wall Street Journalor such other source as the Committee deems reliable;
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ii. | If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, (a) for purposes of determining the exercise price of an Option on the date of grant, Fair Market Value shall be the mean between the highest bid and lowest asked prices (excluding “after hours” trading) for a share of the Common Stock on that day (or, if there are no quotes for that day, on the last day preceding such date for which quotes were available), and (b) for all other purposes, Fair Market Value shall be the mean between the highest bid and lowest asked prices (excluding “after hours” trading) for a share of the Common Stock on the last day preceding such date; or
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iii. | In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Committee.
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(o) “Incentive Stock Option” means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and which is designated as an Incentive Stock Option by the Committee.
(p) “Nonstatutory Stock Option” means an Option (or portion thereof) that is not designated as an Incentive Stock Option by the Committee, or which is designated as an Incentive Stock Option by the Committee but fails to qualify as an incentive stock option within the meaning of Section 422 of the Code.
(q) “Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.
(r) “Option” means a stock option granted pursuant to the Plan.
(s) “Option Exchange Program” means a program whereby outstanding Options are exchanged for Options with a lower Exercise Price.
(t) “Optioned Stock” means the Common Stock subject to an Option or a Stock Purchase Right.
(u) “Parent” means a “parent corporation,” whether now or hereafter existing, as a defined in Section 424(e) of the Code.
(v) “Participant” means the holder of an outstanding Award.
(w) “Plan” means this 2004 Long-Term Incentive Plan, as amended from time to time.
(x) “Purchased Shares” means the shares of Common Stock purchased by a Participant pursuant to his or her exercise of an Award.
(y) “Purchaser” means a Participant exercising an Option or Stock Purchase Right.
(z) “Related Company” means and includes the Company and the Parent and any Subsidiaries of the Company.
(aa) “Restricted Shares” means unvested shares of Common Stock acquired pursuant to the exercise of an Award which are subject to a Right of Repurchase.
(bb) “Restricted Stock Units” means the right to acquire Shares in the future, with the future delivery of the Shares subject to a risk of forfeiture or other restrictions that will lapse upon the satisfaction of one or more specified conditions.
(cc) “Restricted Stock Units Agreement” means a written agreement between the Company and a Participant evidencing the terms and conditions of a grant of Restricted Stock Units. A Restricted Stock Units Agreement is subject to the terms and conditions of the Plan.
(dd) “Retirement” means retirement of an Employee or Director from active employment or service with any Related Company after having attained age 60, with no intention to continue to provide services, whether as an employee, director, independent contractor or otherwise, to any other person or entity and with the intention of concluding the Employee or Director’s working or professional career.
(ee) “Right of Repurchase” means the right of the Company to repurchase Restricted Shares issued pursuant to any Award.
(ff) “Sale of the Company” means (i) a sale of substantially all of the assets of the Company, or (ii) a sale or transfer of voting securities of the Company to an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act), in one transaction or a series of related transactions, or (iii) a consolidation or merger of the Company, in each case, as a result of which the beneficial holders of a majority of the voting power of the Company’s voting securities entitled to vote generally in the election of directors (“Voting Power”) prior to such transaction do not, directly or indirectly, beneficially hold a majority of the Voting Power (or of the voting power of the surviving or acquiring entity) after such transaction.
(gg) “Section 16(b)” means Section 16(b) of the Exchange Act.
(hh) “Service” means the Participant’s performance of services for a Related Company in the capacity of an Employee, Director or Consultant.
(ii) “Service Provider” means an Employee, Director or Consultant.
(jj) “Share” means a share of the Common Stock, as adjusted in accordance with Section 12 hereof.
(kk) “Stock Option Agreement” means a written agreement between the Company and a Participant evidencing the terms and conditions of an individual Option grant. A Stock Option Agreement is subject to the terms and conditions of the Plan.
(ll) “Stock Purchase Agreement” means a written agreement between the Company and a Participant evidencing the terms and conditions of a Stock Purchase Right. A Stock Purchase Agreement is subject to the terms and conditions of the Plan.
(mm) “Stock Purchase Right’ means the right of a Participant to purchase Common Stock pursuant to Section 10 hereof.
(nn) “Subsidiary” means “subsidiary corporation,” whether now or hereafter existing, as defined in Section 424(f) of the Code.
(oo) “10% Stockholder” means the owner of stock (as determined under Section 424(d) of the Code) possessing more than ten percent (10%) of the voting power of all classes of stock of a Related Company.
3. Effective Date and Term of Plan. The Plan (as amended and restated herein) shall become effective upon the date of its adoption by the Board, April 28, 2020, provided that, the terms of this Plan (as amended and restated herein) that are required to be approved by stockholders under Applicable Law (including any increase to the number of Shares which may be subject to Awards in Section 4(a) and the amendment of Section 11 relating to the Performance Awards), Nasdaq listing requirements, or otherwise, shall apply to all Awards granted on or after June 23, 2020. No Awards shall be granted under the Plan after June 23, 2030, but Awards previously granted may extend beyond that date.
4. Stock Subject to the Plan.
(a) Number of Shares. Subject to the provisions of Section 12 of the Plan, the maximum aggregate number of Shares which may be subject to Awards and issued under the Plan is 36,000,000 Shares. The Shares may be authorized but unissued shares or treasury shares. If an Award expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an Option Exchange Program, the unpurchased Shares which were subject thereto shall become available for future grantor sale under the Plan (unless the Plan has terminated). However, Shares that have actually been issued under the Plan, upon exercise of an Award, shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if Restricted Shares are forfeited and repurchased by the Company at not more than their Exercise Price, such Shares shall become available for future Awards under the Plan. Shares which are delivered by the Participant or withheld by the Company upon the exercise of an Option under the Plan, in payment of the exercise price thereof or tax withholding thereon, may again be optioned, granted or awarded hereunder, subject to the limitations of this Section 4(a). Notwithstanding the provisions of this Section 4(a), no Shares may again be optioned, granted or awarded if such action would cause an Incentive Stock Option to fail to qualify as an Incentive Stock Option under Section 422 of the Code. Subject to adjustment under Section 12, no more than 36,000,000 shares shall be available for issuance as Incentive Stock Options under the Plan.
(b) Per-Participant
Limit. No Participant may be granted Awards in any one fiscal year of the Company to purchase or otherwise acquire more than 3,000,000 Shares.
(c) Non-Employee
Director Limit. Notwithstanding anything in Section 4(b) to the contrary, the maximum number of Shares subject to Awards granted under this Plan or any other equity plan maintained by the Company during a single fiscal year of the Company to any Director who is not an Employee of the Company, taken together with any cash fees paid to such Director during the fiscal year, may not exceed $500,000 in total value. The value of any Award for purposes of this Section 4(c) shall be determined by reference to the grant date fair value of such Award used by the Company for financial reporting purposes and shall exclude the value of any dividends or dividend equivalents paid pursuant to an Award granted in a prior fiscal year.5. Administration of the Plan.
(a) Administration by Committee. The Plan will be administered by a committee (the “Committee”) composed solely of two (2) or more members of the Board that satisfy the independence requirements of the applicable national securities exchange which serves as the principal trading market for the Common Stock and of other Applicable Laws; provided, however, that unless otherwise prohibited by Applicable Law the Board, acting through a majority of its independent directors, may itself exercise any or all of the powers and responsibilities
assigned to the Committee under the Plan and when so acting shall have the benefit of all of the provisions of the Plan pertaining to the Committee’s exercise of its authorities hereunder. Unless the Board shall determine otherwise, and to the extent necessary to comply with Applicable Law, each member of the Committee shall also satisfy the requirements of a
“non-employee
director” for purposes of
Rule16b-3
of the Exchange Act,. The Board may designate one or more directors as a subcommittee who may act for the Committee if necessary to satisfy the requirements of this Section 5(a).(b) General Powers of the Committee. The Committee shall have authority to grant Awards and to adopt, amend and repeal such administrative rules, guidelines and practices relating to the Plan as it shall deem advisable. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award in the manner and to the extent it shall deem expedient to carry the Plan into effect and it shall be the sole and final judge of such expediency. All decisions by the Committee shall be made in the Committee’s sole discretion and shall be final and binding on all persons having or claiming any interest in the Plan or in any Award. To the extent permitted by applicable law, the Committee may delegate to one or more employees of the Company the power to grant Awards and exercise such other powers under the Plan as the Committee may determine; provided, however, that the Committee shall fix the maximum number of shares issuable to any one Participant pursuant to Awards granted by such employee. No director or person acting pursuant to the authority delegated by the Committee shall be liable for any action or determination relating to or under the Plan made in good faith.
(c) Other Powers of the Committee. Subject to the provisions of the Plan, the Committee shall have the authority in its discretion:
| i. | to determine the Fair Market Value;
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| ii. | to select the Service Providers to whom Awards may from time to time be granted hereunder;
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| iii. | to determine the number of Shares to be covered by each Award granted hereunder;
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| iv. | to approve forms of agreement for use under the Plan;
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| v. | to determine the terms and conditions of any Award granted hereunder. Such terms and conditions include, but are not limited to, the Exercise Price or Purchase Price, the time or times when an Award may be exercised (which may be based on performance criteria), any vesting, acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Award or the Shares relating thereto, based in each case on such factors as the Committee, in its sole discretion, shall determine;
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| vi. | to determine whether and under what circumstances an Award may be settled in cash instead of Common Stock;
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| vii. | to reduce the Exercise Price or Purchase Price of any Award to the then current Fair Value Market if the Fair Market Value of the Common Stock covered by such Award has declined since the date the Award was granted (with stockholder approval);
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| viii. | to initiate an Option Exchange Program (with stockholder approval);
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| ix. | to prescribe, amend and rescind rules and regulations relating to the Plan; and
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| x. | to construe and interpret the terms of the Plan and Awards granted pursuant to the Plan.
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6. Option Eligibility.
(a) Nonstatutory Stock Options, Stock Purchase Rights, Restricted Stock Units and other stock-based awards (other than Incentive Stock Options) may be granted to Service Providers. Incentive Stock Options may be granted only to Employees.
(b) Each Option shall be designated in the Stock Option Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair
Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Participant during any calendar year (under all plans of the Related Companies) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 6(b), Incentive Stock Options shall be taken into account in the order in which they were granted, except as otherwise provided in the Code or regulations issued thereunder. The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted.
7. Term of Option. The term of each Option shall be stated in the Stock Option Agreement; provided, however, that the term shall be no more than ten (10) years from the date of grant thereof. In the case of an Incentive Stock Option granted to a 10% Stockholder, the term of the Option shall be five (5) years from the date of grant or such shorter term as may be provided in the Stock Option Agreement.
8. Option Exercise Price and Consideration.
(a) The Exercise Price for the Shares to be issued upon exercise of an Option shall be such price as is determined by the Committee; provided, however, that in the case of an Incentive Stock Option granted to a 10% Stockholder, the Exercise Price shall be no less than 110% of the Fair Market Value per Share on the date of grant, and provided further that in the case of an Incentive Stock Option granted to any other Employee, the Exercise Price shall be no less than 100% of the Fair Market Value per Share on the date of grant.
(b) For Options issued prior to December 13, 2007, the consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Committee (and, in the case of an Incentive Stock Option, shall be determined at the time of grant and set forth in the Stock Option Agreement). Such consideration may consist of (i) cash or a check payable to the Company, (ii) a promissory note of the Participant, (iii) when the Common Stock is registered under the Exchange Act other Shares which (x) in the case of Shares acquired upon exercise of an Option, have been owned by the Participant for more than six months on the date of surrender, and (y) have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Shares as to which such Option shall be exercised, (iv) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan, or (v) any combination of the foregoing methods of payment.
(c) For Options issued on or after December 13, 2007, the consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Committee (and, in the case of an Incentive Stock Option, shall be determined at the time of grant and set forth in the Stock Option Agreement). Such consideration may consist of (i) cash or a check payable to the Company; (ii) a promissory note of the Participant; (iii) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan; (iv) when the Common Stock is registered under the Exchange Act, consideration received by the Company under a “net exercise” arrangement pursuant to which the number of Shares issued to the Participant in connection with the Participant’s exercise of the Option is reduced by the Company’s retention of a portion of the Shares otherwise issuable in connection with such exercise having a Fair Market Value (determined as of the date of the exercise notice) equal to the aggregate exercise price of the Shares as to which such Option is being exercised; or (v) any combination of the foregoing methods of payment.
9. Exercise of Option.
(a) Procedure for Exercise. Any Option granted hereunder shall be exercisable according to the terms hereof at such times and under such conditions as determined by the Committee and set forth in the Stock Option Agreement. Unless the Committee provides otherwise, vesting of Options granted hereunder shall be tolled during any unpaid leave of absence. An Option may not be exercised for a fraction of a Share.
(b) An Option shall be deemed exercised when the Company receives: (i) written notice of exercise (in accordance with the Stock Option Agreement) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised. Full payment may consist of any
consideration and method of payment authorized by the Committee and permitted by the Stock Option Agreement and the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Participant or, if requested by the Participant, in the name of the Participant and his or her spouse.
(c) Exercise of an Option in any manner shall result in a decrease in the number of Shares thereafter available, both for purposes of the Plan and sale under the Option, by the number of Shares as to which the Option is exercised.
(d) Termination of Service. If a Participant terminates Service other than by reason of the Participant’s death, Disability or Retirement, such Participant may exercise his or her Option within such period of time as is specified in the Stock Option Agreement to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of the Option as set forth in the Stock Option Agreement). In the absence of a specified time in the Stock Option Agreement, the Option shall remain exercisable for three months following the Participant’s termination of Service. If, on the date of termination, the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan unless the Committee has determined that all or part of the unvested portion of the Option will continue to vest following termination of Service, in which case the Shares covered by the portion of the Option that will continue to vest will not revert to the Plan until the vesting of those Shares is no longer possible. If, after termination of Service, the Participant does not exercise his or her Option within the time specified by the Committee in the Stock Option Agreement, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.
(e) Disability of Participant. If a Participant terminates Service as a result of the Participant’s Disability, the Participant may exercise his or her Option within such period of time as is specified in the Stock Option Agreement to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Stock Option Agreement). In the absence of a specified time in the Stock Option Agreement, the Option shall remain exercisable for 24 months following the Participant’s termination of Service as the result of the Participant’s Disability. If, on the date of termination of Service, the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan unless the Committee has determined that all or part of the unvested portion of the Option will continue to vest following termination of Service, in which case the Shares covered by the portion of the Option that will continue to vest will not revert to the Plan until the vesting of those Shares is no longer possible. If, after termination of Service, the Participant does not exercise his or her Option within the time specified in the Stock Option Agreement, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.
(f) Death of Participant. If a Participant dies while a Service Provider, the Option may be exercised within such period of time as is specified in the Stock Option Agreement to the extent that the Option is vested on the date of death (but in no event later than the expiration of the term of such Option as set forth in the Stock Option Agreement) by the Participant’s estate or by a person who acquires the right to exercise the Option by bequest or inheritance. In the absence of a specified time in the Stock Option Agreement, the Option shall remain exercisable for 24 months following the Participant’s termination of Service because of death. If, at the time of death, the Participant is not vested as to the entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan on the last day of the 12th month following the date of the Participant’s death unless the Committee earlier determines that all or part of the unvested portion of the Option will become vested as of the date of the Participant’s death and/or will continue to vest following the death of the Participant, in which case the Shares covered by the unvested portion of the Option will not revert to the Plan until the vesting of those Shares is no longer possible. If the Option is not so exercised within the time specified in the Stock Option Agreement, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.
(g) Retirement of Participant. If a Participant terminates Service as a result of Retirement, the Participant may exercise his or her Option within such period of time as is specified in the Stock Option Agreement to the extent
the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Stock Option Agreement). In the absence of a specified time in the Stock Option Agreement, the Option shall remain exercisable for 24 months following the Participant’s termination of Service as the result of the Participant’s Retirement. If, on the date of termination of Service, the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan unless the Committee has determined that all or part of the unvested portion of the Option will continue to vest following termination of Service, in which case the Shares covered by the portion of the Option that will continue to vest will not revert to the Plan until the vesting of those Shares is no longer possible. If, after termination of Service, the Participant does not exercise his or her Option within the time specified in the Stock Option Agreement, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.
(h) Unvested Shares. The Committee shall have the discretion to grant Options which are exercisable for Restricted Shares. Should the Participant terminate Service or fail to satisfy performance objectives while holding such Restricted Shares, the Company shall have a Right of Repurchase, at the Exercise Price paid per Share or such other price determined by the Committee and set forth in the Stock Option Agreement, with respect to any or all of those Restricted Shares. The terms upon which such Right of Repurchase shall be exercisable (including the period and procedure for exercise and the appropriate vesting schedule for the purchased Shares) shall be established by the Committee and set forth in the Stock Option Agreement or other document evidencing such repurchase right.
(i) Automatic Extension of Post-Termination Exercise Periods. For Options issued on or after December 13, 2007, the period of time during which a Participant may exercise an Option after he or she terminates Service pursuant to this Section 9 or as specified in any Stock Option Agreement (the “Post-Termination Exercise Period”) shall be extended by the amount of time, if any, during the Post-Termination Exercise Period when the effectiveness of any registration statement covering the issuance of Shares under the Plan is suspended for any reason; provided, however, that in no event shall the Post-Termination Exercise Period be extended beyond the expiration of the stated term of the Option.
10. Stock Purchase Rights, Restricted Stock Units and Other Stock-Based Awards.
(a) Rights to Purchase. Stock Purchase Rights may be issued either alone, in addition to, or in tandem with other Awards granted under the Plan and/or cash awards made outside of the Plan. After the Committee determines that it will offer Stock Purchase Rights under the Plan, it shall advise the Participant in writing of the terms, conditions and restrictions related to the offer, including the number of Shares that such person shall be entitled to purchase, the price to be paid (including par value) if any, and the time within which such person must accept such offer.
(b) Company Right of Repurchase. Unless the Committee determines otherwise, the Stock Purchase Agreement shall grant the Company a Right of Repurchase exercisable upon the termination of the Purchaser’s Service with the Company for any reason (including death or disability) or upon the failure to satisfy any performance objectives or other conditions specified in the Stock Purchase Agreement. Shares issued as Restricted Shares may not be sold, assigned, transferred, pledged or otherwise disposed of, except by will or the laws of descent and distribution, or as otherwise determined by the Committee in the Stock Purchase Agreement, for such period as the Committee shall determine. The purchase price for Restricted Shares repurchased pursuant to the Right of Repurchase shall be the purchase price paid by the Purchaser or such other price determined by the Committee and set forth in the Stock Purchase Agreement, and may be paid by cancellation of any indebtedness of the Purchaser to the Company. The Righto Repurchase shall lapse upon such conditions or at such rate as the Committee may determine and set forth in the Stock Purchase Agreement.
(c) Each certificate for Restricted Shares shall bear an appropriate legend referring to the Right of Repurchase and other restrictions and shall be deposited by the stockholder with the Company together with a stock power endorsed in blank. Any attempt to dispose of Restricted Shares in contravention of the Right of Repurchase and
other restrictions shall be null and void and without effect. If Restricted Shares shall be repurchased by the Company pursuant to the Right of Repurchase, the stockholder shall forthwith deliver to the Company the certificates for the Restricted Shares, accompanied by such instrument of transfer, if any, as may reasonably be required by the Company. If the Company does not exercise its Right of Repurchase, such Right of Repurchase shall terminate and be of no further force and effect.
(d) The Committee may in its discretion waive the surrender and cancellation of one or more Restricted Shares (or other assets attributable thereto) which would otherwise occur upon the
non-completion
of the vesting schedule or other conditions applicable to those Restricted Shares. Such waiver shall result in the immediate vesting of the Purchaser’s interest in the Restricted Shares as to which the waiver applies. Such waiver may be effected at any time, whether before or after the Purchaser’s termination of Service or the attainment ornon-attainment of the applicable conditions.(e) Other Provisions. The Stock Purchase Agreement shall contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Committee in its sole discretion.
(f) Restricted Stock Units. The Committee may also grant Restricted Stock Units with such terms and conditions as the Committee shall determine. A Participant may not vote the Shares represented by a Restricted Stock Unit, but (notwithstanding Section 13(c) of the Plan to the contrary) a Restricted Stock Unit Award may provide a Participant with the right to receive dividend equivalent payments with respect to the Common Stock subject to the Award (both before and after such Common Stock is vested).
(g) Other Stock-Based Awards. The Committee shall have the right to grant other Awards based upon the Common Stock having such terms and conditions as the Committee may determine, including the grant of Shares based upon certain conditions, the grant of securities convertible into Common Stock and the grant of stock appreciation rights.
11. Performance-Based Awards.
(a) General. Subject to the terms of the Plan, the Committee shall have the authority to establish and administer performance-based grant, exercise, and/or vesting conditions and Performance Goals (as defined in Section 11(b) below) with respect to such Awards as it considers appropriate, which Performance Goals must be satisfied, as determined by the Committee, before the Participant receives or retains an Award or before the Award becomes exercisable or nonforfeitable, as the case may be. Prior to a sale of the Company, the Committee may exercise its discretion in a uniform andnon-discriminatory manner for similarly-situated Participants to reduce (but not increase) any Award otherwise payable under this Plan in accordance with objective or subjective factors if necessary or appropriate to limit the amount payable under an Award to an amount consistent with the purposes of the Plan and the intended economic benefits of participation in the Plan. The Committee’s determination will be final and conclusive.
(b) Performance Goals. Performance goals (the “Performance Goals”) will be based exclusively on one or more of the following business criteria determined with respect to the Company and its Subsidiaries on a group-wide basis or on the basis of Subsidiary, business platform, or operating unit results, on a GAAP ornon-GAAP basis: (i) earnings per share (on a fully diluted or other basis), (ii) pretax or after tax net income, (iii) operating income, (iv) gross revenue, (v) profit margin, (vi) stock price targets or stock price maintenance, (vii) working capital, (viii) free cash flow, (ix) cash flow, (x) return on equity, (xi) return on capital or return on invested capital, (xii) earnings before interest, taxes, depreciation, and amortization (EBITDA), (xiii) economic value added, (xiv) strategic business criteria, consisting of one or more objectives based on meeting specified revenue, license signings, market penetration, geographic business expansion goals, cost targets, or objective goals relating to acquisitions or divestitures or other operational goals, (xv) total shareholder return, or (xvi) any combination of these measures as determined by the Committee.
(c) Each Performance Goal may be expressed in absolute and/or relative terms or ratios and may be based on or use comparisons with internal targets, the past performance of the Company (including the performance of one or
more Subsidiaries, divisions, platforms, operating units and/or other business unit) and/or the past or current performance of other companies. In the case of earnings-based measures, Performance Goals may use comparisons relating to capital (including, but not limited to, the cost of capital), cash flow, free cash flow, shareholders’ equity and/or shares outstanding, or to assets or net assets.
(d) The Committee shall determine the period for which Performance Goals are set and during which performance is to be measured to determine whether a Participant is entitled to payment of an Award under the Plan (the “Performance Period”). Performance Periods may be of varying and overlapping durations, but each such period shall not be less than 12 months.
(e) The Committee may specify in an Award that Performance Goals shall be adjusted to include or exclude the effect of: unusual or infrequent events, changes in accounting principles, material litigation, material judgments, material settlements, currency exchange rate fluctuations, changes in corporate tax rates, and the impact of acquisitions, divestitures, and discontinued operations.
12. Adjustments Upon Changes in Capitalization or Dissolution or Sale of the Company.
(a) Changes in Capitalization. In the event of any stock split, reverse stock split, stock dividend, recapitalization, combination of shares, reclassification of shares,spin-off or other similar change in capitalization or event, or any distribution to holders of Common Stock other than an ordinary cash dividend, (i) the number and class of securities available under the Plan, (ii) theper-Participant limit set forth in Section 4(b) and theNon-Employee Director Limit set forth in Section 4(c), (iii) the number and class of securities and exercise price per share subject to each outstanding Award, (iv) the price per share at which outstanding Restricted Shares may be repurchased pursuant to a Right of Repurchase and (v) the terms of each other outstanding Award shall automatically be proportionately adjusted on a pro rata basis.
(b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Committee shall notify each Participant as soon as practicable prior to the effective date of such proposed transaction. The Committee in its discretion may provide for a Participant to have the right to exercise his or her Award until 15 days prior to such transaction as to all of the Shares covered thereby, including Shares as to which the Award would not otherwise be exercisable. In addition, the Committee may provide that any Right of Repurchase applicable to any Restricted Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse as to all such Shares, provided the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent it has not been previously exercised, an Award will terminate immediately prior to the consummation of such proposed dissolution or liquidation of the Company.
(c) Sale of the Company. Except as otherwise provided in any Stock Option Agreement, Stock Purchase Agreement, Restricted Stock Unit Agreement or other document evidencing such rights, in the event of a Sale of the Company when any unexercised Award, Restricted Stock Unit, or Restricted Shares remain outstanding, the Committee may in its discretion apply one or more or any combination of the following provisions:
| i. | the Committee may provide that outstanding Awards or Restricted Shares shall be assumed or an equivalent option, right, unit or restricted stock substituted by the successor entity or a Parent or Subsidiary thereof; or the Committee may, subject to the provisions of clauses (iv) and (v) below, after the effective date of the Sale of the Company, permit a holder of an Award immediately prior to such effective date, upon exercise or payment of the Award, to receive in lieu of Shares of Common Stock, shares of stock or other securities or consideration as the holders of Common Stock received pursuant to the terms of the Sale of the Company; or
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| ii. | the Committee may waive any discretionary limitations imposed with respect to an Award so that some or all Options, Restricted Stock Units or Stock Purchase Rights, from and after a date prior to the effective date of the Sale of the Company as specified by the Committee, are exercisable or payable in full and any Restricted Shares shall cease to be subject to restrictions in whole or in part; or
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| iii. | the Committee may cause any outstanding Awards to be canceled as of the effective date of the Sale of the Company, provided that notice of cancellation is given to each holder of an Award, and each holder of an Award has the right to exercise the Award in full prior to or contemporaneous with the effective date of such Sale of the Company; or
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| iv. | the Committee may cause any outstanding Awards to be canceled as of the effective date of the Sale of the Company, provided that notice of such cancellation is given to each holder of an Award, and each holder of an Award has the right to exercise the Award, to the extent exercisable in accordance with any limitations imposed thereon, prior to or contemporaneous with the effective date of such Sale of the Company.
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13. General Provisions Applicable to Awards. Every Award and all Shares issued pursuant to the Plan shall be subject to the following provisions:
(a) Time of Granting Awards. The date of grant of an Award shall, for all purposes, be the date on which the Committee makes the determination granting such Award, or such other date as is determined by the Committee. The Committee will give notice of the determination to each Service Provider to whom an Award is so granted within a reasonable time after the date of such grant.
(b) No Rights to Employment or Other Status. Neither the Plan nor any Award shall confer upon any Participant any rights with respect to continuing in Service with any Related Company, nor shall the Plan or any Award interfere in any way with the Participant’s right or the Related Company’s right to terminate the Participant’s Service at any time, with or without cause.
(c) Rights as a Stockholder. Except as otherwise provided by the Committee with respect to dividend equivalent payments for Restricted Stock Units: (i) until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Shares, notwithstanding the exercise of an Award; (ii) the Company shall issue (or cause to be issued) the Shares promptly after an Award is duly exercised; and (iii) no adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 12 hereof.
(d) Acceleration. The Committee may at any time provide that any Awards shall become immediately exercisable in full or in part or that any Restricted Shares shall be free of restrictions or conditions in full or in part or otherwise realizable in full or in part, as the case may be.
(e) Buyout Provisions. The Committee may at any time and from time to time offer to buy out for a payment in cash or Shares any Award previously granted, based on such terms and conditions as the Committee shall establish and communicate to the holder of such Award at the time such offer is made.
(f) Conditions on Delivery of Shares. The Company shall not be obligated to deliver any Shares pursuant to the Plan or to remove any restrictions from Shares previously delivered under the Plan, until (i) all conditions of the Award have been met or removed to the satisfaction of the Committee, (ii) in the opinion of the Company’s counsel, all other legal matters in connection with the issuance and delivery of such Shares have been satisfied in accordance with Applicable Laws; and (iii) the Participant has executed and delivered to the Company such representations or agreements as the Company may consider appropriate to satisfy the requirements of Applicable Laws.
(g) Amendment of Award. The Committee may amend, modify or terminate any outstanding Award, including but not limited to, substituting therefor another Award of the same or different type, changing the expiration date or Exercise Price or Purchase Price, providing for continued vesting of the Award following termination of Service or converting an Incentive Stock Option to a Nonstatutory Stock Option, provided that the Participant’s consent to such action shall be required unless the Committee determines that the action would not materially and adversely affect the Participant.
(h) Withholding Taxes. Each Participant shall pay to the Company, or make provisions satisfactory to the Committee for payment of, any taxes required by Applicable Laws to be withheld in connection with any Awards to the Participant no later than the date of the event creating the tax liability. Except as the Committee may otherwise provide in an Award, when the Common Stock is registered under the Exchange Act, Participants may satisfy such tax obligations in whole or in part by delivery of Shares, including Shares retained from the Award creating the tax obligation, valued at their Fair Market Value. The Company may, to the extent permitted by Applicable Laws, deduct any such tax obligations from any payment of any kind otherwise due to a Participant.
(i) Cancellation and Forfeiture for Misconduct, Clawback Policy. Notwithstanding the terms of any Award or other provision of the Plan in the event of any Misconduct by the Participant or Purchaser (whether before or after the termination of Service), (i) all Awards granted to the Participant shall be terminated and the holder thereof shall have no further rights thereunder (ii) all Shares then held by the Participant or Purchaser (or any successor) which were acquired by the Participant or Purchaser (or any successor) pursuant to an Award under the Plan shall thereupon be (or revert to being) Restricted Shares and shall be subject to a Right of Repurchase exercisable by the Company and (iii) the Participant or Purchaser (or any successor) shall pay to the Company, within 10 business days of the Company’s request therefor, the aggregateafter-tax proceeds (taking into account all amounts of tax that would be recoverable upon a claim of loss for payment of such proceeds in the year of repayment) received by the Participant or Purchaser (or any successor) upon the sale or other disposition of, or distributions in respect of, any Award under the Plan and any Shares acquired in respect thereof. The purchase price for Shares repurchased by the Company pursuant to the Right of Repurchase pursuant to this Section 13(i) shall be equal to the lesser of (i) the purchase price originally paid by the Participant or Purchaser for such Shares or (ii) the Fair Market Value of such Shares as of the date of the repurchase. The following shall constitute “Misconduct” by an Participant or Purchaser: (i) the unauthorized use or disclosure of the confidential information or trade secrets of any Related Company which use or disclosure causes material harm to the Related Company; (ii) conviction of a crime involving moral turpitude, deceit, dishonesty or fraud; (iii) gross negligence or willful misconduct of the Participant or Purchaser with respect to any Related Company; or (iv) the breach by the Participant or Purchaser of any material term of an agreement with a Related Company including covenants not to compete and not to solicit, and provisions relating to confidential information and intellectual property rights. In addition, Awards and Shares (and proceeds therefrom) obtained pursuant to or upon exercise of such Awards are subject to forfeiture, setoff, clawback, recoupment or other recovery if the Committee determines in good faith that such action is required by Applicable Law or Company policy as amended from time to time.
(j) Limits on Transferability of Awards. An Incentive Stock Option shall be exercisable only by the participant during his or her lifetime and shall not be assignable or transferable other than by will or by the laws of descent and distribution following the Participant’s death. With the permission of the Committee, a Nonstatutory Stock Option, Stock Purchase Right, Restricted Stock Unit or Shares may be assigned in whole or in part during the Participant’s lifetime to one or more members of the Participant’s family or to a trust established exclusively for one or more such family members or to the Participant’s former spouse, to the extent such assignment is in connection with the Participant’s estate plan or pursuant to a domestic relations order. The assigned portion may only be exercised by the person or persons who acquired a proprietary interest in the Nonstatutory Stock Option, Stock Purchase Right, Restricted Stock Unit or Shares pursuant to the permitted assignment. The terms applicable to such assigned portion shall be the same as those in effect for the Nonstatutory Stock Option, Stock Purchase Right, Restricted Stock Unit or Shares immediately prior to such assignment and shall be set forth in such documents issued to the assignee as the Committee may deem appropriate. Notwithstanding the foregoing, the Participant may also designate one or more persons as the beneficiary or beneficiaries of his or her outstanding Awards under the Plan, and those Awards shall, in accordance with such designation, automatically be transferred to such beneficiary or beneficiaries upon the Participant’s death while holding those Awards. Such beneficiary or beneficiaries shall take the transferred Awards subject to all terms and conditions of the applicable agreement evidencing each such transferred Award, including (without limitation) the limited time period during which Awards may be exercised following the Participant’s death.
(k) Documentation. Each Award shall be evidenced by a written instrument in such form as the Committee shall determine. Each Award may contain terms and conditions in addition to those set forth in the Plan. The Committee may, in its sole discretion, deliver any documents related to an Award by electronic means, request that a Participant consent to participate in the Plan by electronic means (including anon-line or electronic system established and maintained by the Company or a third party designated by the Company), or provide in the terms of an Award that a Participant shall be deemed to accept the Award unless the Participant notifies the Company, in writing, that the Participant rejects the Award within a time period specified by the Committee.
(l) Committee Discretion. Except as otherwise provided by the Plan, each Award may be made alone or in addition or in relation to any other Award. The terms of each Award need not be identical, and the Committee need not treat Participants uniformly.
(m) Compliance with Code Section 409A. It is the intention of the Company that this Plan and each Award comply with and be interpreted in accordance with Section 409A of the Code, the United States Department of Treasury regulations, and other guidance issued thereunder, including any applicable exemptions (collectively, “Section 409A”). Each payment in any series of payments provided to a Participant pursuant to this Plan or an Award will be deemed separate payment for purposes of Section 409A. If any amount payable under this Plan or an Award is determined by the Company to constitute nonqualified deferred compensation for purposes of Section 409A (after taking into account applicable exemptions) and such amount is payable upon a termination of employment, then such amount shall not be paid unless and until the Participant’s termination of employment also constitutes a “separation from service” from the Company for purposes of Section 409A. In the event that the Participant is determined by the Company to be a “specified employee” for purposes of Section 409A at the time of his separation from service with the Company, then any nonqualified deferred compensation (after giving effect to any exemptions available under Section 409A) otherwise payable to the Participant as a result of the Participant’s separation from service during the first six (6) months following his separation from service shall be delayed and paid in a lump sum upon the earlier of (x) the Participant’s date of death, or (y) the first day of the seventh month following the Participant’s separation from service, and the balance of the installments (if any) will be payable in accordance with their original schedule.
(n) Foreign Jurisdictions. To the extent that the Committee determines that the material terms set by the Committee or imposed by the Plan preclude the achievement of the material purposes of the Plan in jurisdictions outside the United States, the Committee will have the authority and discretion to modify those terms and provide for such additional terms and conditions as the Committee determines to be necessary, appropriate or desirable to accommodate differences in local law, policy or custom or to facilitate administration of the Plan. The Committee may adopt or approvesub-plans, appendices or supplements to, or amendments, restatements or alternative versions of, the Plan as it may consider necessary, appropriate or desirable, without thereby affecting the terms of the Plan as in effect for any other purpose. The special terms and any appendices, supplements, amendments, restatements or alternative versions, however, shall not include any provisions that are inconsistent with the terms of the Plan as then in effect, unless the Plan could have been amended to eliminate such inconsistency without further approval by the stockholders. The Committee shall also have the authority and discretion to delegate the foregoing powers to appropriate employees of the Company.
14. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend, alter, suspend or terminate the Plan.
(b) Stockholder Approval. The Board shall obtain stockholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws.
(c) Effect of Amendment or Termination. Except as otherwise provided by the Plan, no amendment, alteration, suspension or termination of the Plan shall materially and adversely impair the rights of any Participant, unless mutually agreed otherwise between the Participant and the Committee, which agreement must be in writing and
signed by the Participant and the Company. Termination of the Plan shall not affect the Committee’s ability to exercise the powers granted to it hereunder with respect to Awards granted under the Plan prior to the date of such termination.
15. Reservation of Shares. The Company, during the term of the Plan, shall at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.
16. Stockholder Approval. The Plan shall be subject to approval by the stockholders of the Company within 12 months after the date the Plan is adopted. Such stockholder approval shall be obtained in the degree and manner required under Applicable Laws.
17. Governing Law. The provisions of the Plan and all Awards made hereunder shall be governed by and interpreted in accordance with the laws of The Commonwealth of Massachusetts, without regard to any applicable conflicts of law.
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Adopted by the Board:
| | April 28, 2020
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Approved by Stockholders:
| | June XX, 2020
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PEGA 000004 ENDORSEMENT LINE SACKPACK MR A SAMPLE DESIGNATION (IF ANY) ADD 1 ADD 2 ADD 3 ADD 4 ADD 5 ADD 6 C123456789 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext Your vote matters – here’s how to vote!
You may vote online or by phone instead of mailing this card. Votes submitted electronically must be received by 1:00 a.m., EDT, on June 23, 2020.
Online Go to www.envisionreports.com/PEGA or scan the QR code — login details are located in the shaded bar below.
Phone Call toll free1-800-652-VOTE (8683) within the USA, US territories and Canada
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Using a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the designated areas.
Annual Meeting Proxy Card 1234 5678 9012 345
IF VOTING BY MAIL, SIGN, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.
A Proposals — The Board of Directors recommends a vote FOR all the nominees listed and FOR Proposals 2, 3 and 5 and AGAINST Proposal 4. 1. To elect to our Board of Directors the eight nominees named in this proxy statement, each for a term of one year.
For Against Abstain 01 - Alan Trefler 04 - Richard Jones 07 - Sharon Rowlands For Against Abstain 02 - Peter Gyenes 05 - Christopher Lafond 08 - Larry Weber For Against Abstain 03 - Ronald Hovsepian 06 - Dianne Ledingham
For Against Abstain
2. To approve, by anon-binding advisory vote, the compensation of our named executive officers.
4. To consider, if properly presented at the meeting, a stockholder proposal regarding simple majority voting.
For Against Abstain
3. To approve the amended and restated Pegasystems Inc. 2004 Long-Term Incentive Plan.
5. To ratify the selection by the Audit Committee of our Board of Directors of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2020.
B Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below
Please sign exactly as name appears hereon. When shares are held in more than one name, including joint tenants, each party should sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such.
Date (mm/dd/yyyy) — Please print date below. Signature 1 — Please keep signature within the box. Signature 2 — Please keep signature within the box. C 1234567890 J N T 84AM 460928
MR A SAMPLE (THIS AREA IS SET UP TO ACCOMMODATE 140 CHARACTERS) MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND 0399VB
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IF VOTING BY MAIL, SIGN, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.
Proxy — Pegasystems Inc. + THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
2020 Annual Meeting of Stockholders
The undersigned stockholder of Pegasystems Inc., a Massachusetts corporation (“Pegasystems”), hereby acknowledges receipt of the Notice of Annual Meeting of Stockholders and Proxy Statement dated May 8, 2020 and hereby appoints Alan Trefler and Kenneth Stillwell, or any one or more of them, proxies andattorneys-in-fact with full power of substitution to each other for and in the name of the undersigned, with all powers the undersigned would possess if personally present to vote the common stock of the undersigned in Pegasystems at the Annual Meeting of its Stockholders to be held on June 23, 2020 at One Rogers Street, Cambridge, Massachusetts at 10:00 a.m., Eastern Daylight Time, or any adjournment or postponement thereof. Any of such attorneys or substitutes shall have and may exercise all of the powers of saidattorneys-in-fact hereunder.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED “FOR” EACH OF THE NOMINEES LISTED ON THE REVERSE SIDE AND “FOR” PROPOSALS 2, 3 AND 5 AND “AGAINST” PROPOSAL 4.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU INSTRUCT THE PROXIES TO VOTE “FOR” THE NOMINEES LISTED ON THE REVERSE SIDE AND “FOR” PROPOSALS 2, 3 AND 5 AND “AGAINST” PROPOSAL 4.
CNon-Voting Items
Change of Address — Please print new address below.
Using a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the designated areas.
Annual Meeting Proxy Card
IF VOTING BY MAIL, SIGN, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.
A Proposals — The Board of Directors recommends a vote FOR all the nominees listed and FOR Proposals 2, 3 and 5 and AGAINST Proposal 4.
1. To elect to our Board of Directors the eight nominees named in this proxy statement, each for a term of one year.
For Against Abstain 01 - Alan Trefler 04 - Richard Jones 07 - Sharon Rowlands For Against Abstain 02 - Peter Gyenes 05 -Christopher Lafond 08 - Larry Weber For Against Abstain 03 - Ronald Hovsepian 06 - Dianne Ledingham For Against Abstain
2. To approve, by anon-binding advisory vote, the compensation of our named executive officers.
4. To consider, if properly presented at the meeting, a stockholder proposal regarding simple majority voting.
For Against Abstain
3. To approve the amended and restated Pegasystems Inc. 2004 Long-Term Incentive Plan.
5. To ratify the selection by the Audit Committee of our Board of Directors of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2020.
B Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below
Please sign exactly as name appears hereon. When shares are held in more than one name, including joint tenants, each party should sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such.
Date (mm/dd/yyyy) — Please print date below. Signature 1 — Please keep signature within the box. Signature 2 — Please keep signature within the box.
1UPX 460928
0399WB
IF VOTING BY MAIL, SIGN, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.
Proxy — Pegasystems Inc. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS 2020 Annual Meeting of Stockholders
The undersigned stockholder of Pegasystems Inc., a Massachusetts corporation (“Pegasystems”), hereby acknowledges receipt of the Notice of Annual Meeting of Stockholders and Proxy Statement dated May 8, 2020 and hereby appoints Alan Trefler and Kenneth Stillwell, or any one or more of them, proxies andattorneys-in-fact with full power of substitution to each other for and in the name of the undersigned, with all powers the undersigned would possess if personally present to vote the common stock of the undersigned in Pegasystems at the Annual Meeting of its Stockholders to be held on June 23, 2020 at One Rogers Street, Cambridge, Massachusetts at 10:00 a.m., Eastern Daylight Time, or any adjournment or postponement thereof. Any of such attorneys or substitutes shall have and may exercise all of the powers of saidattorneys-in-fact hereunder.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED “FOR” EACH OF THE NOMINEES LISTED ON THE REVERSE SIDE AND “FOR” PROPOSALS 2, 3 AND 5 AND “AGAINST” PROPOSAL 4.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU INSTRUCT THE PROXIES TO VOTE “FOR” THE NOMINEES LISTED ON THE REVERSE SIDE AND “FOR” PROPOSALS 2, 3 AND 5 AND “AGAINST” PROPOSAL 4.
