UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement
Pursuant to Section 14(a) of the
Securities Exchange
Act of 1934
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by the Registrant x
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by a Party other than the Registrant ¨
Check
the appropriate box:
¨ Preliminary Proxy Statement |
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¨ Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
x Definitive Proxy Statement |
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¨ Definitive Additional Materials |
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¨ Soliciting Material Pursuant to §240.14a-12 |
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RACKSPACE HOSTING,
INC.
(Name
of Registrant as Specified In Its Charter)
(Name
of Person(s) Filing Proxy Statement, if other than the Registrant)
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of Filing Fee (Check the appropriate box):
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Rackspace Hosting,
Inc.
1 Fanatical Place,
City of Windcrest
San Antonio,
Texas 78218
Dear Fellow Stockholders:
We are pleased to provide this Notice of
Annual Meeting of Stockholders and Proxy Statement for the 2016 Annual Meeting of Stockholders of Rackspace Hosting, Inc. to be
held at 8:30 a.m., CDT, on April 27, 2016, at the Rackspace Corporate Headquarters, 1 Fanatical Place, City of Windcrest, San Antonio,
Texas 78218.
Pursuant to rules promulgated by the Securities
and Exchange Commission, or SEC, we have elected to furnish our proxy materials over the Internet. Providing our materials to stockholders
electronically allows us to conserve natural resources and reduce the costs of printing and distributing of the proxy materials.
As a result, we are mailing to our stockholders a Notice of Internet Availability of Proxy Materials instead of a paper copy of
our annual report to security holders, which includes our Annual Report on Form 10-K for the year ended December 31, 2015 and this
Proxy Statement. The Notice of Internet Availability of Proxy Materials contains instructions on how to access those documents
over the Internet. We urge you to visit the indicated website and read the Proxy Statement, which contains information relevant
to the actions to be taken at the Annual Meeting. The Notice of Internet Availability of Proxy Materials also contains instructions
on how each stockholder can receive a paper copy of our proxy soliciting materials, including this notice and proxy statement,
our Annual Report and a form of proxy card or voting instruction card.
The Board of Directors hopes that you will
be able to attend the Annual Meeting. We look forward to meeting each of you and discussing with you the events that occurred during
our past fiscal year and our current prospects. Whether or not you are able to attend in person or otherwise be represented, we
urge you to vote by signing the enclosed proxy card and mailing it in the accompanying stamped envelope at your earliest convenience.
Please be sure to sign it exactly as the name or names appear on the proxy card. If you prefer, you may also vote your shares by
Internet or by telephone by following the instructions on your proxy card.
Thank you for your ongoing support of
Rackspace Hosting, Inc.
Sincerely yours, |
|
|
Graham Weston |
Chairman of the Board of Directors |
Date: March 18, 2016
Rackspace Hosting,
Inc.
1 Fanatical Place
City of Windcrest
San Antonio, Texas 78218
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held April 27, 2016
Notice is hereby given that the 2016 Annual
Meeting of Stockholders of Rackspace Hosting, Inc. will be held on Wednesday, April 27, 2016, at 8:30 a.m., CDT, at the Rackspace
Corporate Headquarters, 1 Fanatical Place, City of Windcrest, San Antonio, Texas 78218. We are holding the meeting to:
| 1. | Elect two Class II directors to serve for a term of three years and until their successors are duly elected and qualified,
subject to their earlier death, resignation, or removal; |
| 2. | Ratify the appointment of KPMG LLP, as our independent registered public accounting firm for the fiscal year ending December
31, 2016; |
| 3. | Approval of the Executive Bonus Plan; and |
| 4. | Transact such other business as may properly come before the meeting or at any and all adjournments, continuations or postponements
thereof. |
With respect to the election of the
Class II directors, Michael Sam Gilliland has provided notice that he is commencing a new role with a firm that requires him
to step down from his membership on our Board. Therefore, Mr. Gilliland will not run for re-election and will step down
immediately following the Annual Meeting.
If you owned our common stock at the close of business on February 29, 2016, you
may attend and vote at the meeting. A list of stockholders eligible to vote at the meeting will be available for review
during our regular business hours at our headquarters in San Antonio, Texas for ten days prior to the meeting for any purpose
related to the meeting. This notice, the Proxy Statement, and the Annual Report are first being made available to
stockholders on or about March 18, 2016.
By Order of the Board of Directors, |
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William Alberts
Corporate Secretary |
|
March 18, 2016
San Antonio, Texas |
Important Notice Regarding the Availability of Proxy Materials
for the Stockholder Meeting to be held on April 27, 2016: We are primarily providing access to our proxy materials over
the Internet pursuant to the Securities and Exchange Commission’s “notice and access” rules. Beginning on or
about March 18, 2016, we expect to mail to our stockholders a Notice of Internet Availability of Proxy Materials, which will indicate
how to access our 2016 Proxy Statement and 2016 Annual Report on the Internet. The Notice also includes instructions on how you
can receive a paper copy of your annual meeting materials, including the notice of annual meeting, proxy statement and proxy card.
Rackspace Hosting, Inc.
Proxy Statement
For the Annual Meeting of Stockholders
To Be Held on April 27, 2016
TABLE OF CONTENTS
PROXY STATEMENT FOR THE 2016 ANNUAL MEETING
OF STOCKHOLDERS
Rackspace Hosting,
Inc.
1 Fanatical Place,
City of Windcrest
San Antonio, Texas 78218
GENERAL INFORMATION
Our Board of Directors (sometimes referred
to herein as the “Board”) is soliciting proxies for our 2016 Annual Meeting of Stockholders to be held on Wednesday,
April 27, 2016, at 8:30 a.m., CDT at the Rackspace Corporate Headquarters, 1 Fanatical Place, City of Windcrest, San Antonio, Texas
78218.
The proxy materials, including this proxy
statement, proxy card or voting instruction card, and our 2016 Annual Report are being distributed and made available on or about
March 18, 2016. This proxy statement contains important information for you to consider when deciding how to vote on the matters
brought before the meeting. Please read it carefully. When used in this proxy statement, the terms “we,” “us,”
“our,” “Rackspace” and “the Company” mean Rackspace Hosting, Inc. and its divisions and subsidiaries.
QUESTIONS AND ANSWERS
Why did I receive a Notice of Internet Availability of Proxy
Materials?
You may receive a Notice of Internet Availability
of Proxy Materials (“Notice of Internet Availability”) instead of a paper copy of the proxy materials. The Notice of
Internet Availability describes how to access the proxy materials over the Internet and request paper copies of the proxy materials
via mail. We will begin mailing the Notices of Internet Availability on or about March 18, 2016 to stockholders who are eligible
to vote at the Annual Meeting.
What is included in the Proxy Materials?
The materials include:
| • | Our proxy statement for the Annual Meeting and a proxy card; and |
| • | Our 2015 Annual Report on Form 10-K, which includes our audited consolidated financial statements for the fiscal year ended
December 31, 2015. |
What matters am I being asked to vote on at the Annual Meeting?
At the Annual Meeting, you will be asked
to:
| • | Elect two Class II directors, William Taylor Rhodes and Lila Tretikov, to serve for a term of three years and until their successors
are duly elected and qualified, subject to their earlier death, resignation, or removal; |
| • | Ratify the appointment of KPMG LLP as our independent registered public accounting firm for the fiscal year ending December
31, 2016; |
| • | Approval of the Executive Bonus Plan; and |
| • | Transact such other business as may properly come before the meeting or at any and all adjournments, continuations, or postponements
thereof. |
What are our Board of Directors’ voting recommendations?
Our Board of Directors recommends that
you vote your shares “FOR” each of the nominees to the Board, “FOR” the ratification of the appointment
of KPMG LLP, and “FOR” the Executive Bonus Plan.
How can I attend and vote at the Annual Meeting?
You are entitled to attend the Annual
Meeting only if you were a Rackspace stockholder as of the close of business on February 29, 2016, the “Record
Date”, or you hold a valid proxy for the Annual Meeting. Since seating is limited, admission to the meeting will be on
a first-come, first-served basis. You should be prepared to present photo identification for admittance. You may obtain
directions to attend the Annual Meeting by contacting our reception desk at 210-312-4600. If you are not a stockholder of
record but hold shares as a beneficial owner through a broker, bank, trustee, or nominee (i.e., in street name), you should
provide proof of beneficial ownership as of the Record Date, such as your most recent account statement prior to April 27,
2016, a copy of the voting instruction card provided by your broker, bank, trustee, or nominee, or other similar evidence of
ownership.
If you do not provide photo identification
or comply with the other procedures outlined above, you may not be admitted to the Annual Meeting. For security reasons, you and
your bags may be subject to search prior to your admittance to the meeting.
At the close of business on the Record
Date, we had 130,109,362 shares of common stock issued and outstanding, all of which are entitled to vote with respect
to all matters to be acted upon at the Annual Meeting. Each stockholder of record is entitled to one vote for each share of common
stock held by such stockholder.
The meeting will begin at 8:30 a.m., CDT.
Check-in will begin at 7:30 a.m., CDT and you should allow ample time for the check-in procedures.
What is the difference between holding shares as a stockholder
of record and as a beneficial owner of shares held in street name?
Stockholder of Record. If
your shares are registered directly in your name with our transfer agent, American Stock Transfer & Trust Company, LLC, you
are considered the stockholder of record with respect to those shares.
Beneficial Owner of Shares Held in
Street Name. If your shares are held in an account at a brokerage firm, bank, broker-dealer, or other similar organization,
then you are the beneficial owner of shares held in “street name,” and the proxy statement was forwarded to you by
that organization. The organization holding your account is considered the stockholder of record for purposes of voting at the
Annual Meeting. As a beneficial owner, you have the right to direct that organization on how to vote the shares held in your account.
What is the quorum requirement for the Annual Meeting?
The holders of a majority of our issued
and outstanding shares on the Record Date must be present at the meeting or represented by proxy in order to hold the meeting and
conduct business. This is called a quorum. Your shares will be counted for purposes of determining if there is a quorum, whether
representing votes for, against, withheld or abstained, or broker non-votes, if you:
| • | Are present and entitled to vote in person at the meeting; or |
| • | Have voted on the Internet, by telephone or by properly submitting a proxy card by mail. |
How do I vote?
You may submit your proxy or cast your
vote in any of four ways:
| • | By Internet—If you have Internet access, you may submit your proxy by following the instructions provided in the Notice
of Internet Availability, or if you requested printed proxy materials, by following the instructions provided with your proxy materials
and on your proxy card. |
| • | By Telephone—You can also submit your proxy by telephone by following the instructions provided in the Notice of Internet
Availability, or if you requested printed proxy materials, by following the instructions provided with your proxy materials and
on your proxy card. |
| • | By Mail—If you received your proxy materials by mail, you may submit your proxy by completing the proxy card enclosed
with those materials, signing and dating it and returning it in the pre-paid envelope we have provided. |
| • | In Person at our Annual Meeting—You can vote in person at our Annual Meeting. In order to gain admittance, you must present
valid government-issued photo identification such as a driver’s license or passport. |
The telephone and Internet voting facilities
for Stockholders of Record will close at 11:59 p.m. Eastern Standard Time on April 26, 2016. Your vote, including any votes delivered
by mail should you receive paper copies of your proxy materials and mail your proxy/voting instruction card, must be received by
11:59 p.m. Eastern Standard Time on April 26, 2016 in order to be counted. The Internet and telephone voting procedures are designed
to authenticate stockholders by use of a control number and to allow you to confirm that your instructions have been properly recorded.
Please read the instructions on the Notice
of Internet Availability, proxy card or the information sent by your broker or bank. If you hold your shares in street name, your
bank or broker will send you a separate package describing the procedures and options for voting your shares.
What happens if I do not give specific voting instructions?
Stockholders of Record. If you are
a stockholder of record and you sign and return a proxy card without giving specific voting instructions, then the proxy holders
will vote your shares in the manner recommended by our Board of Directors on all matters presented in this proxy statement and
as the proxy holders may determine in their discretion with respect to any other matters properly presented for a vote at the meeting.
Beneficial Owners of Shares Held in
Street Name. If you are a beneficial owner of shares held in street name and do not provide the organization that holds your
shares with specific voting instructions, under the rules of the New York Stock Exchange, or NYSE, the organization that holds
your shares may generally vote on “routine” matters. This is known as “broker discretionary voting.” However,
if the organization that holds your shares does not receive instructions from you on how to vote your shares on a “non-routine
matter,” the organization will inform our Inspector of Election that it does not have the authority to vote on this matter
with respect to your shares. This is generally referred to as a “broker non-vote.” When our Inspector of Election tabulates
the votes for any particular matter, broker non-votes will be counted for purposes of determining whether a quorum is present,
but will not otherwise be counted. We encourage you to provide voting instructions to the organization that holds your shares by
carefully following the instructions provided in the Notice of Internet Availability.
Which ballot measures are considered “routine”
or “non-routine”?
We believe that Proposal 2 (approval of
auditors) will be considered routine under NYSE rules, which means that the bank or brokerage firm that holds your shares may vote
your shares in its discretion. Proposal 1 (election of directors) & 3 (Executive Bonus Plan) are considered non-routine matters.
Accordingly, if you are not the stockholder of record, the organization that holds your shares may not vote with respect to
the election of directors and approval of the Executive Bonus Plan if you have not provided instructions. We strongly encourage
you to submit your proxy and exercise your right to vote as a stockholder.
How are abstentions treated?
Abstentions are counted for purposes of
determining whether a quorum is present. For the purpose of determining whether the stockholders have approved a matter, abstentions
are deemed to be votes cast and have the same effect as a vote “AGAINST” any matter being voted on at the Annual Meeting,
except in elections of directors where abstentions have no effect on the outcome.
What is the voting requirement to approve each of the proposals?
The following table sets forth the voting
requirement with respect to each of the proposals:
Proposal 1—Election of directors |
|
A majority of the votes duly cast is required for the election of directors. The number of shares voted “FOR” a director nominee must exceed the number of votes cast “AGAINST” that nominee for the nominee to be elected as a director of the Company to serve a three year term or until his or her successor has been duly elected and qualified. You may vote “FOR” “AGAINST” OR “ABSTAIN” on each of the three nominees for election as director. Only votes “FOR” and “AGAINST” will affect the outcome. A broker non-vote or a properly executed proxy marked “ABSTAIN” with respect to the election of a Class II director will not be voted with respect to such director, although it will be counted for purposes of determining whether there is a quorum. The Board of Directors recommends that you vote your shares “FOR” each of the two nominees listed in Proposal 1. |
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Proposal 2—Ratification of appointment of independent registered public accounting firm |
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You may vote “FOR,” “AGAINST” or “ABSTAIN” on this proposal. To be approved by our stockholders, this proposal must receive a “FOR” vote by a majority of the votes cast on this proposal at the Annual Meeting. Abstentions are deemed to be votes cast and have the same effect as a vote against this proposal. However, broker non-votes are not deemed to be votes cast and, therefore, will have no effect on the outcome of the vote. The Board of Directors recommends that you vote your shares “FOR” Proposal 2. |
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Proposal 3—Approval of the Executive Bonus Plan |
|
You may vote “FOR,” “AGAINST” or “ABSTAIN” on this proposal. To be approved by our stockholders, this proposal must receive a “FOR” vote by a majority of the votes cast on this proposal at the Annual Meeting. Abstentions are deemed to be votes cast and have the same effect as a vote against this proposal. However, broker non-votes are not deemed to be votes cast and, therefore, will have no effect on the outcome of the vote. The Board of Directors recommends that you vote your shares “FOR” Proposal 3. |
Can I revoke or change my vote after I have voted?
Subject to any rules your broker, trustee
or nominee may have, you may revoke your proxy and change your vote at any time before the final vote at the meeting. You may vote
again on a later date by signing and returning a new proxy card over the Internet, by mail or by telephone with a later date, or
by attending the meeting and voting in person. However, your attendance at the Annual Meeting will not automatically revoke your
proxy unless you vote again at the meeting or specifically request in writing that your prior proxy be revoked.
Where can I find the voting results of the Annual Meeting?
The preliminary voting results will be
announced at the Annual Meeting. The final voting results will be tallied by the Inspector of Election and published in our Current
Report on Form 8-K to be filed within four business days of the Annual Meeting.
Who is paying for the cost of this proxy solicitation?
We will bear the costs of solicitation
of proxies. We have engaged Innisfree M&A Incorporated to assist us with the solicitation of proxies and expect to pay Innisfree
less than $50,000 for their services. In addition to solicitations by mail, Innisfree and our directors, officers, and regular
employees may solicit proxies by telephone, email and personal interviews without additional remuneration. We will request brokers,
custodians, and fiduciaries to forward proxy soliciting material to the owners of shares of our common stock that they hold in
their names. We will reimburse banks and brokers for their reasonable out-of-pocket expenses incurred in connection with the distribution
of our proxy materials.
How may I obtain a separate copy of the proxy materials?
The SEC has adopted rules that permit
companies and intermediaries (e.g., brokers) to satisfy the delivery requirements for the Notice of Internet Availability and
any additional proxy materials that are delivered with respect to two or more stockholders sharing the same address by
delivering a single Notice of Internet Availability addressed to those stockholders. Accordingly, a single Notice of
Internet Availability and any additional proxy materials that are delivered may be delivered to multiple stockholders sharing
an address unless contrary instructions have been received from the affected stockholders. We will promptly deliver upon
written or oral request a separate copy of the Notice of Internet Availability and any additional proxy materials to any
stockholder of a shared address to which a single copy of such document(s) were delivered. If any stockholders of a shared
address wish to receive a separate Notice of Internet Availability and any additional proxy materials, they may contact our
Corporate Secretary by mail, fax or email to: Secretary, Rackspace Hosting, Inc., 1 Fanatical Place, City of Windcrest, San
Antonio, Texas 78218, if by fax to: +1-210-312-4848, if by email to secretary@rackspace.com or if by phone to (210)
312-4000. If you are a beneficial stockholder and own your shares through a bank or broker, please contact your bank or
broker to request additional copies. Other stockholders who have multiple accounts in their names or who share an address
with other stockholders can authorize us to discontinue mailings of multiple sets of proxy materials by contacting our
Corporate Secretary.
PROPOSAL 1—ELECTION OF DIRECTORS
General
Our Board of Directors currently consists
of nine directors and is divided into three classes, with the nominees for one class to be elected at each annual meeting of stockholders,
to hold office for a three-year term and until successors of such class have been elected and qualified, subject to their earlier
death, resignation or removal. Following the Annual Meeting, our Board of Directors will consist of eight directors as explained
below.
Class II Directors
The terms of the Class II directors
are scheduled to expire on the date of the upcoming Annual Meeting. Based on the recommendation of the Nominating and
Governance Committee of the Board of Directors, the Board of Directors’ nominees for election by the stockholders are
two of the current Class II members of the Board of Directors, William Taylor Rhodes and Lila Tretikov. Our other current
Class II director, Michael Sam Gilliland provided notice to the Company that he is commencing a new role with a firm that
requires him to leave his duties on the Board effective immediately following the Annual Meeting. Therefore, Mr. Gilliland
will not be running for re-election as a Class II director.
We do not know of any reason why any of
the nominees would be unable to serve as a director. If elected, the nominees will serve as directors until the annual meeting
of stockholders in 2019 and until their successors are elected and qualified, subject to their earlier death, resignation, or removal.
The names and certain information about
the nominee directors and the continuing directors in each of the other two classes of the Board of Directors are set forth below.
There are no family relationships among any of our directors or executive officers.
It is intended that the proxy will be voted,
unless otherwise indicated, for the election of the nominees as Class II directors to the Board of Directors. If any of the nominees
should for any reason be unable or unwilling to serve at any time prior to the Annual Meeting, the proxies will be voted for the
election of such other person as a substitute nominee as the Board of Directors may designate in place of such nominee.
Each candidate must receive a majority
of the affirmative votes of the shares of our common stock cast at the Annual Meeting in order to be elected Class II directors
to serve for a three-year term and until their successors have been duly elected and qualified, subject to their earlier death,
resignation, or removal.
Business Strategy
Key components of our business and growth strategies include
the following:
Deepen our Service Delivery on
Industry-Leading Platforms-In the past year, we have announced relationships with Intel, Microsoft Azure, and Amazon Web
Services. With Intel, we are operating the OpenStack Innovation Center, the goal of which is to accelerate the adoption of
OpenStack in the enterprise market. OpenStack, Microsoft Azure, and Amazon Web Services are industry-leading private and
public cloud platforms that represent growth opportunities for us. Enterprise customers are deploying OpenStack in our data
centers and their data centers to create large private clouds positioning us to benefit from this demand. With Microsoft
Azure and Amazon Web Services, our goal is to help customers migrate, architect, secure and operate IT environments on these
platforms. Companies of all sizes are deploying IT environments on top of Microsoft Azure and Amazon Web Services. These
platforms accelerate our global reach-for example, we can now offer our products and services to customers that require a
data center presence in Singapore.
Increase our Service Differentiation-Customers
are asking service providers to play an increasingly active role in the management of their IT environments. New approaches to
infrastructure management and next-generation technologies create increasing complexity for businesses. As a result, customers
want our help with IT environment architecture, security, reliability, cost management, and portability. Throughout our history,
we have launched offerings in response to customer demand, and we have a track record of delivering service offerings to drive
continued growth. Most recently, we launched Rackspace Managed Security, which is a service offering focused on helping customers
protect against cyber attacks. We intend to continue investing in existing and new capabilities to strengthen our service differentiation
to capture customer demand.
Improve the Customer Experience via
Hybrid Choice-Many of our customers have IT environments that straddle multiple form factors and technology platforms. Human
preference, application type, and other factors drive the decision on where and how to architect and deploy an IT environment.
Given our breadth of offering and depth of expertise, we are able to support customers who want to straddle multiple form factors
and technology platforms. Over time, we intend to improve our offerings so that these customers can more easily migrate, architect,
secure, and operate these hybrid IT environments. We believe that creating this hybrid experience will be valuable to our new and
existing customers.
Promote our Industry-Leading
Managed Cloud Expertise-We are a pioneer in the managed cloud market and have built an established brand. Our leadership
position has been validated by industry experts, our partners and our customers. Gartner has positioned us as the industry
leader in Cloud-Enabled Managed Hosting in North America and Europe. We have won numerous accolades from our partners,
including winning Microsoft Hosting Partner of the Year for a record five times, most recently in 2015. We are the #1 hosting
provider for the top 1,000 e-commerce sites, and Forbes recently recognized us as one of America’s Most
Trustworthy Companies. We believe, these awards demonstrate our business and growth strategies are working, and we will
continue to promote our leadership position. This continued promotion of our leadership position is critical to our ability
to attract new and retain existing customers.
These key components form the foundation
of our business strategy. The competencies we seek in our directors must support these key components.
The Nominating and Governance Committee
oversees the evaluation of individual Board members, committees, and the whole Board, with the assistance of a third-party facilitator
when needed. The evaluation seeks to ascertain, among other things, whether the Board and its committees are functioning effectively
and have the necessary skills, backgrounds, and experiences to meet the evolving needs of Rackspace.
Qualifications for All Directors
To be considered for Board membership,
all individual directors of Rackspace Hosting, Inc. should possess wisdom and financial literacy. Our Board believes that directors
should be committed to representing the long-term interests of all stockholders. The directors we seek must exhibit a commitment
of both time and active attention to fulfill their fiduciary obligations. Generally, this means that directors should ensure that
they have the time to prepare for meetings, attend Board and committee meetings and the annual meeting of stockholders, consult
with management as needed, and address crises should they arise.
We also expect our directors to stay informed
about issues that are relevant to our Company. Ongoing director education provided either by the Company or by a third party is
an important part of this requirement. The Nominating and Governance Committee reviews its effectiveness in balancing these considerations
when assessing the composition of the Board.
Below we identify the key qualifications
and skills our directors bring to the Board that are important in light of our strategic direction. The directors’ individual
qualifications and skills that the Board considered in their re-nomination are included in the directors’ individual biographies.
| • | Leadership/management experience |
| • | Real estate transaction experience |
| • | Customer service experience |
| • | Strategy formation experience |
| • | International business experience |
| • | Corporate governance experience |
Board Skills Matrix
The chart below summarizes the specific
qualifications, attributes, and skills for each director. An “X” in the chart below indicates that the item is a specific
reason that the director has been nominated to serve on the Board. The lack of an “X” does not mean the director does
not possess that qualification or skill. Rather, an “X” indicates a specific area of focus or expertise of a director
on which the Board currently relies.
Required Expertise
|
Reichheld |
Costello |
Harper |
Tretikov |
Gilliland |
Rhodes |
Weston |
Moorman |
Fisher |
|
Class I |
Class I |
Class I |
Class II |
Class II |
Class II |
Class III |
Class III |
Class III |
Leadership/Management |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Industry |
|
X |
X |
X |
|
X |
X |
X |
X |
Finance |
|
X |
X |
|
X |
|
X |
|
|
Accounting |
|
X |
X |
|
X |
|
|
|
|
Real estate |
|
|
|
|
|
|
X |
|
|
Customer service |
X |
X |
|
X |
X |
X |
X |
X |
X |
Strategy formation |
X |
X |
|
X |
|
X |
X |
X |
X |
International business |
|
X |
X |
X |
X |
X |
|
X |
|
Corporate governance |
|
X |
X |
|
X |
|
|
|
|
Technology |
|
X |
X |
X |
X |
X |
X |
X |
|
Nominees for Class II Directors
The name and age as of February 29, 2016,
of each nominee director, his or her position with us, the year in which he or she first became a director and certain biographical
information is set forth below:
Name |
Age |
Positions and Offices Held with the Company |
Director Since |
William Taylor Rhodes |
44 |
CEO, President and Director |
2014 |
Lila Tretikov |
38 |
Director |
2014 |
William Taylor Rhodes our
Chief Executive Officer and President, has served as our President since January 2014 and as our Chief Executive Officer and
member of the Board of Directors since September 2014. Previously Mr. Rhodes served as our Chief Customer Officer from
September 2013 to January 2014 and as our Managing Director, International from December 2011 to September 2013. Mr. Rhodes
has also served in various other leadership roles at Rackspace since 2007, including as our Vice President, Enterprise
(International), Vice President, Enterprise (US) and Vice President, Intensive. Prior to joining Rackspace, Mr. Rhodes held a
series of progressive leadership roles managing end-to-end relationships with large global customers at EDS. He is also a
former US Marine Corps officer and received his M.B.A. from the University of North Carolina at Chapel Hill.
Mr. Rhodes’s pertinent
experience, qualifications, attributes, and skills include: an M.B.A., financial literacy and leadership through his experience
as our Chief Executive Officer, President and Chief Customer Officer and extensive industry experience through his direct involvement
in our operations since joining Rackspace in 2007. These attributes give him the experience, qualifications, attributes, and skills
to serve on and help lead the Board. Mr. Rhodes provides leadership to our Board in a number of ways, including working with the
Independent Lead Director on setting necessary and appropriate agenda items for meetings of the Board with input from other directors,
suggesting and managing the amount of time and information devoted to discussion and analysis of agenda items and other matters
that may come before the Board, and providing strategic vision.
Lila Tretikov has
served as a member of our Board of Directors since September 2014. Ms. Tretikov served as the Executive Director of the Wikimedia
Foundation, a non-profit organization that provides equal access to knowledge through services like Wikipedia, the world’s
largest encyclopedia, available in 285 languages and the fifth most popular website in the world, from May 2014 to March 2016.
Prior to her service with Wikimedia, Ms. Tretikov served as the Chief Product Officer for the open-source, cloud-based software
vendor SugarCRM from 2006 to May 2014. SugarCRM sponsored an open source project with more than 30,000 contributors and deployed
by over 1.5 million individuals in 120 countries and 26 languages. Lila began her career as an engineer at the Sun-Netscape Alliance
working on the Java server in 1999. Ms. Tretikov studied Computer Science and Art at the University of California, Berkeley, where
she did research work in machine learning and holds patents for intelligent data mapping, dynamic language applications, and other
technology innovations. In 2012, Ms. Tretikov received a Stevie Award For Women in Business and, in 2014, was named to Forbes’
list of “The World’s 100 Most Powerful Women” and the San Francisco Chronicle’s “21 Most Powerful
Women in Bay Area Technology.”
Ms. Tretikov’s pertinent
experience, qualifications, attributes, and skills include: a deep expertise in technology, gained through more than 15 years of
experience in the technology space at companies such as Wikimedia, SugarCRM and Sun-Netscape Alliance and her expertise as a software
engineer and co-author of several patents in intelligent data mapping and dynamic language applications, and in leadership as the
executive director of Wikimedia.
Directors Not Standing for Election
The names and certain biographical
information as of February 29, 2016, about the continuing members of the Board of Directors who are not standing for election at
this year’s Annual Meeting are set forth below:
Name |
Age |
Positions
and Offices Held with the
Company |
Director
Since |
Director Class |
End
of Current
Term |
Fred Reichheld |
64 |
Director |
2008 |
Class I Director |
2018 |
Kevin Costello |
54 |
Director |
2014 |
Class I Director |
2018 |
John Harper |
53 |
Director |
2015 |
Class I Director |
2018 |
Graham Weston |
51 |
Director |
2001 |
Class III Director |
2017 |
Lewis J. Moorman |
45 |
Director |
2011 |
Class III Director |
2017 |
Ossa Fisher |
38 |
Director |
2013 |
Class III Director |
2017 |
Fred Reichheld has served
as a member of our Board of Directors since November 2008. Since 1977, Mr. Reichheld has been employed at Bain & Company,
Inc., a global business consulting firm, and was elected to the partnership at Bain in 1982. Mr. Reichheld founded
Bain’s Loyalty practice, which helps clients achieve superior results through improvements in customer, employee,
partner, and investor loyalty, and has also served in a variety of other roles, including as a member of Bain &
Company’s Worldwide Management, Nominating, and Compensation Committees. In January 1999, he was elected by the firm to
become the first Bain Fellow. Mr. Reichheld is a frequent speaker to major business forums and groups of Chief Executive
Officers and senior executives worldwide and has authored several books, including The Loyalty Effect: The Hidden Force
Behind Growth, Profits, and Lasting Value (Harvard Business School Press, 1996), The Loyalty Rules!: How Today’s
Leaders Build Lasting Relationships (Harvard Business School Press 2003), and The Ultimate Question, (Harvard Business School
Press, 2006) and The Ultimate Question 2.0 (Harvard Business School Press 2011). He received his B.A. from Harvard College
and his M.B.A. from Harvard Business School. Mr. Reichheld also serves on the board of directors of First Service
Corporation.
Mr. Reichheld’s pertinent
experience, qualifications, attributes, and skills include: an M.B.A., financial literacy, and managerial experience attained through
his partnership at a large management consulting firm and as an advisor on customer loyalty to several large corporations, expertise
in measuring customer satisfaction, customer retention and its link to revenue growth and profitability, and the knowledge and
experience he has attained through his service on our Board since 2008.
Kevin
Costello has served as a member of our Board of Directors since December 2014. From 2007 to January 2014, Mr. Costello
served as the president of Ariba, Inc., a spend-managed software and consulting services company. When SAP acquired Ariba in 2012,
Mr. Costello continued to serve as president where he focused on driving the Ariba solution through the SAP cloud go-to-market
organization. From 2002 to 2007, Mr. Costello served as the Executive Vice President and Chief Commercial Officer of Ariba. Prior
to Ariba, Kevin served in various senior management positions during this 18-year career at Anderson Business Consulting. He established
himself as a leader advisor in the technology community. Mr. Costello holds a Bachelor of Science degree in Accounting from the
University of Illinois and is a Certified Public Accountant. Mr. Costello currently serves on the board of directors of Vantiv,
Inc. and served on the board of directors of Cbeyond, Inc. from 2010 to 2014.
Mr. Costello’s pertinent
experience, qualifications, attributes, and skills include: financial literacy and consulting and advisory experience in the SaaS
industry for more than 25 years, as well as his leadership experience as President of Ariba. Mr. Costello is regarded in the market
as a leader in the Software as a Service space with a focus on providing solutions that deliver immediate benefit through network
enabled capabilities and has helped companies improve their competitive position through the use of technology, strategy and services
that deliver sustaining results.
John Harper has
served as a member of our Board of Directors since February 2015. From 2009 to 2014, Mr. Harper served as Vice President and
Chief Financial Officer of Dell Services, an $8 billion business unit of Dell, Inc. Prior to the acquisition of Perot Systems
by Dell, Harper served as the Chief Financial Officer of Perot Systems Corporation where he was responsible for the
company’s global financial management activities. He served as the main interface to the investment community, oversaw
mergers and acquisitions activities, and was responsible for the corporation’s planning, accounting and treasury
functions. Mr. Harper also served as Perot Systems’ Treasurer, where he helped lead its initial public stock offering
and spearheaded efforts to strengthen its financial performance as well as Head of Human Resources and Finance Director of
Perot Systems’ operating units. Before joining Perot Systems, Harper spent 9 years in the audit practice of Ernst &
Young serving a number of industries including technology, manufacturing, education and oil and gas. Mr. Harper holds a
Bachelors of Business Administration from Texas A&M University and is a CPA in the state of Texas.
Mr. Harper’s pertinent
experience, qualifications, attributes, and skills include: CPA, financial expertise and more than 30 years of experience in the
technology, healthcare and financial services industries, as well as leadership experience as a Chief Financial Officer. Mr. Harper
also has experience with large scale business unit transformation through his leadership during the integration of Perot Systems
services businesses into Dell to create a new Dell Services organization spanning approximately 90 counties and 50,000 team members.
Graham Weston, our
Chairman of the Board, provided seed capital for the formation of our business in December 1998 and acted as our Chairman or Co-Chairman
(or its functional equivalent for our predecessor entities) since that time and as our Chief Executive Officer (or its functional
equivalent for our predecessor entities) from July 1999 to August 2006. Mr. Weston was again appointed to the Chief Executive Officer
role in February 2014 and served through September 2014 at which time William Taylor Rhodes was appointed Chief Executive Officer.
Mr. Weston has led the creation of and managed a number of startup ventures and has had an ownership interest and/or managed various
real estate companies, including Western Properties. Mr. Weston serves as a member of our Real Estate and Finance Committee. He
received his B.S. degree from Texas A&M University.
Mr. Weston’s pertinent
experience, qualifications, attributes, and skills include: the knowledge and experience he has attained through his experience
as an entrepreneur and private investor, and the knowledge and experience he has attained through his service as a Rackspace early
stage investor, Chief Executive Officer, and as our Chairman of the Board.
Lewis J. Moorman
has served as a member of our Board of Directors since August 2011. Mr. Moorman also served as both our President (from
December 8, 2011), and as our Chief Strategy Officer (since April 2008) until stepping down from both roles in October 2013. From
October 2013 to December 2014, Mr. Moorman provided the Company with strategic guidance as a part-time employee. Prior to becoming
President, Mr. Moorman served as President of our Cloud division from February 2009 to December 2011, as our Senior Vice President,
Strategy and Corporate Development from January 2004 until April 2008, as our Chief Marketing Officer from 2001 to December 2003
and as our Vice President, Strategy and Product Development from 2000 to 2001. Before joining Rackspace, Mr. Moorman held several
positions at the management consulting firm McKinsey & Company, advising a variety of high technology clients on critical strategic
issues. Mr. Moorman received his B.A. from Duke University and his J.D. from Stanford Law School.
Mr. Moorman’s pertinent
experience, qualifications, attributes, and skills include: J.D., leadership and expertise gained through his global experience
as our President and Chief Strategy Officer, and the knowledge and experience he has attained in technology, marketing, product,
corporate development, and the cloud computing and hosting industry through his continued service with the Company since 2000.
Ossa Fisher has
served as a member of our Board of Directors since October 2013. Ms. Fisher has served as the Chief Marketing Officer at Imagination
Station, Inc. (dba Istation), a leader in e-learning, since March 2015. Prior to joining Istation, Ms. Fisher was the Senior Vice
President for Strategy and Analytics at global dating leader, Match.com (MTCH), where she served since May 2013. Swedish-born Fisher
has a career history spanning growth strategy, customer analytics and marketing, all within competitive business industries. Ms.
Fisher has a broad range of expertise in technology and media, including more than 10 years in the Technology, Media and Telecom
practices of both Bain & Company (where she was employed from 2004-2013) and Goldman, Sachs & Co. (from 1999-2002). Ms.
Fisher also worked for the World Bank Group in the information technology investment division in 2003. Fisher holds a B.A. in Economics
from Yale University, an M.A. in Education from Stanford University and an M.B.A. from Stanford Graduate School of Business. She
is active in the Dallas community, on the board of Uplift Education and on the Woodall Rogers Park Foundation Board.
Ms. Fisher’s pertinent
experience, qualifications, attributes, and skills include: an M.B.A., expertise in technology and media, including more than 10
years in the Technology, Media and Telecom practices of both Bain & Company and Goldman, Sachs & Co, and in the IT investment
division of the World Bank Group, and strategic and customer service expertise from her experience at Match.com.
Board Composition
Pursuant to our Amended
and Restated Certificate of Incorporation, we have a “staggered” or classified Board, which is divided into three classes.
Each class is elected at an annual meeting of stockholders and holds office for a three-year term. We believe that the classified
structure offers several advantages to the Company and our stockholders, including promoting Board continuity and stability, encouraging
directors to take a long- term perspective, and ensuring that a majority of our Board members will always have prior experience
with the Company. However, our main reasoning for structuring our Board as a classified Board is that it provides effective protection
against unwanted takeovers and proxy contests, thereby encouraging a reasoned negotiation to take place in those situations, which
our Board believes would maximize stockholder return.
While our Board recognizes
that some believe that a classified structure does not enable stockholders to express a view on each director’s performance
through an annual vote, thereby reducing directors’ accountability to stockholders, and that some institutional investors
believe that the election of directors is the primary means for stockholders to influence corporate governance policies and to
hold management accountable for implementing those policies, our Board believes that the benefits provided by a classified Board
far exceed any potential detriments.
Our Board has also assessed the current makeup
of the Board and believes the makeup of the Board is strong and includes all main skills and qualifications.
Committees of Our Board of Directors
Our Board of Directors
has established an Audit Committee, a Compensation Committee, a Nominating and Governance Committee, a Real Estate and Finance
Committee, and an Innovation and Technology Committee. Pursuant to our Amended and Restated Bylaws, our Board may establish other
committees to facilitate the management of our business and operations.
Audit Committee
Our Audit Committee consists
of John Harper (Chair), Michael Sam Gilliland, and Kevin Costello. Our Board has determined that each member of our Audit Committee
meets the requirements for audit committee independence purposes and financial literacy under the rules and regulations of the
SEC, and the listing requirements of the NYSE. The Board has also determined that Michael Sam Gilliland and John Harper meet the
requirements of an audit committee financial expert under SEC rules and regulations and the financial sophistication requirements
of the NYSE. Since Mr. Gilliland is not running for re-election in 2016, the Board is expected to name one additional new member
to the Audit Committee to replace Mr. Gilliland immediately following the Annual Meeting. No member of our Audit Committee serves
on the Audit Committees of more than three other public companies. Our Audit Committee is responsible for, among other things,
selecting and hiring our independent auditors, and approving the audit and non-audit services to be performed by our independent
auditors; evaluating the qualifications, performance, and independence of our independent auditors; monitoring the integrity of
our financial statements and our compliance with legal and regulatory requirements as they relate to financial statements or accounting
matters; reviewing the adequacy and effectiveness of our internal control policies and procedures; discussing the scope and results
of the audit with the independent auditors and reviewing with management and the independent auditors our interim and year-end
operating results; and preparing the Audit Committee report that the SEC requires in our annual proxy statement. Please see the
Report of the Audit Committee of the Board of Directors in this proxy statement.
The
Audit Committee acts under a written charter adopted and approved by our Board of Directors. A copy of the charter of our Audit
Committee is available on our website located at http://ir.rackspace.com.
Compensation Committee
Our Compensation Committee
consists of Ossa Fisher (Chair), Michael Sam Gilliland, John Harper and Lila Tretikov. Our Board has determined that each member
of our Compensation Committee meets the requirements for independence under the current requirements of the NYSE, is a non-employee
director, as defined by Rule 16b-3 promulgated under the Exchange Act, and an outside director, as defined pursuant to Section
162(m) of the Internal Revenue Code of 1986, as amended. Since Mr. Gilliland is not running for re-election in 2016, the Compensation
Committee will consist of three members rather than four immediately following the Annual Meeting. Our Compensation Committee is
responsible for, among other things, reviewing and recommending to our Board for approval, the salary, bonus, incentive, and equity
compensation for our Chief Executive Officer, and compensation programs for our outside directors; approving the salary, bonus,
incentive, and equity compensation for all of our other executive officers; administering our equity incentive plans, including
our Amended and Restated 2007 Long-Term Incentive Plan, Equity Inducement Plan, and 2008 Employee Stock Purchase Plan; and reviewing
and approving the compensation discussion and analysis and Compensation Committee report that the SEC requires in our annual proxy
statement. The Compensation Committee may form subcommittees for any purpose that it deems appropriate and may delegate to those
subcommittees such power and authority as it deems appropriate. Please see the Report of the Compensation Committee in this proxy
statement.
The Compensation Committee
acts under a written charter adopted and approved by our Board. A copy of the charter of our Compensation Committee is available
on our website located at http://ir.rackspace.com.
Members of our Board that are not on the Compensation
Committee are invited, and frequently attend, our Compensation Committee meetings.
Nominating and Governance Committee
Our Board has established
a Nominating and Governance Committee that consists of Michael Sam Gilliland (Chairman), Ossa Fisher, and Fred Reichheld. Our Board
has determined that each designated member of our Nominating and Governance Committee meets the requirements for independence under
the requirements of the NYSE. Since Mr. Gilliland is not running for re-election in 2016, the Board is expected to name one additional
new member to the Nominating and Governance Committee to replace Mr. Gilliland immediately following the Annual Meeting. The Nominating
and Governance Committee is responsible for, among other things, developing and recommending to our Board our corporate governance
guidelines, identifying individuals qualified to become Board members, overseeing the evaluation of the performance of the Board,
selecting the director nominees for the next annual meeting of stockholders, and selecting director candidates to fill any vacancies
on the Board.
The Nominating and Governance
Committee acts under a written charter adopted and approved by our Board. A copy of the charter of our Nominating and Governance
Committee is available on our website located at http://ir.rackspace.com.
Members of our Board that
are not on the Nominating and Governance Committee are invited, and frequently attend, our Nominating and Governance Committee
meetings.
Real Estate and Finance Committee
Our Real Estate and Finance Committee consists
of Graham Weston (Chairman) and John Harper. The Real Estate and Finance Committee is responsible for developing plans and making
recommendations to our Board of Directors with respect to various real estate issues, including data center leases and build-outs.
Innovation and Technology Committee
Our Board has established an Innovation
and Technology Committee that consists of Lila Tretikov (Chairman), Kevin Costello and Lewis Moorman. The Innovation and Technology
Committee is responsible for, among other things, assisting the Board in its oversight responsibilities relating to matters of
innovation and technology, as well as certain transactions involving the acquisition or disposition of businesses and assets (M&A).
The Innovation
and Technology Committee acts under a written charter and approved by our Board. A copy of the charter of our Innovation and Technology
Committee is available on our website located at http://ir.rackspace.com.
Board Meetings and Attendance
The Board of Directors held 9 meetings
during the year ended December 31, 2015. Each director attended at least 75% of the aggregate of the meetings of the Board of Directors
and of the committees on which he or she served during the period for which he or she was a director or committee member, respectively.
The following table sets forth the standing committees of the Board of Directors, the number of meetings held by each committee
in 2015 and the membership of each committee during the year ended December 31, 2015.
Name |
Audit |
Compensation |
Nominating
and Governance |
Real
Estate and Finance |
Innovation
and
Technology Committee |
S. James Bishkin (1) |
Member |
|
Chair/Member |
Chair |
|
Mark P. Mellin (2) |
Chair/Member |
|
|
|
|
Fred Reichheld |
|
|
Member |
|
|
Lila Tretikov |
|
Member |
|
|
Chair/Member |
Graham Weston |
|
|
|
Chair/Member |
|
Ossa Fisher |
|
Chair/Member |
Member |
|
|
Michael Sam Gilliland |
Member |
Member |
Chair/Member |
|
|
Lewis J. Moorman |
|
|
|
|
Member |
Kevin Costello |
Member |
|
|
|
Member |
John Harper (3) |
Chair/Member |
Member |
|
Member |
|
William Taylor Rhodes |
|
|
|
|
|
Total Number of Meetings Held in 2015 |
6 |
10 |
4 |
1 |
4 |
(1) Mr. Bishkin served
on the Board until May 6, 2015.
(2) Mr. Mellin served on
the Board until May 6, 2015.
(3) Mr. Harper became a
Board member on February 12, 2015.
Corporate Governance
Board Leadership Structure
We separate the roles
of CEO and Chairman of the Board in recognition of the differences between the two roles. The CEO is responsible for setting the
strategic direction for the Company and the day to day leadership and performance of the Company, while the Chairman of the Board
provides guidance to the CEO and presides over meetings of the full Board.
Because Mr. Weston, our former Chief Executive
Officer, was an employee of the Company prior to 2015 and is therefore not “independent,” our Board of Directors has
appointed Michael Sam Gilliland as our lead independent director, or “Lead Director”, to preside at all executive
sessions of “non-employee” directors, as defined under the rules of the NYSE. Since Mr. Gilliland is not running for
re-election in 2016, the Board is
expected to appoint a new Lead Director to replace Mr.
Gilliland immediately following the Annual Meeting. The Lead Director, working with our Chairman of the Board and Chief
Executive Officer, and other directors, sets the agenda and leads the discussion of regular meetings of the Board outside the
presence of management, provides feedback regarding these meetings to the Chairman and the Chief Executive Officer, and
otherwise serves as liaison between the independent directors and the Chief Executive Officer. If necessary, the Lead
Director is also responsible for receiving, reviewing, and acting upon communications from stockholders or other interested
parties when those interests should be addressed by a person independent of management. The Board believes that this approach
appropriately and effectively complements our management structure. The Board’s practice is to have at least four
separate executive session meetings on an annual basis for the independent directors.
Guiding Principles for Board Development and Succession
A number of principles (and practices)
have guided the evolution of the Company’s board membership over the years, all with the aim of maintaining robust and effective
governance. These are as follows:
| • | A relatively small, highly engaged board is desirable. |
| • | Since our business rapidly changes, we must add board members with highly relevant (and contemporary)
professional experience. |
| • | Although we lack formal term limits, approximately nine to twelve years of service is an expected
commitment for any individual director. |
| • | A certain amount of director turnover is both inevitable and desirable, permitting the board to be “refreshed” over time, while also allowing
for individual flexibility. |
Majority Voting
Our Bylaws provide
for a majority voting standard in the election of directors in uncontested elections and our Corporate Governance Guidelines require
all director nominees to submit their resignations to the Board, which resignations are contingent upon (1) their not receiving
a majority of votes cast in uncontested elections and (2) the Board of Directors accepting the resignation.
Director Attendance at Annual Stockholder Meetings
Directors are encouraged, but not required,
to attend our Annual Stockholder Meeting. All of our directors attended last year’s Annual Stockholder Meeting.
Board Independence
Our Board of Directors has undertaken a review of the independence of the directors and considered whether
any director had a material relationship with us that could compromise his or her ability to exercise independent judgment in carrying
out his or her responsibilities. The criteria used by the Board, summarized below, are consistent with the NYSE listing standards
regarding director independence. To be considered independent, the Board must determine that a director does not have a material
relationship, directly or indirectly, with Rackspace. In assessing independence, the Board considers all relevant facts and circumstances.
In particular, when assessing the materiality of a director’s relationship with Rackspace, the Board considers the issue
not just from the standpoint of the director, but also from that of the persons or organizations with which the director has an
affiliation. A director will not be considered independent if he or she:
| • | is, or has been within the last three years, an employee
of Rackspace; |
| • | has an immediate family member who is, or has been within the last three years, an executive
officer of Rackspace; |
| • | has, or has an immediate family member who has, received more than $120,000 in direct compensation
from Rackspace, other than director and committee fees, in any twelve month period within the last three years; |
| • | is a current partner or employee of our auditor; |
| • | has an immediate family member who is a current partner
of our auditor or who is an employee of our auditor and personally works on our audit; |
| • | has been, or has an immediate family member who has been,
within the last three years, a partner or employee of our auditor who personally worked on our audit during that time; |
| • | is, or an immediate family member is, or has been within the last three years, employed as an
executive officer of a public company that has or had on the Compensation Committee of its Board an executive officer of Rackspace
(during the same period of time); or |
| • | is a current employee, or has an immediate family member
who is a current executive officer, of a company that has made payments to, or received payments from, Rackspace for property
or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million or 2% of such other company’s
consolidated gross revenues. |
The Board
has considered the independence of its members in light of these independence criteria. In connection with its independence considerations,
the Board has reviewed Rackspace’s relationships with organizations with which our directors are affiliated and has determined
that such relationships, other than as set forth in this proxy statement, were established in the ordinary course of business and
are not material to us, any of the organizations involved, or our directors.
As a result
of this review, our Board of Directors determined that Fred Reichheld, Michael Sam Gilliland, Ossa Fisher, Lila Tretikov, Kevin
Costello, and John Harper, representing six of our nine directors, are “independent directors” as defined under the
rules of the NYSE, constituting a majority of independent directors on our Board of Directors as required by the rules of the NYSE.
Each independent director is expected to notify the chair of the Nominating and Governance Committee, as soon as reasonably practicable,
of changes in his or her personal circumstances that may affect the Board’s evaluation of his or her independence.
Corporate Governance Guidelines
and Code of Ethics and Business Conduct
Our management team and our
Board regularly review and evaluate our corporate governance practices. The Board has adopted corporate governance guidelines
that address the composition of and policies applicable to the Board. Our Board has also adopted a code of business conduct
and ethics. The code of business conduct and ethics applies to all of our employees, officers, and directors. The full text
of our corporate governance guidelines and code of business conduct and ethics are posted on the investor relations portion
of our website at http:// ir.rackspace.com. We intend to disclose future amendments to our code of business
conduct and ethics, or certain waivers of such provisions, at the same location on our website identified above and also in
public filings.
Whistleblower Procedures
In
accordance with the Sarbanes-Oxley Act of 2002, we have established procedures for the receipt, retention, and treatment of complaints
regarding accounting, internal accounting controls or auditing matters and for the confidential, anonymous submission by our employees
of concerns regarding accounting or auditing matters. If an employee has a concern regarding questionable accounting, internal
accounting controls or auditing matters, or the reporting of fraudulent financial information, our employees may report their
concern by reporting it to our General Counsel or by submitting the concern at our reporting site at www.rackspace.ethicspoint.com.
Director
Recommendation Nomination Procedures
The
Nominating and Governance Committee solicits recommendations for potential Board candidates from a number of sources,
including members of the Board, our officers, individuals personally known to the members of the Board, and third-party
research firms. In addition, the Nominating and Governance Committee will consider director candidates recommended by
stockholders. In considering candidates recommended by stockholders, the Nominating and Governance Committee will take into
consideration the needs of the Board of Directors and the qualifications of the candidate. The Nominating and Governance
Committee may also take into consideration the number of shares held by the recommending stockholder and the length of time
that such shares have been held. To have a candidate considered by the Nominating and Governance Committee, a stockholder
must submit the recommendation in writing and must include the following information:
| • | the name of the stockholder and evidence of the person’s
ownership of our stock, including the number of shares owned and the length of time of ownership; |
| • | the name of the candidate and the candidate’s resume or a listing of his or her qualifications
to be a director of the Company; |
| • | the written consent of the proposed candidate to be named
as a nominee and to serve as a director if elected; and |
| • | a written statement that the proposed candidate intends to tender his or her irrevocable resignation
upon his or her election or re-election, which resignation shall become effective only upon such proposed candidate’s failure
to receive the requisite number of votes and the acceptance by the Board of such resignation. |
The
stockholder recommendation and information described above must be sent to the Corporate Secretary at our principal
executive offices and must be received by the Corporate Secretary not less than one hundred twenty (120) calendar days before
the one year anniversary of the date on which we first mailed our proxy statement to stockholders in connection with the
prior year’s annual meeting of stockholders; provided, however, in the event such annual meeting of the stockholders
has been changed by more than thirty (30) days from the date of the prior year’s annual meeting of the stockholders,
notice by a stockholder of a recommendation must be received no later than the close of business on the latter of one
hundred twenty (120) calendar days in advance of such upcoming annual meeting of the stockholders and ten (10) calendar days
following the date on which public announcement of the date of the upcoming annual meeting of the stockholders is first
made.
Director Candidate
Evaluation
In its evaluation
of director candidates, including the members of our Board of Directors eligible for re- election, the Nominating and Corporate
Governance Committee considers a number of factors, including the following: the current size and composition of the Board of Directors
and the needs of the Board of Directors and the respective committees of the Board; and such factors as judgment, independence,
character and integrity, area of expertise, diversity of experience, length of service, and potential conflicts of interest.
With
respect to diversity, the Nominating and Corporate Governance Committee also focuses on various factors such as diversity of
gender, race and national origin, education, professional experience, and differences in viewpoints and skills. The
Nominating and Corporate Governance Committee does not have a formal policy with respect to diversity; however, the Board and
the Nominating and Corporate Governance Committee believe that it is essential that the Board members represent diverse
viewpoints. The Nominating and Governance Committee identifies potential nominees through independent research and through
consultation with current directors and executive officers and other professional colleagues. The Nominating and Governance
Committee looks for persons meeting the criteria above, and takes note of individuals who have had a change in circumstances
that might make them available to serve on the Board. The Nominating and Governance Committee also, from time to time, in its
discretion, may engage firms that specialize in identifying director candidates. As described above, the Nominating and Governance Committee will also consider candidates recommended by stockholders and
will evaluate such recommendations in the same manner that it evaluates any potential nominee.
Once
a person has been identified by the Nominating and Governance Committee as a potential candidate, the Nominating and Governance
Committee may collect and review publicly available information regarding the person to assess whether the person should be considered
further. If the Nominating and Governance Committee determines that the candidate warrants further consideration, the chairman
or another member of the Nominating and Governance Committee would contact the person. Generally, if the person expresses a willingness
to be considered and to serve on the Board, the Nominating and Governance Committee requests information from the candidate, reviews
the person’s accomplishments and qualifications, including in relation to other candidates that the Nominating and Governance
Committee might be considering. The Nominating and Governance Committee and other directors (including our Chairman and our Chief
Executive Officer) may also conduct one or more interviews with the candidate, either in person, telephonically, or both. In certain
instances, Nominating and Governance Committee members or other Board members may request a background check, may contact one
or more references provided by the candidate or may contact other members of the business community or other persons that may
have greater first-hand knowledge of the candidate’s accomplishments. The Nominating and Governance Committee’s evaluation
process does not vary based on whether or not a candidate is recommended by a stockholder, although, as stated above, the Nominating
and Governance Committee may take into consideration the number of shares held by the recommending stockholder and the length
of time that such shares have been held in order to try to substantiate the stockholders depth of interest in the Company.
Stockholder Communications with
Directors
Our
Board encourages stockholders or other interested parties who are interested in communicating directly with our
independent directors as a group to do so by writing to the independent directors in care of our Corporate Secretary.
Stockholders can send communications by mail, fax or email to: Corporate Secretary, Rackspace Hosting, Inc., 1 Fanatical
Place, City of Windcrest, San Antonio, Texas 78218, if by fax to: +1-210-312-4848, or if by email to secretary@rackspace.com.
Correspondence received from stockholders or other interested parties and addressed to our independent directors will be
reviewed by our Corporate Secretary or his or her designee, who will forward to our independent directors all such
correspondence that, in the opinion of our Corporate Secretary, deals with the functions of the Board or committees thereof
or that our Corporate Secretary otherwise determines requires their attention.
Continuing Education
Our Board
encourages its members to pursue continuing education in order to enhance their effectiveness as Board members. In 2015, the Board
provided four hours of continuing education to its members as part of their regularly scheduled Board agenda.
Risk Management
The
Board has an active role, as a whole and also at the committee level, in overseeing management of the Company’s risks.
The Board regularly reviews information regarding our credit, liquidity and operations, as well as the risks associated with
each. The Audit Committee oversees management of financial risks and has taken the lead role with respect to overall risk
management oversight. The Audit Committee directly monitors our Company’s enterprise risk management process and
provides annual updates to the full Board. The Compensation Committee is responsible for overseeing the management of risks
relating to the Company’s executive compensation plans and arrangements. The Nominating and Corporate Governance
Committee manages risks associated with the independence of the Board of Directors and potential conflicts of interest. While
each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire Board of
Directors is regularly informed through committee reports about such risks. The Board also routinely addresses specific risks
related to corporate strategies as part of its normal agenda for its scheduled quarterly meetings. In addition, in order to
facilitate communication regarding, among other things, risk management, our Vice President of Internal Audit reports
directly to both the Chairman of the Audit Committee as well as our Chief Financial Officer.
Sustainability
Rackspace
thinks about sustainability holistically: People, Pocket and Planet. Key components of our strategy include measuring and
reducing our global emissions, benchmarking against world-class companies, engaging stakeholders, driving meaningful change
and communicating our progress. Energy is our largest source of emissions and we’re committed to powering our operation
with 100% renewable energy. In 2015, Rackspace procured 41% renewable energy to power our global operation. Rackspace has
been recognized for our sustainability leadership through its listing on the Dow Jones Sustainability Index and the FTSE4Good
Index and reported our first results to The Carbon Disclosure Project.
Political Contributions
Our
Board oversees our political spending activity. We do not presently make any corporate political contributions. However, we
do participate in the political process in other ways to help shape public policy and address legislation that impacts
Rackspace and our industry. Our involvement aims to ensure that the interests of our customers, stockholders, employees, and
other stakeholders are fairly represented at all levels of government. We are members of certain major U.S. trade
associations from which a percentage of the dues we pay may be used for political spending, we have embarked on various
lobbying efforts to address pertinent legislation and we have set up a state political action committee which is funded
entirely by voluntary employee contributions (no corporate funds).
Headquarters Information and Website
Information
Our
headquarters are located at 1 Fanatical Place, City of Windcrest, San Antonio, Texas 78218 and the telephone number is (210) 312-4600.
The Company’s website can be found at http://www.rackspace.com.
Vote Required and Board of Directors’
Recommendation
The election
of each of the two Class II Directors requires the affirmative vote of a majority of the votes cast “FOR” or “AGAINST”
the election of that director. You may vote either “FOR” or “AGAINST” each director nominee or you may
abstain. A properly executed proxy marked “ABSTAIN” with respect to any director will be counted for purposes of determining
whether there is a quorum, but it will not be counted for purposes of determining the number of votes cast with respect to the
election of such a director, and thus it will not have the same effect as a vote against the proposal.
RECOMMENDATION
OUR
BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” EACH OF THE TWO
NOMINEES FOR CLASS II DIRECTOR LISTED ABOVE.
REPORT
OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The material in
this report shall not be deemed to be (i) “soliciting material,” (ii) “filed” with the Securities and
Exchange Commission, (iii) subject to Regulations 14A or 14C of the Exchange Act, or (iv) subject to the liabilities of
Section 18 of the Exchange Act. This report 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 the Company specifically incorporates it by
reference into such filing.
Role of
the Audit Committee
The
Audit Committee operates under a written charter last amended by the Board of Directors on November 4, 2015, which provides that
its functions include the oversight of the quality of the Company’s financial reports and other financial information and
its compliance with legal and regulatory requirements, the appointment, compensation and oversight of the Company’s independent
registered public accounting firm, KPMG LLP, including reviewing their independence, reviewing and approving the planned scope
of the annual audit, reviewing and pre-approving any non-audit services that may be performed by KPMG LLP, reviewing with management
and KPMG LLP the adequacy of internal financial controls, and reviewing critical accounting policies and estimates, and the application
of U.S. generally accepted accounting principles. A more detailed description of the functions and responsibilities of the Audit
Committee can be found in Rackspace’s Audit Committee Charter, published on the corporate governance section of Rackspace’s
Investor Relations website at http://ir.rackspace.com.
The Audit Committee
oversees the Company’s financial reporting process on behalf of the Board of Directors. Management is responsible for the
Company’s internal controls, financial reporting process, and compliance with laws and regulations and ethical business standards.
KPMG LLP is responsible for expressing an opinion as to the conformity of the Company’s consolidated financial statements
with generally accepted accounting principles and auditing of management’s assessment of internal controls over financial
reporting.
Review
of Audited Financial Statements for Fiscal Year ended December 31, 2015
The Audit Committee
reviewed and discussed the Company’s audited financial statements for the fiscal year ended December 31, 2015 with
management. The Audit Committee discussed with KPMG LLP the matters required to be discussed by Auditing Standard No. 16,
“Communications with Audit Committees” issued by the Public Company Accounting Oversight Board (PCAOB).
The Audit Committee
received the written disclosures and the letter from KPMG LLP required by Independence Standards Board Standard No. 1
(Independence Discussion with Audit Committees) and the Audit Committee has discussed the independence of KPMG LLP with that
firm. The Audit Committee reviewed the fees paid to KPMG LLP for its services and determined that KPMG LLP has not provided
any non-audit services to Rackspace in 2015 except for $553,000 in audit-related, tax consulting and other fees. See fee
schedule in “Proposal 2–Ratification of Appointment of Independent Registered Public Accounting Firm–Audit
and Non-Audit Fees.”
The
Audit Committee has established procedures for the receipt, retention and treatment of complaints received by the Company regarding
accounting, internal accounting controls, or auditing matters, including the confidential, anonymous submission by Rackspace employees,
received through established procedures, of concerns regarding questionable accounting or auditing matters.
Based on
the Audit Committee’s review and discussions noted above, the Audit Committee recommended to the Board of Directors that
the Company’s audited consolidated financial statements be included in the Company’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2015 for filing with the Securities and Exchange Commission.
Members of
the Audit Committee rely without independent verification on the information provided to them and on the representations made by
management and the independent auditor. Accordingly, the Audit Committee oversight does not provide an independent basis to determine
that management has maintained appropriate accounting and financial reporting principles or appropriate internal controls and procedures
designed to assure compliance with accounting standards and applicable laws and regulations. Furthermore, the Audit Committee’s
considerations and discussions referred to above do not assure that the audit of the Company’s financial statements has been
carried out in accordance with the standards of the Public Company Accounting Oversight Board (United States), that the consolidated
financial statements are presented in accordance with U.S. generally accepted accounting principles or that KPMG LLP is in fact
“independent.”
THE AUDIT COMMITTEE
John
Harper (Chairman)
Michael Sam Gilliland
Kevin Costello
PROPOSAL 2—RATIFICATION OF APPOINTMENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Our Audit Committee has appointed KPMG LLP as our independent
registered public accounting firm for the fiscal year ending December 31, 2016. The Board recommends that stockholders vote for
ratification of such appointment. In the event of a negative vote on such ratification, the Board and Audit Committee will reconsider
the selection, though a change will not necessarily be made. Even if the appointment is ratified, the Audit Committee may, in its
discretion, direct the appointment of a different independent registered accounting firm at any time during the year if it determines
that such a change would be in our stockholders’ best interests.
KPMG LLP has audited our balance sheets
as of December 31, 2014 and 2015, and our related consolidated statements of income, stockholders’ equity and comprehensive
income, and cash flows for the yearly periods ended December 31, 2013, December 31, 2014, and December 31, 2015. We expect representatives
of KPMG LLP to be present in person or by telephone at the Annual Meeting and will be available to respond to appropriate questions.
They will also have the opportunity to make a statement if they desire to do so.
Audit and Non-Audit Fees
The following table sets forth fees billed for professional
audit services and other services rendered to us by KPMG LLP during the fiscal years ended December 31, 2014 and 2015:
| |
Year Ended December
31, | |
Fee Category | |
2014 | | |
2015 | |
Audit Fees |
| |
$ | 1,808,682 | | |
$ | 2,503,000 | |
Audit -Related Fees | |
| 138,451 | | |
| 200,000 | |
Tax Fees | |
| 276,487 | | |
| 353,000 | |
All Other Fees | |
| — | | |
| — | |
Total | |
$ | 2,223,620 | | |
$ | 3,056,000 | |
Audit Fees. Consists of the aggregate fees billed for
professional services rendered for the audit of our annual financial statements and review of financial statements included in
our quarterly reports and for services that are normally provided by the accountant in connection with statutory and regulatory
filings or engagements for those fiscal years.
Audit-Related Fees. Consists of the aggregate fees
billed for assurance and related services that are reasonably related to the performance of the audit or review of our financial
statements and are not reported under “Audit Fees.” These services for 2014 and 2015 consisted of fees associated with
transactions.
Tax Fees. Consists of the aggregate fees billed for
professional services rendered for tax compliance, tax advice, and tax planning. These services for 2014 and 2015 consisted of
tax advice on international tax matters.
All Other Fees. Consists of the aggregate fees billed
for products and services, other than the services reported above. We did not pay any fees in this category to KPMG LLP for the
periods presented.
Policy on Pre-Approval of Audit and Non-Audit Services
It is the policy of our Audit Committee to pre-approve all
audit and permissible non-audit services to be performed by KPMG LLP. Our Audit Committee pre-approves services by authorizing,
either generally or specifically, projects within the categories outlined above, subject to budgeted amounts. To ensure prompt
handling of unexpected matters, the Audit Committee delegates to the Chairman of the Audit Committee the authority to address any
requests for pre-approval of services between Audit Committee meetings; provided,
however, that such additional or amended services may not
affect KPMG LLP’s independence under applicable SEC rules. The Chairman of the Audit Committee must report any pre-approval
decisions to the Audit Committee at its next scheduled meeting.
100% of KPMG LLP’s services and fees in fiscal 2015
were pre-approved by the Audit Committee.
Vote Required and Board of Directors’ Recommendation
The affirmative vote of a majority of the outstanding shares
of common stock present in person or represented by proxy and entitled to vote at the Annual Meeting is required to ratify the
appointment of KPMG LLP as our independent registered public accounting firm.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS A
VOTE “FOR” RATIFICATION OF
THE APPOINTMENT OF KPMG LLP AS OUR INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM.
PROPOSAL 3—APPROVAL OF THE EXECUTIVE BONUS PLAN
We are asking stockholders to approve an Executive Bonus Plan
(the “Plan”) under which we may provide incentives to eligible employees to achieve our business objectives. If approved
by stockholders, the Plan potentially would permit us to receive a full federal income tax deduction for compensation (if any)
paid under the Plan. Our Board of Directors (the “Board”) has approved the Plan, subject to the approval of our stockholders
at the 2016 Annual Meeting of Stockholders. Approval of the Plan requires the affirmative vote of the holders of a majority of
the shares present, in person or by proxy, and entitled to vote at the Annual Meeting.
We historically have paid bonuses to our employees under our
Cash Bonus Plan, which was not approved by stockholders.
Stockholder approval is not required
for Rackspace to be able to offer bonuses or other cash incentives to our employees. However, under Section 162(m) of the Internal
Revenue Code (“Section 162(m)”), the Company may not receive a federal income tax deduction for compensation (including
bonuses) paid to the Company’s Chief Executive Officer or any of the three other most highly compensated executive officers
(other than our Chief Financial Officer) to the extent that any of these persons receives total compensation of more than $1 million
in any one year. Notwithstanding that general rule, if the compensation qualifies as “performance-based” under Section
162(m), we still may able to receive a federal income tax deduction for the compensation, even if total compensation to an affected
employee otherwise is more than $1 million during a single year.
The Plan allows the Company the opportunity to choose to pay
incentive compensation that is intended to be performance-based and therefore potentially fully tax deductible on the Company’s
federal income tax return. In order for compensation to qualify as performance-based, the plan under which the compensation is
paid must (among other things) be approved by stockholders. Therefore, we are asking stockholders to approve the Plan at the Annual
Meeting. If stockholders do not approve the Plan, we will not use the Plan and it will be terminated. In that case, we may choose
to pay bonuses or other incentives to our employees under another plan or arrangement.
The following paragraphs provide a summary of the principal
features of the Plan and its operation. The Plan is set forth in its entirety as Appendix A to this Proxy Statement. The following
summary is qualified in its entirety by reference to Appendix A.
Purpose
The purpose of the Plan is to promote the success of the Company
by motivating key executives to perform to the best of their abilities and to achieve the Company’s objectives. The Plan
accomplishes this by paying awards only after the achievement of specified performance goals.
Eligibility to Participate
The Compensation Committee (the
“Committee”) of our Board will be the administrator of the Plan. The Committee will have authority to select any
employees of the Company and its affiliates to be eligible to earn an award under the Plan. The actual number of employees
who will be eligible during any particular year cannot be determined in advance because the Committee has discretion to
select the participants. As of the date of this proxy statement, there are no participants in the Plan. No determination has
been made as to how many employees might participate in the Plan in the future but we currently expect that approximately
five to ten employees will participate in the Plan at any given time.
Target Awards and Performance Goals
Under the Plan, the Committee assigns each participant a target
award and performance goal or goals for a performance period set by the Committee. The participant’s target award typically
will be expressed as a formula, a dollar amount or as a percentage of his or her base salary.
Each performance period will last for
at least one fiscal quarter and not longer than twelve fiscal quarters (in other words, each performance period will be no shorter
than approximately three months nor longer than approximately thirty-six months), as determined by the Committee. More than one
performance period may exist at any one time and the performance periods may vary in length.
For each performance period, the Committee will specify one
or more performance goal(s) that must be achieved before an award actually will be paid to the participant for that performance
period. The performance goals set by the Committee may require the achievement of objectives for one or more of:
| • | Total Shareholder Return |
The Committee may choose to set target goals: (1) in absolute
terms, (2) in relative terms (including, but not limited to, the passage of time, historical results, and/or against other companies
or financial metrics), (3) as measured against assets, shares or human resources of the Company, (4) against the performance of
the Company as a whole or against particular business units, lines or products of the Company, (5) on a pre- tax or after-tax
basis, and/or (7) on a GAAP (generally accepted accounting principles) or non-GAAP basis. Performance goals may differ from participant
to participant, from performance period to performance period and from award to award. The Committee also will determine whether
any element(s) (for example, the effect of mergers or acquisitions) will be included in or excluded from the calculations (whether
or not such determinations result in any performance goal being measured on a basis other than GAAP).
Actual Awards
After a performance period ends, the Committee will certify
in writing the extent to which the specified performance goals actually were achieved. The actual award that is earned, if any,
will be determined using an objective formula that increases or decreases the participant’s award based on the level of actual
performance attained. The Committee has discretion to reduce or eliminate (but not to increase) the actual award otherwise payable
to any participant based on actual performance. In any case, the Plan limits actual awards to a maximum of $6 million per participant
for any fiscal year of the Company, even if actual performance versus the specified goals otherwise would entitle the participant
to a greater payout.
Any actual award that is earned generally will be paid in
cash no later than two and one-half months after the performance period ends. The Committee (in its discretion) also may choose
to pay bonuses to Plan participants outside of the Plan on terms established by the Committee from time to time. Any such bonuses
likely would not qualify as performance-based under Section 162(m).
Administration
The Committee will administer the Plan,
unless and until the Board chooses a different Committee (comprised solely of members of the Board) to administer the Plan. Members
of the committee that administers the Plan must qualify as outside directors under Section 162(m). Subject to the terms of the
Plan, the Committee has sole discretion to:
| • | Select the employees who will be eligible to receive awards; |
| • | Determine the target award for each participant; |
| • | Determine the performance goals that must be achieved
before any actual awards are paid; |
| • | Establish a payout formula to provide for an actual award
greater or less than a participant’s target award to reflect actual performance versus the predetermined performance goals;
and |
| • | Interpret the provisions of the Plan. |
Bonuses Paid to Certain Individuals and Groups
The Company has not established any performance periods under
the Plan nor has the Committee designated any employees as participants in the Plan. Moreover, awards (if any) under the Plan are
determined based on actual future performance. As a result, future actual awards cannot now be determined. The Committee has established
a performance period under the Plan for the Company’s 2016 fiscal year. By way of illustration only, the following table
shows the bonuses that were paid under our Cash Bonus Plan to the persons and groups listed in the table, based on the terms of
the Cash Bonus Plan. These bonuses were not paid under the Plan and bonuses under the Plan (if any) may be higher or lower than
the amounts shown in the table. Our executive officers are eligible to be participants under the Plan and therefore to receive
awards under the Plan.
|
| |
Actual 2015 | |
Name of Individual
of Group |
| |
Award | |
William Taylor Rhodes - CEO and President | |
$ | 718,463 | |
Karl Pichler - CFO, Senior Vice President and Treasurer | |
$ | 303,450 | |
Mark W. Roenigk - GM, Senior Vice President and Treasurer | |
$ | 303,110 | |
Scott Crenshaw - Senior Vice President, Strategy and Product (US) | |
$ | 191,599 | |
Tiffany Lathe - General Counsel and Vice President | |
$ | 171,047 | |
| |
| | |
All executive officers, as a group | |
$ | 1,687,669 | |
All directors who are not executive officers, as a group (1) | |
$ | 0 | |
All employees who are not executive officers, as a group | |
$ | 0 | |
|
| |
| | |
(1) This group is not eligible to participate in the Plan.
Tax Effects of the Plan
As described above, the Plan is designed to allow the Committee
to pay bonuses that are intended to qualify as “performance-based” compensation under Section 162(m). Under Section
162(m), the Company may not receive a federal income tax deduction for compensation paid to the Company’s Chief Executive
Officer or any of our other three most highly compensated executive officers (other than our Chief Financial Officer) to the extent
that any of those persons receives total compensation of more than $1 million in any one year. “Performance-based”
compensation that qualifies under Section 162(m) is exempt from this $1 million limitation. The Plan allows the Company the opportunity
to choose to pay incentive compensation
that is intended to be performance-based and therefore potentially
fully tax deductible on the Company’s federal income tax return (subject to future changes in tax laws and other circumstances).
The Company also may choose to pay other or additional compensation outside of the Plan that is not intended to qualify as performance-based
compensation (and that therefore may not be tax deductible for the Company). For example, base salaries do not qualify as performance-based
compensation and any bonuses that we pay that are outside of the Plan also would not qualify as performance-based compensation.
Amendment and Termination of the Plan
The Board or the Committee may amend or terminate the Plan
at any time and for any reason. An amendment will be subject to stockholder approval to the extent necessary under Section 162(m).
Vote
Required and Board of Directors’ Recommendation
The affirmative vote of a
majority of the outstanding shares of common stock present in person or represented by proxy and entitled to vote at the
Annual Meeting is required to approve the Company’s Executive Bonus Plan.
RECOMMENDATION
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR
APPROVAL OF THE EXECUTIVE BONUS PLAN
EXECUTIVE OFFICERS
Set
forth below is the name, age, and position of each of our executive officers.
Executive Officer |
Age |
Title |
William Taylor Rhodes |
44 |
Chief Executive Officer and President |
Karl Pichler |
44 |
Chief Financial Officer, Senior Vice President and Treasurer |
Mark W. Roenigk |
54 |
General Manager, Senior Vice President, Worldwide Operations |
Scott Crenshaw |
51 |
Senior Vice President, Strategy and Product |
Tiffany Lathe (1) |
45 |
General Counsel and Vice President |
Joseph Saporito |
62 |
Chief Accounting Officer |
Eugene DeFelice |
58 |
General Counsel and Senior Vice President |
Alex Pinchev |
65 |
EVP and President, Global Sales and Marketing |
(1) Tiffany Lathe served as General Counsel until December
7, 2015.
William Taylor Rhodes—For biographical
information see “Proposal 1—Election of Directors—Nominees for Class II Directors.”
Karl Pichler has served
as our Chief Financial Officer, Senior Vice President and Treasurer since April 2011. Previously, Mr. Pichler served as our Vice
President, Finance and held various roles in both the US and International operations. Prior to joining Rackspace in 2005, Mr.
Pichler served as Vice President of the North American Middle Market Advisory Practice at Stern Stewart & Co. in New York,
specializing in management, valuation, and incentive applications of economic profit under its trademarked name of EVA. Early
in his career, Mr. Pichler was a research fellow at the Institute for Financial Management at the University of Bern in Switzerland
and worked as a business analyst at Swiss Bank Corporation. Pichler is a CFA Charterholder and graduated Magna Cum Laude from
the University of Bern, Switzerland, receiving a Licentiate Rerum Politicarum in Business Administration and Economics.
Mark W. Roenigk has served as our General Manager,
Senior Vice President, Worldwide Operations since December 2015, and previously served as our Chief Operating Officer since joining
us in December 2009. From January 2008 until December 2009, Mr. Roenigk was the Chief Procurement Officer and Vice President,
Operational Excellence at eBay, where he was responsible for the implementation of a company-wide operational excellence program
that substantially improved the customer experience while driving significant process and financial efficiencies. From December
2006 until January 2008, Mr. Roenigk was the Senior Vice President, Operations at XM Satellite Radio where he was responsible
for all supply chain activities and global procurement in the manufacturing and distribution of XM products. From April 2004 to
August 2006 he was Vice President, Supply Chain Operations, at Intuit, and from February 1995 to March 2004 was a General Manager
at Microsoft Corporation across a variety of operational roles. Mr. Roenigk received his B.B.A. in Management from Texas A&M
University.
Scott Crenshaw has served
as our Senior Vice President, Strategy and Product since he joined us in April 2015, and is responsible for our corporate strategy,
business development, and certain product and engineering portfolio, and is also General Manager of our Cloud Business Unit. Prior
to joining Rackspace, Mr. Crenshaw was Senior Vice President, Products, at VeriSign, Inc. from July 2013 to March 2015, where
he led the development of the company’s new businesses, products and services. From September 2012 to May 2013, he
served as Senior Vice President, Strategy, and Chief Marketing Officer at Acronis, Inc., a provider of data protection and disaster
recovery software. From December 2004 to August 2012, Mr. Crenshaw held several executive roles at Red Hat, Inc., including Vice
President and General Manager of the Platform (Linux) Business Unit, and Vice President and General Manager of the cloud business
unit. Mr. Crenshaw’s executive
and business experience also includes serving as Chief Executive
Officer of NTRU Cryptosystems, Inc., and eight years at Datawatch Corporation, including as Vice President of Business Development
& Product Development. Mr. Crenshaw earned his B.S. in computer science from North Carolina State University and an M.B.A.
from the Massachusetts Institute of Technology, where he was a Sloan Fellow at the Sloan School of Management.
Tiffany Lathe served as
our General Counsel and Vice President from February 2014 to December 2015, and is based out of our London office. Ms. Lathe joined
Rackspace in 2007 as Vice President, International Legal and in February 2013 also became the leader of the International Human
Resources Department, where she continued to serve until she became General Counsel. Prior to joining Rackspace, Ms. Lathe was
a solicitor at Martineau Johnson Solicitors, based in Birmingham, UK. She received her first degree from the University of York
in 1992, followed by her Common Professional Examination/ Postgraduate Diploma in Legal Studies from the University of Birmingham
in 2003 and Postgraduate Diploma in Legal Practice in 2004 from the College of Law, Birmingham.
Joseph Saporito has served as our Chief Accounting
Officer since February 2012. From 2008 until joining Rackspace, Mr. Saporito practiced as a financial consultant and Leadership
Coach. From 2002 to 2008, he served as the Executive Vice President and Chief Financial Officer of Carriage Services, Inc., a
New York Stock Exchange company. Mr. Saporito’s prior professional experience includes 15 years as a partner with Arthur
Andersen, LLP. Mr. Saporito currently serves as a director of US Dataworks, Inc. Mr. Saporito earned a B.A. in Accounting from
the University of South Florida. He is a CPA and is certified as a Leadership Coach by Georgetown University.
Eugene DeFelice has served
as our General Counsel and Senior Vice President since December 2015. Mr. DeFelice has over 30 years of legal experience, over
20 years of which is in corporate healthcare and technology, as well as leadership roles in sales, marketing and general management.
Prior to joining Rackspace, Mr. DeFelice served as an Executive Vice President, General Counsel and Corporate Secretary of HMS
Holdings Corp. from March 2014 to November 2015. He served as Vice President, General Counsel and Corporate Secretary of Barnes
& Noble, Inc. from September 2010 to July 2013. He served as the Senior Vice President, General Counsel and Corporate Secretary
of SAVVIS Inc. from November 2006 to August 2010. From 1986 to 2005, Mr. DeFelice held various legal and executive positions of
increasing responsibility at several healthcare and technology companies. He received his B.A. from Rutgers University, an M.B.A.
with distinction from Webster University in Geneva Switzerland, and a J.D. from Seton Hall University School of Law.
Alex Pinchev,
has served as our Executive Vice President and President, Global Sales and Marketing since January 2016, where he oversees our
global sales and marketing organizations. Mr. Pinchev has over 30 years of technology industry experience. Immediately prior to
joining Rackspace, from 2013 to 2015 Mr. Pinchev was the Founder and Chief Executive Officer of Capri Ventures LLC, a strategic
advisory firm advising technology companies to develop go-to-market strategies, to scale and to accelerate growth. From 2012 to
2013, Mr. Pinchev was the President and Chief Executive Officer of Acronis, Inc., a provider of data protection and disaster recovery
software. From 2003 to 2012, Mr. Pinchev was Executive Vice President and President of Global Sales, Services and Marketing at
Red Hat, Inc., where he drove significant revenue growth. Mr. Pinchev was the Founder, Chairman, Chief Executive Officer and President
of MainControl, Inc. from 1996 until its successful acquisition by MRO Software, Inc. in 2002. Mr. Pinchev founded Interchip and
served as its President and Chief Executive Officer from 1987 to 1996. He has held numerous director positions of technology companies.
He serves on the Advisory Board at George Mason University. Mr. Pinchev earned his B.S. in Applied Mathematics and Computer Science
from the University of St. Petersburg and a Masters in Computer Science from Tel Aviv University. Mr. Pinchev holds a master’s
degree in Applied Mathematics and Computer Science from University ITMO in St. Petersburg, Russia, confirmed by the Ministry of
Education in Israel.
COMPENSATION DISCUSSION AND ANALYSIS
The following discussion and analysis of compensation arrangements
of our named executive officers for 2015 should be read together with the compensation tables and related disclosures set forth
below. This discussion contains forward-looking statements that are based on our current plans, considerations, expectations and
determinations regarding future compensation programs. The actual amount and form of compensation and the compensation programs
that we adopt may differ materially from currently planned programs as summarized in this discussion. In addition, this discussion
contains performance objectives established by us for 2015 solely with respect to our compensation programs. Such performance objectives
do not constitute guidance regarding our expected future operating results.
Executive Summary
Rackspace is the world leader in the managed cloud segment
of the business information technology (“IT”) market. As a global company, we sell our services in more than 120 countries
to more than 300,000 business customers, including a majority of the Fortune 100 companies. We help customers tap the power of
cloud computing by delivering world-class service on the world’s leading technology platforms. We are experts in IT, so our
customers do not have to be.
Our market for executive and employee talent is highly competitive,
and we are proud of our ability to hire high quality, talented, and dedicated employees. Our compensation philosophy in 2015 was
designed to provide competitive pay opportunities for our executive officers, while maintaining focus on driving performance and
long-term alignment with our stockholders.
Key Performance Highlights
In 2015, we focused on deepening our service delivery and
service differentiation on industry leading platforms and promoting our industry leading managed cloud expertise. Highlights from
the year include:
| • | Net revenue reached $2 billion on revenue growth of 11.5%
from 2014; |
| | |
| • | We launched managed service offerings on leading public
cloud technologies Amazon Web Services and Microsoft Azure; |
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| • | We launched our Managed Security offering to assist customers
in addressing data security, protecting critical business processes, and mitigating risks from potential cyber-attacks and threats; |
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| • | We opened a new state-of-the art data center in London; |
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| • | We completed a $500 million offering of Senior Notes;
and |
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| • | We purchased and retired $367 million of shares of our
common stock through our authorized share repurchase program. |
Selected financials are provided below for fiscal 2014 and
2015.
| |
Year
ended December 31, | | |
| |
Dollar
amounts in millions | |
2014 | | |
2015 | | |
%
Growth | |
Net Revenue | |
$ | 1,794.4 | | |
$ | 2,001.3 | | |
| 11.5 | % |
Income from Operations | |
$ | 163.5 | | |
$ | 206.1 | | |
| 26.1 | % |
Net Income | |
$ | 110.6 | | |
$ | 126.2 | | |
| 14.1 | % |
Adjusted EBITDA Margin | |
| 33.7 | % | |
| 34.2 | % | |
| 0.5 | % |
Key Compensation Highlights
In 2015 our named executive officers were William Taylor
Rhodes, Karl Pichler, Mark W. Roenigk, Scott Crenshaw, and Tiffany Lathe. The key compensation actions and decisions for 2015
were as follows:
| • | Base salaries for our named executive officers increased
between 0% and 21%. No increase was provided to our Chief Executive Officer in 2015. |
| • | We did not fully achieve the target level of performance
in our short-term incentive plan, which paid out at only 90% of the target performance level for the year. |
| • | Long-term incentive compensation opportunities for our
named executive officers were awarded in equal grant value of performance-based restricted stock unit awards (“PSUs”)
and service-vesting restricted stock unit awards (“RSUs”). Total annual grant values were within the competitive range
of individuals in similar roles at peer companies. |
| • | PSU awards granted in 2015 provide that the underlying
units will be earned based on the achievement of a pre-established revenue goal, with higher payout for achievement of the goal
in two years, and lower payout for achievement of the goal in either three or four years. The Compensation Committee believes
these awards have improved line-of-sight, and thus motivation, for recipients over prior years’ awards. |
| • | The PSU awards granted prior to 2014 were to be earned
based on total shareholder return (“TSR”) relative to the NASDAQ Internet Index. The two awards with performance periods
ending in 2015 did not meet the pre-established performance levels and were forfeited. |
| • | The PSU awards granted in 2014 were to be earned based
on the achievement of a 10% compound annual growth rate in our revenues through 2015. This performance goal was deemed to have
been achieved and the named executive officers earned the target number of shares of our common stock subject to such awards. |
| • | A large portion of the compensation provided to our Chief
Executive Officer and other named executive officers was performance-based – 50% and 40% respectively. The majority of such
compensation was at-risk or otherwise vested over multi-year periods – 90% and 85% respectively – which we believe
aligns executives with the long-term interests of stockholders. |
2015 Pay Mix Summary
The charts above are based on the following: Salary, Bonus,
and All Other Compensation Earnings as disclosed in the Summary Compensation Table; Non-Equity Incentives (Short-Term Incentive)
and Equity Incentives (Performance-Based and Service-Vesting Equity) as disclosed in the Grants of Plan Based Awards table.
Executive Compensation Policies and
Practices
We seek to
maintain sound governance standards consistent with our executive compensation policies and practices. The Compensation
Committee evaluates our executive compensation program on a regular basis to ensure that
it is consistent with our short- and long-term goals and reflective of the dynamic nature of our business and the market in
which we compete for executive talent. The following policies and practices were in effect during 2015:
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Our Compensation Committee is comprised solely of independent directors; |
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Our Compensation Committee has engaged an independent consultant to advise on market practices; |
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Our Compensation Committee conducts an annual review and approval of our compensation strategy, including a review and determination of our compensation peer group used for comparative purposes; |
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Our executive officers receive the same employee benefits as our employee group as a whole and are generally not entitled to any executive perquisites, except in limited circumstances where they serve a legitimate business purpose; |
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We do not currently offer, nor do we have plans to provide, pension arrangements, retirement plans or nonqualified deferred compensation plans or arrangements exclusively to our executive officers; |
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Executive officers are not entitled to any tax gross-up treatment, including for any cash severance or equity vesting acceleration following a Change of Control; |
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Change of Control payments and benefits are limited. Some executives receive reasonable cash severance if terminated within 12 months of a qualifying Change of Control. Equity awards generally continue to vest, unless the acquiring company fails to assume the grant or the executive experiences a qualifying termination within 12 months, or if the performance period of an award truncates and is evaluated for actual achievement through the date of the Change of Control; |
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We have an equity grant process that provides for pre-established, regular grant dates each year following formally adopted practices and procedures; |
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We have stock ownership guidelines for our executive officers; |
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We have a prohibition against hedging, and limit the ability to pledge our common stock; and |
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Our Compensation Committee annually reviews our compensation-related risk profile to ensure our programs do not encourage inappropriate or excessive risk taking. The Committee has determined that our compensation programs do not create inappropriate or excessive risk that is likely to have a material adverse effect on the Company. |
2014 Say-On-Pay Vote Results
At our 2011 Annual
Meeting of Stockholders, we held a non-binding advisory vote on the frequency of the non-binding
advisory vote on named executive officer compensation - commonly referred to as Say-on-Pay Frequency
Vote. Our stockholders cast the highest number of votes for voting on a three-year basis. In light of this result, the Board determined
that we will hold non-binding advisory votes on named executive officer compensation every three years until the 2017 Annual Meeting
of Stockholders, when we will be required to hold the next Say-on-Pay Frequency Vote.
Our most recent Say-on-Pay
vote was held at the 2014 Annual Meeting of Stockholders, in which stockholders approved our named executive officer compensation
with approximately 87% of the votes cast in favor of the proposal. As the Compensation Committee has evaluated our executive compensation
policies and
practices since that vote, it has been mindful of
the strong support expressed for our compensation philosophy as well as the feedback received from stockholder interactions. As
a result, following the annual review of our executive compensation philosophy, the Compensation Committee decided to retain our
general approach to executive compensation.
Decision Making Process in Setting Executive
Compensation
Role of the Compensation Committee
The Compensation
Committee has overall responsibility for recommending the compensation of our Chief Executive Officer for approval from our independent
directors, and determining the compensation of our other executive officers.
Our executive compensation
program is evaluated twice annually based on our performance, our executive officers’ performance, and after considering
competitive market data from our Peer Group and compensation surveys. The Compensation Committee evaluates the performance of our
executive officers and, after seeking advice and recommendations from the Chief Executive Officer, approves any and all changes
to compensation. These performance reviews and compensation decisions primarily occur in the first quarter of the fiscal year,
and are updated in the third quarter. The Chief Executive Officer is not present during deliberations of his own performance or
compensation.
The Compensation Committee
and the Chief Executive Officer also seek input from its independent consultant and our Human Resources team and generally take
other steps as appropriate, including relying on their respective experience, in determining appropriate compensation levels for
the executives. Please see “Role of Compensation Consultant” and “Role of Management” below.
Although many compensation
decisions are made in the first and third quarters of the calendar year, the compensation evaluation process is ongoing. Compensation
discussions and decisions are designed to promote our fundamental business objectives and strategy. Evaluation of management performance
and rewards is performed quarterly or more often as needed. The Compensation Committee has the discretion to adjust a component
of compensation during the year if it determines that circumstances warrant.
The
Compensation Committee has taken the following steps to ensure that executive compensation and benefit
policies are consistent with both our compensation philosophy and our corporate governance guidelines:
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Evaluated our compensation practices and assisted in developing and implementing the executive compensation policy; |
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Established a practice, in accordance with the rules of the NYSE, of reviewing the performance and determining the compensation earned, paid, or awarded to our Chief Executive Officer independent of input from him; and |
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Established a policy, in accordance with the rules of the NYSE, of reviewing on an annual basis the performance of our other executive officers with assistance from the Chief Executive Officer and determining what it believes to be appropriate total compensation for these executive officers. |
Role of Compensation Consultant
The Compensation Committee
is authorized to engage the services of outside consultants. The Compensation Committee retained Compensia, Inc. as its compensation
consultant in 2015. The consultant provides reports for the Compensation Committee on a regular basis, including annual reviews
of (1) the appropriateness of our compensation Peer Group, (2) the competitiveness of our executive compensation programs and practices
relative to our compensation Peer Group, and (3) an analysis of risk underlying our compensation programs. In general, the consultant
provides limited or no services to management outside of duties relating to requests from the Compensation Committee and the Board.
The Compensation Committee
performs an annual review of the compensation consultant’s performance and its independence under the SEC and NYSE rules
and determined there were no conflicts of interest with Compensia, Inc.
Role of Management
The Compensation
Committee meets regularly with our Chief Executive Officer, and works with members of our Human
Resources, Legal, Finance, and Accounting teams to fulfill its duties, including design, management, and administration of our
short- and long-term incentives; discuss the Company’s Compensation Discussion and Analysis and produce the Report of the
Compensation Committee for the Proxy Statement; and set compensation for our executive officers.
Members of management are also authorized to engage the compensation consultant on behalf of
the Compensation Committee.
Compensation Philosophy
and Use of Market Data
Compensation Philosophy
and Objectives
Our executive compensation
program seeks to support our corporate strategy through a combination of incentives and benefits that align with the long-term
interests of our stockholders. The Compensation Committee considers the following objectives in making compensation decisions:
Objective |
|
Description |
Competitive Pay |
|
Competitive pay opportunities are necessary to attract and retain talented and qualified
executive officers. The Committee generally considers the competitive market range of our Peer Group when setting salary,
short-term non-equity incentives, and long-term equity incentives. |
Balanced Pay Mix |
|
Our compensation program is a combination of short- and long-term, cash and equity, and
fixed and performance-based components. A majority of our executive compensation program is performance-based and ‘at-risk,’
or otherwise focused on the long-term, which we believe aligns our executive officers’ interests with stockholders. |
Pay for Performance |
|
Our short- and long-term incentive programs are intended to motivate executive officers
to pursue and achieve our corporate objectives. Our awards are designed to provide above target payouts when Rackspace over
performs, and below target when Rackspace under performs. |
No Pay for Failure or
Golden Parachutes |
|
The Company provides severance guarantees
on a limited basis, always in conjunction with the execution of a non-compete and other restrictive covenants. The Committee
believes these severance guarantees are fair, necessary to attract and retain key talent, and do not demonstrate pay for failure.
We generally do not provide cash payments following a Change of Control unless the executive officer also experiences a qualifying
termination of employment. |
Stockholder Alignment |
|
We require named executive officers to have a meaningful financial stake in the Company.
This is managed through annual equity grants with multi-year vesting schedules and/or performance goals, and by requiring
members of management to hold a minimum level of Company stock. |
Balanced Performance
Management |
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We use a combination of financial performance metrics, varying time horizons, and compensation
vehicles to provide a balanced and comprehensive measure of performance. |
Manage Compensation Risk |
|
We set incentive goals in such a way as to discourage excessive risk taking, and avoid placing
too much emphasis on any one metric or performance time horizon. |
The Compensation
Committee evaluates annually—or as priorities evolve and circumstances dictate—each component of our executive compensation
program on a quantitative and qualitative basis to determine if the program is achieving its objectives. We anticipate making new
awards and adjustments to the components of our executive compensation program in connection
with our scheduled compensation reviews and based upon the recommendations to the Compensation Committee by our Chief Executive
Officer and/or other members of management.
Weight of Compensation Components
We do not use
pre-defined ratios in determining the allocation of compensation between base salary, bonus, and equity components. Rather, we
set each executive officer’s total compensation based on market conditions, geographic considerations, competitive market
data, and other factors. Our compensation policies related to executive compensation apply equally to all of our named executive
officers. Differences in compensation levels among our executive officers generally reflect
differing skill sets, experience, responsibilities, criticality to the organization, and relative contributions.
Use of Competitive Market Data
One reference point the Compensation Committee used
in determining compensation in 2015 included a competitive market analysis drawn from a blend of two data sources:
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Select Peer Group. Publicly available data for a group of twenty publicly traded companies with a financial profile similar to Rackspace (“Select Peer Group” or “Peer Group”); and |
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Companies Survey. A Radford Executive Survey data cut comprised of participating Peer Group companies, or if sufficient data were not available, among technology companies with revenues between $1 billion and $3 billion. |
Updated competitive market
data from the Peer Group and Radford Executive Survey are generally provided at the August Compensation Committee meeting, and
refreshed in the February Compensation Committee meeting when pay changes are approved. The Peer Group used in decision making
in the second half of 2014 and the first half of 2015 was comprised of the following companies:
Akamai Technologies |
F5 Networks |
Riverbed Technology |
ANSYS |
FLIR Systems |
Skyworks Solutions |
Cadence Design Systems |
Informatica |
Solera Holdings |
Cree |
Nuance Communications |
Teradata |
Dolby Laboratories |
PTC |
TIBCO Software |
Equinix |
Red Hat |
VeriSign |
In May 2015, the Compensation
Committee revised the make-up of the Peer Group. The peer selection criteria were:
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1. |
Companies in the technology industry with a preference for our direct competitors. |
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Companies with four quarter revenues (at the time of review) of approximately 0.5X to 2.0X our size |
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Potential peers are filtered based on market cap-to-revenue with a minimum multiple of 2.0, and for overall market capitalization (at the time of review) of approximately 0.33X to 3.0X our size. |
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Companies not headquartered in the United States are excluded, due to different market practices and compensation design as well as more limited disclosure of executive compensation data. |
Based on this review, the Compensation
Committee excluded two companies that were in the prior year’s peer group. Dolby Laboratories was dropped to better align
the peer group with our financial profile, and TIBCO Software was dropped following its December 2014 acquisition by Vista Equity
Partners. The Compensation Committee added Altera, Autodesk, Citrix Systems, and Synopsys as replacements, because these companies
met the selection criteria at the time of the review.
The revised peer group for
2015 consists of the following companies:
Akamai Technologies |
Equinix |
Riverbed Technology |
Altera |
F5 Networks |
Skyworks Solutions |
ANSYS |
FLIR Systems |
Synopsys |
Autodesk |
Informatica |
Solera Holdings |
Cadence Design Systems |
Nuance Communications |
Teradata |
Citrix Systems |
PTC |
VeriSign |
Cree |
Red Hat |
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As a result of these changes,
our revenue, market capitalization, and market capitalization-to-revenue ratio were near the median of the peer group, and one-
and three-year revenue growth rates were in the upper quartile of the group.
The financial profile of the
Peer Group was updated in early 2016. Our revenues were near the median, while revenue growth rates remained in the upper quartiles.
Our market capitalization and market capitalization-to-revenue ratios were near the bottom of the Peer Group.
The Compensation Committee
compared the primary pay components for each executive officer relative to market data, composed of a blend of the Peer Group
and the Radford Executive Survey. The Compensation Committee does not use a specific target of the market data when setting compensation.
Actual placement varies by executive and by each element of compensation, and generally ranges from the 25th to the
75th percentiles based on the executives’ individual skills, experiences, and responsibilities, and internal
pay parity between executives. Individual circumstances include performance, criticality to the organization, length of tenure
with the organization, and potential ongoing contributions to the Company.
Components of Executive Compensation
Our executive compensation
program consists of base salaries, short-term non-equity incentives, long-term equity-based incentives, employee benefits, and
severance compensation and termination protection benefits as further described below. We believe that each individual component
serves a critical role in our compensation program, and all together are effective in achieving our overall objectives.
Our
executives’ total compensation may vary significantly from year to year based on the results of the Company, business unit
results, and individual performance.
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Component |
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Description and
Purpose |
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Link to Business
Strategy |
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Results in 2015 |
Base Salaries |
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•
•
• |
Fixed compensation.
Provide financial stability, and compensation for significant responsibilities.
Reviewed annually and adjusted relative to external market, internal
parity, and individual performance. |
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•
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Competitive base salaries are necessary to attract and retain executive
talent.
Increases are not automatic or guaranteed, and are generally tied
to the annual performance cycle and external market review. |
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Salaries for named executive officers increased between 0% and 21% in 2015. |
Short-Term Incentives (Non-Equity) |
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At-risk compensation.
Rewards for short-term performance on key financial measures.
Named executive officers generally participate in the same short-term
incentive program as other Rackers. |
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Performance metrics and targets evaluated annually for alignment
with business strategy.
Supports pay-for-performance philosophy by holding Rackers accountable
for performance relative to expectations. |
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Payouts in 2015 were conditional on achievement of net income before
bonus targets.
2015 performance resulted in overall funding for the short-term
incentive program of 90% of target. |
Long-Term Incentives (Equity) |
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At-risk compensation.
Balance short-term thinking with long-term perspective. |
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Promote share ownership and align executives with long-term stockholder interests. |
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Annual award grant values in 2015 were based 50% on performance and 50% on retention. |
• Service-Vesting |
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Grants in the form of Restricted Stock Units.
Generally vest in equal annual installments over a four year period
subject to continued employment |
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Provides long-term retention of key talent. |
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Service-vesting equity grants in 2015 followed our general practice, except for grants provided to Mr. Crenshaw upon joining Rackspace, and grants provided to Mr. Roenigk in December upon assuming his new role. |
• Performance-Based |
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Conditional on achievement of performance metrics over one or more
years, and may be subject to additional vesting.
Leveraged payout schedules provide additional incentive to over-perform
through higher-than-target payouts and stock appreciation. |
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Drives long-term sustainable performance that we believe will ultimately deliver long-term value to stockholders. |
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Grants
in 2015 include:
• PSU awards that are earned based on attainment of a pre-established revenue target, achievable over two- to-four years.
• PSU awards that are based on attainment of pre-established revenue targets, achievable over one year and vesting ratably over
three years.
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Component |
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Description and
Purpose |
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Link to Business
Strategy |
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Results in 2015 |
Benefits and
Perquisites |
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• |
Fixed benefit programs.
Comprehensive benefit programs provide financial stability
and peace of mind to employees.
All Rackers generally participate in the same benefit programs
– we do not give special treatment to executives. |
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•
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Competitive benefit offerings are necessary to attract and
retain talent.
Treating all Rackers equally regardless of status in the
organization is an important aspect of our Company culture. |
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•
•
• |
Named executive officers are generally provided the same
benefits available to other VPs and Rackers.
Ms. Lathe received a car allowance under a legacy
international program.
In 2015, the Committee approved the installation of a home
security system for Mr. Rhodes. |
Severance
Compensation and
Termination Protection |
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Provide limited severance and/or Change of Control benefit
in exchange for agreement to non-compete, non-hire, and non-solicit clauses. |
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Severance benefits allow us to attract top talent candidates
while protecting Rackspace interests.
Limited Change of Control benefits allow executives to
focus on running the business without concern over job security. |
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Currently, Rackspace has few agreements with employees
providing severance and/or Change of Control protection.
Rackspace does not provide gross-ups for any taxes upon
a Change of Control. |
Base Salaries
The Compensation
Committee reviews competitive market data when setting base salaries. While salaries generally
fall between the 25th and 75th percentiles of the market data, new executive officers may be
positioned at higher percentiles relative to the external market for their role in order to induce them to join Rackspace, and
executive officers with significant, additional responsibilities may similarly be positioned at higher percentiles relative to
the external market for their role.
The following table shows base salary increases for 2015:
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|
Percentage |
|
2015 Base |
Increase |
Executive (1) |
Salary |
from 2014 |
William Taylor Rhodes - Chief Executive Officer and President |
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|
|
$700,000 |
0% |
Karl Pichler - Chief Financial Officer, Senior Vice President and Treasurer |
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$425,000 |
0% |
Mark W. Roenigk - General Manager, Senior Vice President, Worldwide Operations (1) |
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|
$485,000 |
21% |
Scott Crenshaw - Senior Vice President, Strategy and Product (2) |
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$400,000 |
N/A |
Tiffany Lathe - General Counsel and Vice President (3) |
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£209,000 |
15% |
(1) |
On December 7, 2015, Mr. Roenigk became General Manager, Senior Vice President, Worldwide Operations. Previously, Mr. Roenigk served as our Chief Operating Officer. Mr. Roenigk’s salary increase represents assumption of responsibilities over our Hybrid and Dedicated businesses in addition to global operations. |
(2) | Mr. Crenshaw joined Rackspace on April 6, 2015 as our
Senior Vice President, Strategy and Product. |
(3) | Ms. Lathe served as interim General Counsel from February
2014 to December 2015. Ms. Lathe formerly received a £27,000 annualized stipend for her service as interim General Counsel.
This stipend was made permanent in March 2015 in recognition of her service to the Company. |
Short-Term Incentive Compensation
The
Company’s short-term cash bonus plan is a non-equity incentive, or NEIP, and is based on the achievement of quarterly and
annual performance goals. The NEIP is designed to reward executives and other employees for the achievement of our short-term
financial and strategic goals. Executive officers participate in the same NEIP as all other Rackers, except those covered by incentive
plans designed for sales, product development, or support. We believe rewarding our executive and non-executive employees based
on achievement of the same financial and corporate objectives contributes to a collaborative, team-oriented culture.
The NEIP is designed to
align rewards with the execution of activities that drive measurable success and progress against our growth strategies as reflected
in our annual operating plan. This program provides a direct and measurable way to align each executive officer’s goals with
our corporate objectives of building high- performing teams of talented and engaged Rackers, creating loyal customers, and increasing
revenue, profit, and stockholder value. Achievement of the goals requires a sustained high level of performance.
Target
bonus percentages for our named executive officers were unchanged in 2015, and were 115% of salary for Mr. Rhodes, 80% for Messrs.
Pichler, Roenigk, and Crenshaw, and 60% for Ms. Lathe. The Compensation Committee considers the competitive market range when setting
target bonus percentages.
The
2015 NEIP was based on quarterly targets for adjusted net income and results were evaluated quarterly. For actual performance
above the target, 75% of the difference between the actual and target performance level was added to the bonus pool for all Rackers.
For performance below the target, 75% of the difference was removed from the bonus pool. The Company achieved adjusted net income
of $24.2 million, $22.9 million, $27.1 million, and $35.9 million in each of Q1, Q2, Q3, and Q4, relative to the targets of $22.2
million, $25.8 million, $33.7 million, and $40.2 million.
Because
the plan is designed to pay out less than the actual quarterly attainment if there is an under- achievement and more if there
is an over-achievement, the resulting quarterly payouts can substantially deviate from annual results. In fact, in 2015 this possibility
played out in that the quarterly payout amounts would have resulted in an 82% annual payout, although there was a 90% annual achievement
of the targets. The Compensation Committee believed it was appropriate to adjust the payout to better reflect the achievement
of our performance goals over the full year, and therefore adjusted the annual payout amount from 82% to 90%, to align it with
the 90% achievement. All payouts under the NEIP for 2015 were consistent with the Company’s previously disclosed terms of
the plan.
Long-Term Incentive Compensation
We provide long-term incentive
compensation in the form of equity awards to incentivize our executive officers to increase long-term stockholder value, to foster
a long-term commitment to us and our stockholders, and to attract and retain executives.
The Compensation Committee
considers a number of factors when determining the size and mix of our long-term incentive compensation arrangements, including
competitive market practices, individual performance, retention needs, and the executive officer’s overall compensation package.
Initial equity awards granted at the commencement of employment are generally designed to attract experienced executives, and may
therefore be weighted more heavily towards service-vesting. Subsequent awards are designed to ensure that equity compensation remains
competitive within our industry group and provides significant retention incentive. These annual awards are generally evenly weighted
between performance-based and service-vesting vehicles.
In 2010 we introduced
equity holding requirements for our executive officers as described below under “Other Considerations and Policies—Stock
Ownership Guidelines for Management.”
Annual Equity Awards
On March 4, 2015, our executive
officers were granted performance-based restricted stock unit awards. These PSU awards have a minimum performance period of two
years, and are earned based upon the achievement of a pre-established revenue goal. This revenue goal may be achieved as early
as two years or as late as four years following the date of grant. The performance period started on January 1, 2015, and progress
against the target performance level is measured annually. If the revenue goal is achieved:
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• | Within the first two years, then 75% of the target number of shares will immediately vest on certification and an additional
75% will vest on August 15, 2017; or |
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• | Within the first three years, then 50% of the target number of shares will immediately vest on certification and an additional
50% will vest on August 15, 2018; or |
| • | Within the first four years, then 25% of the target number
of shares will immediately vest on certification and an additional 25% will vest on August 15,
2019. |
The PSU awards may not vest any earlier than
December 31, 2016, and will be forfeited if the revenue goal is not achieved by the completion of the fiscal year ending December
31, 2018.
On August 13, 2015, our executive officers
were granted service-vesting restricted stock unit awards. The RSU awards vest in four equal annual installments beginning on
August 15, 2016.
Recruiting and Special Awards
On May 20, 2015, Mr. Crenshaw
received an equity award with an initial accounting value of approximately $3 million, comprised one-third of PSUs and two-thirds
of RSUs. This award was offered as a material inducement for Mr. Crenshaw to join Rackspace. The PSU award is subject to the same
performance requirements as those granted to the other named executive officers on March 4, 2015. The RSU award vests in two equal
installments, on each of the first and second anniversaries of the grant date.
On December 14, 2015, Mr.
Roenigk received an additional equity award in conjunction with his promotion and the execution of an employment agreement. This
award had an initial accounting value of approximately $3 million, comprised one-half of PSUs and one-half of RSUs. The PSU award
will be earned based on the achievement of pre-established revenue goals, and may be earned between 50% and 200% the target number
of shares. One-third of the shares earned will be delivered upon certification of the performance goal attainment and the remaining
two-thirds of the shares will be delivered in two equal annual installments beginning on November 15, 2017. The RSU award will
vest in three equal annual installments beginning on November 15, 2016.
Prior Year Grants with Performance Periods
Ending in 2015
PSUs granted prior to
2014 were generally to be earned contingent on our absolute and relative total shareholder returns, or TSR. The PSUs granted on
February 27, 2012 and August 21, 2012 were to be earned if, on the third anniversary of the grant date: (1) the Company’s
absolute TSR was not negative, and (2) the Company’s relative TSR was in the top 65.0% of the NASDAQ Internet Index. For
this purpose, TSR was calculated based on the average closing stock price for the 20 trading days prior to the grant and measurement
dates. The number of shares of our common stock ultimately earned was as described below, with interpolation for performance between
the minimum, target, and maximum payout levels:
3-Year
Performance Vested PSU’s |
|
|
Top 25.0% TSR for NASDAQ Internet Index |
150% of target shares |
Top 50.0% TSR for NASDAQ Internet Index |
100% of target shares |
Top 65.0% TSR for NASDAQ Internet Index |
50% of target shares |
The Compensation Committee
determined that the PSUs granted on February 27, 2012 and August 21, 2012 did not meet the stated performance criteria, and were
subsequently canceled. Similar PSUs were awarded on May 22, 2013 and August 22, 2013, and are still outstanding, with their performance
period ending in 2016.
On March 6, 2014, the
Compensation Committee granted PSUs to Messrs. Pichler and Roenigk and Ms. Lathe. These PSU awards were to be earned based on
the achievement of a compound annual growth rate in Company fiscal revenues in excess of 10% through 2015. In March 2016, the
PSUs vested upon the Committee’s certification that the performance goal was achieved. As a result, Messrs. Pichler and
Roenigk each vested in 17,594 shares, and Ms. Lathe vested in 8,797 shares. Mr. Rhodes did not receive a PSU award on March 6,
2014, and Mr. Crenshaw was not an employee in 2014.
Benefits and Perquisites
Our executive officers participate in our standard
benefit plans, which are generally offered to all employees.
In the US, these benefits
include our Section 401(k) plan, group medical, dental, and vision programs, and health care and flexible spending accounts. Vice
Presidents and Senior Vice Presidents in the US are eligible to participate in our Nonqualified Deferred Compensation plan, but
there is no Company matching contribution for this program.
In the UK, these benefits
include Company contributions to our retirement savings plan, single level private medical insurance, and other wellness benefits
not subsidized by the Company. As a Vice President in the UK, Ms. Lathe receives higher Company contributions to her retirement
savings plan than employees below the level of Vice President.
Life and disability insurance benefits are standard
within each country for every Racker.
In general, we do not provide
any perquisites or other personal benefits to our executive officers. Executive officers do not earn additional retirement income
under any supplemental executive retirement plan. Ms. Lathe received a car allowance as a legacy practice in our international
business. The Compensation Committee discontinued this practice for executive officers effective December 31, 2015. In 2015, the
Compensation Committee reviewed Mr. Rhodes’s personal security arrangement resulting from his position as Chief Executive
Officer, and approved payment for the installation of a home security system. Mr. Rhodes is responsible for the ongoing monitoring
costs of this system.
See the “All Other Compensation Earnings”
column of the Summary Compensation Table.
Severance Compensation and Termination
Protection
Our Compensation Committee
believes that our limited severance payment and equity vesting benefit upon termination of employment following Change of Control
(a “double-trigger” arrangement) minimizes the distraction caused by a potential corporate transaction, and reduces
the risk that an executive officer will leave his or her employment before a transaction is consummated.
In general, all equity
awards are forfeited upon any and all forms of separation from the Company, except for certain equity awards provided to Messrs.
Rhodes and Roenigk as part of a promotion to a new role and upon executing an employment agreement. Service-vesting equity awards
do not accelerate unless the recipient experiences a qualifying termination of employment within 12 months of the Change of Control.
Performance- based equity awards granted prior to December 2015 truncate upon a Change of Control, and the underlying shares of
common stock are earned based on actual performance achieved. Starting with PSU awards granted in December 2015, performance-based
awards will convert to time based awards at the target performance level and will continue to vest, unless the employee experiences
a qualifying termination of employment within 12 months of a Change of Control.
See the section entitled
“Employment Contracts and Change of Control Arrangements” in this proxy statement for a description of the tables setting
forth the potential payments to be made to each named executive officer and definitions of key terms under these agreements.
Executive Compensation Changes for 2016
Short-Term Incentive Plan
The calculation of our
2016 short-term incentive will be based on the Company’s performance against profit and revenue goals established by the
Compensation Committee to better incentivize executive officers towards profitable growth.
Long-Term Incentive Compensation
In 2016, the performance-based
component of our long-term incentives will be earned subject to the achievement of pre-established profit and revenue goals. The
overall mix of award grant value will remain split evenly between performance-based restricted stock units and service-vesting
restricted stock units.
CEO Compensation and Pay for Performance
Mr. Rhodes was appointed
as our Chief Executive Officer in September 2014. At that time, the independent members of our Board set his target total direct
compensation below the median of our Peer Group pending a further review of his performance in his new position. Mr. Rhodes did
not receive an increase to his base salary or bonus target in 2015, which resulted in his target total cash compensation opportunity
for the year at approximately the 30th percentile of our Peer Group. Mr. Rhodes’s target long-term incentive compensation
opportunity was approximately at the 55th percentile.
In recommending Mr. Rhodes’s
compensation and pay mix to the independent directors, the Compensation Committee considered several factors, including his tenure
in the role, competitive market positioning, market trends and practices, and performance alignment. The Compensation Committee
recommended that Mr. Rhodes’s target total direct compensation opportunity be significantly performance-based and/or aligned
to long-term stockholder value creation. Consequently, over half of his 2015 target total direct compensation opportunity was
performance-based, and over three-fourths of his target total direct compensation opportunity was delivered in equity awards vesting
over multi-year periods.
The following graph illustrates
the correlation between Mr. Rhodes’s compensation and our financial performance during his tenure as our President and/or
CEO. Realizable pay is defined as the sum of base salary, actual short-term incentive payouts, and the “intrinsic”
value of his outstanding equity awards based on the December 31, 2015 closing price of our stock, $25.32 per share, with performance-based
equity awards assumed to be achieved at the target performance level. Between 2014 and 2015, Mr. Rhodes’s realizable pay
declined 38% from the value of his target total direct compensation opportunity. The Compensation Committee believes this relationship
illustrates alignment between our executive compensation program and our performance.
Other Compensation Policies
Equity Grant Practices
We have an equity award
process that provides for pre-established, regular grant dates each year following formally adopted practices and procedures. If
we grant equity awards other than as part of this process, those awards also have a pre-established regular grant date following
our practices and procedures.
Our Amended and Restated
2007 Long-Term Incentive Plan prohibits any back-dating of stock options, and prohibits option repricing without stockholder approval.
Stock Ownership Guidelines for Management
We maintain stock ownership
requirements for our executive officers. Under these requirements, our Chief Executive Officer must hold shares of our common stock
with a value equal to or greater than three times his current annual base salary and our other executive officers must hold shares
of our common stock with a value equal to or greater than one time their annual base salary. The “in-the-money” value
of vested stock options and the value of shares of our common stock held outright or in trust are used in determining whether our
executive officers have satisfied their stock ownership requirements. If our executive officers do not meet these ownership requirements,
50% of the after-tax value must be retained in shares for any vesting or exercise transaction.
Prohibition on Hedging/Policy on Pledging
As part of our insider
trading policies, we have implemented “no hedging” practices which help ensure that executive officers maintain long-term
performance alignment with the Company and other stockholders. Additionally, equity holdings available for pledge as collateral
are limited to the greater of (i) one-third of the individual’s total stock holdings (including vested options in the denominator;
or (ii) 100,000 shares; provided that any such amount not exceed an amount equal to the greater of 1% of the outstanding shares
or the average weekly reported volume of trading during the four calendar weeks preceding the pledge and further provided that
any pledge first receive pre-clearance from our General Counsel, and that any such pledge may not occur during a blackout period.
Tax Considerations
Section 162(m) places
a limit of $1.0 million on the amount of compensation we may deduct for federal income tax purposes in any one year with respect
to our Chief Executive Officer and certain other highly compensated executive officers, unless certain exemption requirements
are met. An exemption to this deductibility limit may be available for various forms of “performance-based” compensation.
While the Compensation Committee cannot predict how the deductibility limit may impact our executive compensation program in future
years, the Compensation Committee intends to maintain an approach to executive compensation that strongly links pay to performance.
In addition, while the Compensation Committee has not adopted a formal policy regarding tax deductibility of compensation paid
to our named executive officers, the Compensation Committee intends to consider tax deductibility under Section 162(m) as a factor
in compensation structure. The Compensation Committee reserves the discretion to award compensation that is not tax deductible
if it determines that doing so is in the best interests of the Company and its stockholders.
REPORT OF THE COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS
The material in this
report 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. This report
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 the Company specifically incorporates it by reference into such filing.
We, the Compensation Committee
of the Board of Directors of Rackspace Hosting, Inc., have reviewed and discussed the Compensation Discussion and Analysis contained
in this proxy statement with management. Based on such review and discussion, we have recommended to the Board of Directors that
the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference into Rackspace Hosting,
Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015.
THE COMPENSATION COMMITTEE
Ossa Fisher (Chairman)
Michael Sam Gilliland
Lila Tretikov
John Harper
Risk Considerations in our Compensation Program
The Compensation Committee
reviews the relationship between risk and reward in our compensation programs on an ongoing basis. Its compensation consultant
is engaged annually to review the Company’s compensation programs for inherent risks that may be generated through our programs,
policies, or practices for our executive officers or other employees.
The Compensation Committee
believes that the combination of different types of compensation, the amount of compensation, and our internal controls mitigate
potential risk. At this time, the Compensation Committee believes that our compensation programs do not create risks that are reasonably
likely to have a materially adverse effect on the Company.
Elements of our executive compensation program
that we believe mitigate excessive risks are:
| • | Compensation levels are within a reasonable range of
the external market. |
| • | Balance of fixed and variable compensation, and short- and long-term incentives. The majority of executive officer compensation
is variable and is in the form of long-term incentives. |
| • | Performance metrics are generally balanced between the
top and bottom line. The 2016 short-term incentive and long-term performance-based awards will be based on both revenue and profit
metrics. |
| • | Incentive plan payouts are capped, and targets are reasonably
difficult to achieve. Our Compensation Committee reviews and approves our bonus formula and has the authority to limit payouts. |
| • | Executive officers are subject to stock ownership requirements,
trading restrictions while in possession of material information, and are prohibited from hedging. |
| • | Strict internal controls over the measurement and calculation of profit and revenue, designed to keep performance metrics from
being susceptible to manipulation by any employee, including our executives. |
| • | All of our employees are required to receive continuing
education of ethics and on our Code of Business Conduct and Ethics, which covers among other things, accuracy of books and record. |
Compensation Committee Interlocks and Insider
Participation
No current member of our
Compensation Committee, consisting of Ossa Fisher (Chairman), Michael Sam Gilliland, Lila Tretikov, and John Harper has ever been
an officer or employee of ours. None of our executive officers serve, or have served during the past fiscal year, as a member of
the Board of Directors or Compensation Committee of any other company that has one or more executive officers serving as a member
of our Board of Directors or Compensation Committee.
Summary Compensation Table
The following table presents
certain information required by the SEC relating to various forms of compensation awarded to, earned by or paid during the years
set forth below to the persons who served as our principal executive officer and principal financial officer in 2015, and the
three most highly compensated executive officers, other than the principal executive officer and principal financial officer,
serving at December 31, 2015. Such executive officers collectively are referred to as the “named executive officers.”
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
|
|
| |
| Year | | |
Salary | | |
Bonus | | |
Grant
Date Fair Value for Stock Awards (RSU) (1) | | |
Grant
Date Fair Value for Options (1) | | |
Non-Equity
Incentive Plan Compensation (2) | | |
All
Other Compensation Earnings | |
| Total |
|
William Taylor Rhodes - Chief
Executive Officer and President (3) |
|
| |
| 2015 | | |
$ | 702,606 | | |
$ | — | | |
$ | 5,499,969 | | |
$ | — | | |
$ | 718,463 | | |
$ | 14,984 | (4) |
| $ |
6,936,022 |
|
| |
| 2014 | | |
| 566,519 | | |
| 5,000 | | |
| 10,949,912 | | |
| 449,998 | | |
| 530,550 | | |
| 868 | (4) |
| |
12,502,847 |
|
| |
| 2013 | | |
| 374,938 | | |
| — | | |
| 1,274,911 | | |
| 424,979 | | |
| 191,452 | | |
| 72,541 | (4) |
| |
2,338,821 |
|
Karl Pichler - Chief Financial
Officer, Senior Vice President and Treasurer |
|
| |
| 2015 | | |
$ | 428,387 | | |
$ | — | | |
$ | 1,599,985 | | |
$ | — | | |
$ | 303,450 | | |
$ | 2,143 | (6) |
| $ |
2,333,965 |
|
| |
| 2014 | | |
| 425,220 | | |
| 106,250 | (5) | |
| 2,354,591 | | |
| 249,997 | | |
| 275,400 | | |
| 1,104 | (6) |
| |
3,412,562 |
|
| |
| 2013 | | |
| 359,615 | | |
| — | | |
| 824,959 | | |
| 274,985 | | |
| 182,213 | | |
| 2,457 | (6) |
| |
1,644,229 |
|
Mark W. Roenigk - General
Manager, Senior Vice President, Worldwide Operations |
|
| |
| 2015 | | |
$ | 405,763 | | |
$ | — | | |
$ | 4,499,899 | | |
$ | — | | |
$ | 303,110 | | |
$ | 2,910 | (7) |
| $ |
5,211,682 |
|
| |
| 2014 | | |
| 396,233 | | |
| — | | |
| 2,248,347 | | |
| 249,997 | | |
| 235,200 | | |
| 2,454 | (7) |
| |
3,132,231 |
|
| |
| 2013 | | |
| 363,269 | | |
| — | | |
| 712,388 | | |
| 237,476 | | |
| 181,770 | | |
| 2,457 | (7) |
| |
1,497,360 |
|
Scott Crenshaw - Senior Vice
President, Strategy and Product - US (8) |
|
| |
| 2015 | | |
$ | 298,883 | | |
$ | 500,000 | (9) | |
$ | 3,749,906 | | |
$ | — | | |
$ | 191,599 | | |
$ | 96,852 | (10) |
|
$ |
4,837,240 |
|
| |
| 2014 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| |
— |
|
| |
| 2013 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| |
— |
|
Tiffany Lathe - General Counsel
and Vice President (11) |
|
| |
| 2015 | | |
$ | 310,431 | | |
$ | 3,439 | (12) | |
$ | 624,974 | | |
$ | — | | |
$ | 171,047 | | |
$ | 49,594 | (13) |
| $ |
1,159,485 |
|
| |
| 2014 | | |
| 277,178 | | |
| 126,556 | (12) | |
| 1,328,359 | | |
| — | | |
| 138,764 | | |
| 47,533 | (13) |
| |
1,918,390 |
|
| |
| 2013 | | |
| 237,870 | | |
| — | | |
| 150,253 | | |
| 150,268 | | |
| 122,605 | | |
| 42,717 | (13) |
| |
703,713 |
|
(1) | Excluding
the impact of the forfeiture rate relating to service-based vesting conditions, these
amounts represent the aggregate grant date fair value of restricted stock unit and option
awards. These amounts do not represent the actual amounts paid to or realized by the
named executive officer for these awards. The value at the grant date for restricted
stock units and option awards is recognized over the number of days of service required
for the grant to become vested. |
(2) | Represents
payments of the NEIP designed to reward named executive officers for achievement of our
financial and strategic goals for 2013, 2014, and 2015, as further described in the “Compensation
Discussion and Analysis.” |
(3) | Mr. Rhodes
was appointed to the position of President on January 13, 2014. He was then appointed
to the position of Chief Executive Officer on September 16, 2014. Mr. Rhodes’s
cash compensation was paid in British pounds from January 1, 2013 through June 30, 2013.
The amounts presented for the six months ended June 30, 2013 have been converted from
British pounds to U.S. dollars using the average exchange rates of £1 = $1.5449. |
(4) | Represents
$609 in Company matching contributions to the 401(k) Plan, $180 in life insurance premiums,
$861 in taxable gifts and $13,334 for a home security system for the year ended December
31, 2015; $180 in life insurance premiums and $688 in taxable gifts for the year ended
December 31, 2014; and $53,453 in a cost of living allowance, $18,725 in relocation expense
reimbursements, $176 in private health and dental insurance and $187 in life insurance
premiums for the year ended December 31, 2013. |
(5) | Represents
a discretionary bonus paid to Mr. Pichler in 2014 as a reward for work completed during
the strategic transaction evaluation. |
(6) | Represents
$1,963 in Company matching contributions to the 401(k) Plan and $180 in life insurance
premium for the year ended December 31, 2015; $924 in Company matching contributions
to the 401(k) Plan and $180 in life insurance premium for the year ended December 31,
2014; and $2,040 in Company matching contribution to the 401(k) Plan and $417 in life
insurance premiums for the year ended December 31, 2013. |
(7) | Represents
$2,496 in Company matching contributions to the 401(k) Plan and $414 in life insurance
premium for the year ended December 31, 2015; $2,040 in Company matching contribution
to the 401(k) Plan and $414 in life insurance premiums for the year ended December 31,
2014; and $2,040 in Company matching contribution to the 401(k) Plan and $417 in life
insurance premiums for the year ended December 31, 2013. |
(8) | Mr. Crenshaw
was appointed to the position of Senior Vice President, Strategy and Product on April
6, 2015. |
(9) | Represents
a sign-on bonus paid to Mr. Crenshaw. |
(10) | Represents
$535 in Company matching contributions to the 401(k) Plan, $303 in life insurance premium
and $96,014 in relocation reimbursement for the year ended December 31, 2015. |
(11) | Ms. Lathe’s
cash compensation is paid in British pounds. The amounts presented in this summary compensation
table for the years ended December 31, 2013, 2014 and 2015 have been converted from British
pounds to U.S. dollars using the average exchange rates of £1 = $1.5643, £1
= $1.6476 and £1 = $1.5283, respectively. |
(12) | Represents
a stipend received while serving as interim General Counsel. The amount reported for
2014 includes $81,144 paid in 2014 as a reward for work completed during the strategic
transaction evaluation. The remaining $45,412 represents the stipend Ms. Lathe received
in her role as interim General Counsel. Please see “Compensation Discussion and
Analysis–Base Salaries” for more details. |
(13) | Represents
$31,254 in Company contributions to retirement savings and $18,340 in car allowance for
the year ended December 31, 2015; $27,762 in Company contributions to retirement savings
and $19,771 in car allowance for the year ended December 31, 2014; and $23,945 in Company
contributions to retirement savings and $18,772 in car allowance for the year ended December
31, 2013. |
Grants of Plan-Based Awards in Fiscal 2015
The following table set
forth information regarding grants of plan-based awards made to our named executive officers during the fiscal year ended December
31, 2015.
| |
| | | |
| | | |
| | | |
| | | |
| | |
|
|
|
|
| |
| Grant
Date | | |
Estimated
Possible Payouts under NonEquity Incentive Plan Awards Target (1) | | |
All
Other Stock Awards: Number of Shares of Stock or Units | | |
All
Other Options Awards: Number of Securities Underlying Options | | |
Exercise
or Base Price of Option Awards | | |
Grant Date Fair
Value of Stock and Option
Awards/Incremental Fair Value |
|
William Taylor Rhodes - Chief
Executive Officer and President |
|
| |
| 3/4/2015 | | |
| — | | |
| 54,650 | (2) | |
| — | | |
$ | — | | |
$ |
2,749,988 |
|
| |
| 8/13/2015 | | |
| — | | |
| 93,125 | (3) | |
| — | | |
| — | | |
$ |
2,749,981 |
|
| |
| — | | |
$ | 805,000 | | |
| — | | |
| — | | |
| — | | |
|
— |
|
Karl Pichler - Chief Financial
Officer, Senior Vice President and Treasurer |
|
| |
| 3/4/2015 | | |
| — | | |
| 15,898 | (2) | |
| — | | |
| — | | |
$ |
799,988 |
|
| |
| 8/13/2015 | | |
| — | | |
| 27,091 | (3) | |
| — | | |
| — | | |
$ |
799,997 |
|
| |
| — | | |
$ | 340,000 | | |
| — | | |
| — | | |
| — | | |
|
— |
|
Mark W. Roenigk - General
Manager, Senior Vice President, Worldwide Operations |
|
| |
| 3/4/2015 | | |
| — | | |
| 14,904 | (2) | |
| — | | |
| — | | |
$ |
749,969 |
|
| |
| 8/13/2015 | | |
| — | | |
| 25,397 | (3) | |
| — | | |
| — | | |
$ |
749,973 |
|
| |
| 12/14/2015 | | |
| — | | |
| 120,966 | (4) | |
| — | | |
| — | | |
$ |
2,999,957 |
|
| |
| — | | |
$ | 337,000 | | |
| — | | |
| — | | |
| — | | |
|
— |
|
Scott Crenshaw - Senior Vice
President, Strategy and Product - US |
|
| |
| 5/20/2015 | | |
| — | | |
| 69,604 | (5) | |
| — | | |
| — | | |
$ |
2,999,932 |
|
| |
| 8/13/2015 | | |
| — | | |
| 25,397 | (3) | |
| — | | |
| — | | |
$ |
749,974 |
|
| |
| — | | |
$ | 235,608 | | |
| — | | |
| — | | |
| — | | |
|
— |
|
Tiffany Lathe - General Counsel
and Vice President (6) |
|
| |
| 3/4/2015 | | |
| — | | |
| 6,210 | (2) | |
| — | | |
| — | | |
$ |
312,487 |
|
| |
| 8/13/2015 | | |
| — | | |
| 10,582 | (3) | |
| — | | |
| — | | |
$ |
312,487 |
|
| |
| — | | |
$ | 191,649 | | |
| — | | |
| — | | |
| — | | |
|
— |
|
(1) | The Compensation
Committee has set a maximum annual payout of 150% of the target. There is no threshold
payment amount under our Non-Equity Incentive Plan. |
(2) | Represents
performance-based restricted stock units (“PSUs”) granted pursuant to our
Amended and Restated 2007 Long Term Incentive Plan. These PSUs’ are to be earned
based on the achievement of a pre-established revenue goal. Annual measurement dates
commence on December 31, 2016 and continue until the units are earned or December 31,
2018, at which time the units will be forfeited if the performance goal has not been
met. |
(3) | Represents
restricted stock units granted pursuant to our Amended and Restated 2007 Long Term Incentive
Plan. These restricted stock units vest in four equal annual installments beginning on
August 15, 2016, so long as the named executive officer continues to be employed with
us. |
(4) | Represents
restricted stock units granted pursuant to our Amended and Restated 2007 Long Term Incentive
Plan. 60,483 of these restricted stock units vest in three equal annual installments
beginning on November 15, 2016, so long as the named executive officer continues to be
employed with us. The remaining 60,483 units are to be earned based on the achievement
of pre-established revenue goals, and may be earned between 50% and 200% of target depending
on achievement relative to the goal. One-third of the shares of our common stock subject
to the units will be delivered upon certification of the performance level attainment,
and the remaining two-thirds of the shares will be delivered in two equal annual installments
beginning on November 15, 2017, so long as the named executive officer continues to be
employed with us. These PSUs will be forfeited if the performance goal has not been met.
For more information, see the “Compensation Discussion and Analysis—Long-Term
Incentive Compensation–Recruiting and Special Awards.” |
(5) | Represents
restricted stock units granted pursuant to our Amended and Restated 2007 Long Term Incentive
Plan. 46,403 of these restricted stock units vest in two equal installments, on each
of the first and second anniversaries of the grant date, so long as the named executive
officer continues to be employed with us. The remaining 23,201 units are to be earned
based on the same performance goals as the PSUs granted to the other named executive
officers on March 4, 2015. For more information, see the “Compensation Discussion
and Analysis—Long-Term Incentive Compensation–Recruiting and Special Awards.” |
(6) | Ms. Lathe’s
non-equity incentive plan target converted from British pounds to U.S. dollars using
the average exchange rate of £1 = $1.5283. |
Summary
Compensation Table and Grants of Plan-Based Awards Table Discussion
See
the section entitled “Employment Contracts and Change-of-Control Arrangements” in this proxy statement for a summary
of the potential payments to be made to each named executive officer in the event of a termination of employment and definitions
of key terms under these agreements.
We
have not repriced any stock options or made any material modifications to any equity based awards held by our named executive
officers during 2015.
Outstanding
Equity Awards at December 31, 2015
The
following table sets forth information regarding the outstanding stock options and other stock awards held by our named executive
officers as of December 31, 2015, valued at $25.32, the fair market value per share of our common stock on that date.
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Option
Awards |
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Stock
Awards |
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Equity |
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Incentive |
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Equity |
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Plan |
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Incentive |
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Awards: |
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Plan |
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Market |
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Awards: |
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or Payout |
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Number of |
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Value of |
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Market |
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Unearned |
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Unearned |
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Number of |
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Value of |
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Shares, |
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Shares, |
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Number of |
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Number of |
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Shares or |
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Shares or |
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Units or |
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Units or |
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|
Securities |
|
Securities |
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|
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Units of |
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Units of |
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Other |
|
Other |
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|
|
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Underlying |
|
Underlying |
|
Option |
|
|
|
Stock |
|
Stock |
|
Rights |
|
Rights |
|
|
|
|
Unexercised |
|
Unexercised |
|
Exercise |
|
Option |
|
That Have |
|
That |
|
That Have |
|
That Have |
|
|
Grant |
|
Options (#) |
|
Options (#) |
|
Price |
|
Expiration |
|
Not Yet |
|
Have Not |
|
Not |
|
Not Vested |
|
|
Date |
|
Exercisable |
|
Unexercisable |
|
($) |
|
Date |
|
Vested (#) |
|
Vested ($) |
|
Vested (#) |
|
($) |
|
William Taylor Rhodes - Chief Executive Officer |
|
8/13/2015(1) |
|
— |
|
— |
|
|
— |
|
— |
|
93,125 |
|
2,357,925 |
|
— |
|
— |
|
|
3/4/2015(2) |
|
— |
|
— |
|
|
— |
|
— |
|
— |
|
— |
|
54,650 |
|
1,383,738 |
|
|
11/12/2014(1) |
|
— |
|
— |
|
|
— |
|
— |
|
26,408 |
|
668,651 |
|
— |
|
— |
|
|
11/12/2014(3) |
|
— |
|
— |
|
|
— |
|
— |
|
— |
|
— |
|
105,633 |
|
2,674,628 |
|
|
8/14/2014(1) |
|
— |
|
— |
|
|
— |
|
— |
|
36,115 |
|
914,432 |
|
— |
|
— |
|
|
3/6/2014(1) |
|
— |
|
— |
|
|
— |
|
— |
|
8,907 |
|
225,525 |
|
— |
|
— |
|
|
3/6/2014(4) |
|
— |
|
— |
|
|
— |
|
— |
|
52,784 |
|
1,336,491 |
|
— |
|
— |
|
|
3/6/2014(5) |
|
6,175 |
|
18,523 |
|
$ |
37.89 |
|
3/6/2021 |
|
— |
|
— |
|
— |
|
— |
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|
8/22/2013(6) |
|
— |
|
— |
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|
— |
|
— |
|
— |
|
— |
|
12,212 |
|
309,208 |
|
|
8/12/2013(7) |
|
7,296 |
|
7,294 |
|
$ |
47.51 |
|
8/12/2020 |
|
— |
|
— |
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— |
|
— |
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|
8/12/2013(1) |
|
— |
|
— |
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|
— |
|
— |
|
2,630 |
|
66,592 |
|
— |
|
— |
|
|
5/22/2013(6) |
|
— |
|
— |
|
|
— |
|
— |
|
— |
|
— |
|
11,748 |
|
297,459 |
|
|
5/10/2013(7) |
|
5,996 |
|
5,994 |
|
$ |
40.43 |
|
5/10/2020 |
|
— |
|
— |
|
— |
|
— |
|
|
5/10/2013(1) |
|
— |
|
— |
|
|
— |
|
— |
|
2,164 |
|
54,792 |
|
— |
|
— |
|
|
8/9/2012(7) |
|
3,258 |
|
1,086 |
|
$ |
53.47 |
|
8/9/2019 |
|
— |
|
— |
|
— |
|
— |
|
|
8/9/2012(1) |
|
— |
|
— |
|
|
— |
|
— |
|
467 |
|
11,824 |
|
— |
|
— |
|
|
2/15/2012(7) |
|
1,453 |
|
726 |
|
$ |
54.12 |
|
2/15/2019 |
|
— |
|
— |
|
— |
|
— |
|
|
2/15/2012(8) |
|
— |
|
— |
|
|
— |
|
— |
|
346 |
|
8,761 |
|
— |
|
— |
|
|
8/9/2011(7) |
|
2,596 |
|
— |
|
$ |
35.41 |
|
8/9/2018 |
|
— |
|
— |
|
— |
|
— |
|
|
2/15/2011(7) |
|
1,987 |
|
— |
|
$ |
38.62 |
|
2/15/2018 |
|
— |
|
— |
|
— |
|
— |
|
|
8/11/2010(7) |
|
1,407 |
|
— |
|
$ |
18.66 |
|
8/11/2017 |
|
— |
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— |
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— |
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— |
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Option Awards |
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Stock Awards |
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Equity |
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Incentive |
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Equity |
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Plan |
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Incentive |
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Awards: |
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Plan |
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Market |
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Awards: |
|
or Payout |
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Number of |
|
Value of |
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|
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|
|
|
|
Market |
|
Unearned |
|
Unearned |
|
|
|
|
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|
|
|
|
|
|
|
|
Number of |
|
Value of |
|
Shares, |
|
Shares, |
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|
|
|
Number of |
|
Number of |
|
|
|
|
|
|
Shares or |
|
Shares or |
|
Units or |
|
Units or |
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|
|
|
Securities |
|
Securities |
|
|
|
|
|
|
Units of |
|
Units of |
|
Other |
|
Other |
|
|
|
|
Underlying |
|
Underlying |
|
|
Option |
|
|
|
Stock |
|
Stock |
|
Rights |
|
Rights |
|
|
|
|
Unexercised |
|
Unexercised |
|
|
Exercise |
|
Option |
|
That Have |
|
That |
|
That Have |
|
That Have |
|
|
Grant |
|
Options (#) |
|
Options (#) |
|
|
Price |
|
Expiration |
|
Not Yet |
|
Have Not |
|
Not |
|
Not Vested |
|
|
Date |
|
Exercisable |
|
Unexercisable |
|
|
($) |
|
Date |
|
Vested (#) |
|
Vested ($) |
|
Vested (#) |
|
($) |
|
Karl Pichler - Chief Financial Officer, Senior Vice President and Treasurer |
|
8/13/2015(1) |
|
— |
|
— |
|
|
— |
|
— |
|
27,091 |
|
685,944 |
|
— |
|
— |
|
|
3/4/2015(2) |
|
— |
|
— |
|
|
— |
|
— |
|
— |
|
— |
|
15,898 |
|
402,537 |
|
|
8/14/2014(1) |
|
— |
|
— |
|
|
— |
|
— |
|
24,076 |
|
609,604 |
|
— |
|
— |
|
|
3/6/2014(1) |
|
— |
|
— |
|
|
— |
|
— |
|
4,948 |
|
125,283 |
|
— |
|
— |
|
|
3/6/2014(5) |
|
3,431 |
|
10,290 |
|
$ |
37.89 |
|
3/6/2021 |
|
— |
|
— |
|
— |
|
— |
|
|
3/6/2014(9) |
|
— |
|
— |
|
|
— |
|
— |
|
— |
|
— |
|
17,594 |
|
445,480 |
|
|
8/22/2013(6) |
|
— |
|
— |
|
|
— |
|
— |
|
— |
|
— |
|
6,106 |
|
154,604 |
|
|
8/12/2013(7) |
|
3,648 |
|
3,647 |
|
$ |
47.51 |
|
8/12/2020 |
|
— |
|
— |
|
— |
|
— |
|
|
8/12/2013(1) |
|
— |
|
— |
|
|
— |
|
— |
|
1,315 |
|
33,296 |
|
— |
|
— |
|
|
5/22/2013(6) |
|
— |
|
— |
|
|
— |
|
— |
|
— |
|
— |
|
10,070 |
|
254,972 |
|
|
5/10/2013(7) |
|
5,139 |
|
5,138 |
|
$ |
40.43 |
|
5/10/2020 |
|
— |
|
— |
|
— |
|
— |
|
|
5/10/2013(1) |
|
— |
|
— |
|
|
— |
|
— |
|
1,854 |
|
46,943 |
|
— |
|
— |
|
|
8/9/2012(7) |
|
8,147 |
|
2,715 |
|
$ |
53.47 |
|
8/9/2019 |
|
— |
|
— |
|
— |
|
— |
|
|
8/9/2012(1) |
|
— |
|
— |
|
|
— |
|
— |
|
1,168 |
|
29,574 |
|
— |
|
— |
|
|
2/15/2012(7) |
|
8,721 |
|
2,906 |
|
$ |
54.12 |
|
2/15/2019 |
|
— |
|
— |
|
— |
|
— |
|
|
2/15/2012(8) |
|
— |
|
— |
|
|
— |
|
— |
|
1,385 |
|
35,068 |
|
— |
|
— |
|
|
8/9/2011(7) |
|
5,193 |
|
— |
|
$ |
35.41 |
|
8/9/2018 |
|
— |
|
— |
|
— |
|
— |
|
|
2/15/2011(7) |
|
20,000 |
|
— |
|
$ |
38.62 |
|
2/15/2018 |
|
— |
|
— |
|
— |
|
— |
|
|
8/11/2010(7) |
|
3,777 |
|
— |
|
$ |
18.66 |
|
8/11/2017 |
|
— |
|
— |
|
— |
|
— |
|
|
3/10/2010(10) |
|
3,462 |
|
— |
|
$ |
19.51 |
|
3/10/2020 |
|
— |
|
— |
|
— |
|
— |
|
Mark W. Roenigk - General Manager, Senior Vice President, Worldwide Operations |
|
12/14/2015(11) |
|
— |
|
— |
|
|
— |
|
— |
|
60,483 |
|
1,531,430 |
|
— |
|
— |
|
|
12/14/2015(12) |
|
— |
|
— |
|
|
— |
|
— |
|
— |
|
— |
|
60,483 |
|
1,531,430 |
|
|
8/13/2015(1) |
|
— |
|
— |
|
|
— |
|
— |
|
25,397 |
|
643,052 |
|
— |
|
— |
|
|
3/4/2015(2) |
|
— |
|
— |
|
|
— |
|
— |
|
— |
|
— |
|
14,904 |
|
377,369 |
|
|
8/14/2014(1) |
|
— |
|
— |
|
|
— |
|
— |
|
24,076 |
|
609,604 |
|
— |
|
— |
|
|
3/6/2014(1) |
|
— |
|
— |
|
|
— |
|
— |
|
4,948 |
|
125,283 |
|
— |
|
— |
|
|
3/6/2014(5) |
|
3,431 |
|
10,290 |
|
$ |
37.89 |
|
3/6/2021 |
|
— |
|
— |
|
— |
|
— |
|
|
3/6/2014(9) |
|
— |
|
— |
|
|
— |
|
— |
|
— |
|
— |
|
17,594 |
|
445,480 |
|
|
8/22/2013(6) |
|
— |
|
— |
|
|
— |
|
— |
|
— |
|
— |
|
5,495 |
|
139,133 |
|
|
8/12/2013(7) |
|
3,283 |
|
3,282 |
|
$ |
47.51 |
|
8/12/2020 |
|
— |
|
— |
|
— |
|
— |
|
|
8/12/2013(1) |
|
— |
|
— |
|
|
— |
|
— |
|
1,183 |
|
29,954 |
|
— |
|
— |
|
|
5/22/2013(6) |
|
— |
|
— |
|
|
— |
|
— |
|
— |
|
— |
|
8,392 |
|
212,485 |
|
|
5/10/2013(7) |
|
4,282 |
|
4,282 |
|
$ |
40.43 |
|
5/10/2020 |
|
— |
|
— |
|
— |
|
— |
|
|
5/10/2013(1) |
|
— |
|
— |
|
|
— |
|
— |
|
1,545 |
|
39,119 |
|
— |
|
— |
|
|
8/9/2012(7) |
|
3,666 |
|
1,222 |
|
$ |
53.47 |
|
8/9/2019 |
|
— |
|
— |
|
— |
|
— |
|
|
8/9/2012(1) |
|
— |
|
— |
|
|
— |
|
— |
|
525 |
|
13,293 |
|
— |
|
— |
|
|
2/15/2012(7) |
|
3,270 |
|
1,090 |
|
$ |
54.12 |
|
2/15/2019 |
|
— |
|
— |
|
— |
|
— |
|
|
2/15/2012(8) |
|
— |
|
— |
|
|
— |
|
— |
|
519 |
|
13,141 |
|
— |
|
— |
|
|
8/9/2011(7) |
|
7,409 |
|
— |
|
$ |
35.41 |
|
8/9/2018 |
|
— |
|
— |
|
— |
|
— |
|
|
2/15/2011(7) |
|
6,626 |
|
— |
|
$ |
38.62 |
|
2/15/2018 |
|
— |
|
— |
|
— |
|
— |
|
|
8/11/2010(7) |
|
4,590 |
|
— |
|
$ |
18.66 |
|
8/11/2017 |
|
— |
|
— |
|
— |
|
— |
|
|
12/14/2009(10) |
|
13,500 |
|
— |
|
$ |
19.89 |
|
12/14/2019 |
|
— |
|
— |
|
— |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
Option Awards |
|
Stock Awards |
|
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|
Equity |
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|
Incentive |
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|
Equity |
|
Plan |
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|
|
|
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|
|
Incentive |
|
Awards: |
|
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|
Plan |
|
Market |
|
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|
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|
|
|
|
|
|
|
|
|
Awards: |
|
or Payout |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
Value of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market |
|
Unearned |
|
Unearned |
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
Value of |
|
Shares, |
|
Shares, |
|
|
|
|
Number of |
|
Number of |
|
|
|
|
|
|
Shares or |
|
Shares or |
|
Units or |
|
Units or |
|
|
|
|
Securities |
|
Securities |
|
|
|
|
|
|
Units of |
|
Units of |
|
Other |
|
Other |
|
|
|
|
Underlying |
|
Underlying |
|
|
Option |
|
|
|
Stock |
|
Stock |
|
Rights |
|
Rights |
|
|
|
|
Unexercised |
|
Unexercised |
|
|
Exercise |
|
Option |
|
That Have |
|
That |
|
That Have |
|
That Have |
|
|
Grant |
|
Options (#) |
|
Options (#) |
|
|
Price |
|
Expiration |
|
Not Yet |
|
Have Not |
|
Not |
|
Not Vested |
|
|
Date |
|
Exercisable |
|
Unexercisable |
|
|
($) |
|
Date |
|
Vested (#) |
|
Vested ($) |
|
Vested (#) |
|
($) |
|
Scott Crenshaw - Senior Vice President, Strategy and Product - US |
|
8/13/2015(1) |
|
— |
|
— |
|
|
— |
|
— |
|
25,397 |
|
643,052 |
|
— |
|
— |
|
|
5/20/2015(2) |
|
— |
|
— |
|
|
— |
|
— |
|
— |
|
— |
|
23,201 |
|
587,449 |
|
|
5/20/2015(13) |
|
— |
|
— |
|
|
— |
|
— |
|
46,403 |
|
1,174,924 |
|
— |
|
— |
|
Tiffany Lathe - General Counsel and Vice President |
|
8/13/2015(1) |
|
— |
|
— |
|
|
— |
|
— |
|
10,582 |
|
267,936 |
|
— |
|
— |
|
|
3/4/2015(2) |
|
— |
|
— |
|
|
— |
|
— |
|
— |
|
— |
|
6,210 |
|
157,237 |
|
|
8/14/2014(1) |
|
— |
|
— |
|
|
— |
|
— |
|
18,057 |
|
457,203 |
|
— |
|
— |
|
|
3/6/2014(9) |
|
— |
|
— |
|
|
— |
|
— |
|
— |
|
— |
|
8,797 |
|
222,740 |
|
|
8/12/2013(7) |
|
1,920 |
|
1,919 |
|
$ |
47.51 |
|
8/12/2020 |
|
— |
|
— |
|
— |
|
— |
|
|
8/12/2013(1) |
|
— |
|
— |
|
|
— |
|
— |
|
692 |
|
17,521 |
|
— |
|
— |
|
|
5/10/2013(7) |
|
2,895 |
|
2,894 |
|
$ |
40.43 |
|
5/10/2020 |
|
— |
|
— |
|
— |
|
— |
|
|
5/10/2013(1) |
|
— |
|
— |
|
|
— |
|
— |
|
1,044 |
|
26,434 |
|
— |
|
— |
|
|
2/15/2012(7) |
|
2,010 |
|
669 |
|
$ |
54.12 |
|
2/15/2019 |
|
— |
|
— |
|
— |
|
— |
|
|
2/15/2012(1) |
|
— |
|
— |
|
|
— |
|
— |
|
319 |
|
8,077 |
|
— |
|
— |
|
|
8/9/2011(7) |
|
5,193 |
|
— |
|
$ |
35.41 |
|
8/9/2018 |
|
— |
|
— |
|
— |
|
— |
|
|
2/15/2011(7) |
|
2,318 |
|
— |
|
$ |
38.62 |
|
2/15/2018 |
|
— |
|
— |
|
— |
|
— |
|
|
8/11/2010(7) |
|
944 |
|
— |
|
$ |
18.66 |
|
8/11/2017 |
|
— |
|
— |
|
— |
|
— |
|
|
3/10/2010(10) |
|
865 |
|
— |
|
$ |
19.51 |
|
3/10/2020 |
|
— |
|
— |
|
— |
|
— |
|
(1) |
These restricted stock units were granted pursuant
to our Amended and Restated 2007 Long Term Incentive Plan and the approval of our Compensation Committee and Board of Directors.
The units vest in four equal installments, on each of the first, second, third and fourth anniversaries of the grant date. |
|
|
(2) |
These performance-based restricted stock units were granted pursuant
to our Amended and Restated 2007 Long Term Incentive Plan and the approval of our Compensation Committee and Board of Directors.
The units’ vesting is dependent on achieving a pre-established revenue goal. Annual measurement dates commence on December
31, 2016 and continue until the units vest or December 31, 2018, at which time the units will forfeit if the performance goal
has not been met. For more information, see the “Compensation Discussion and Analysis—Long-Term Incentive Compensation—Annual
Equity Awards.” |
|
|
(3) |
These performance-based restricted stock units were granted pursuant
to our Amended and Restated 2007 Long Term Incentive Plan and the approval of our Compensation Committee and Board of Directors.
The units’ vesting is dependent on achieving a pre-determined revenue goal. Measurement dates commence on September
30, 2016 and continue quarterly until the units vest or September 30, 2018, at which time the units will forfeit if the performance
goal has not been met. |
|
|
(4) |
These restricted stock units were granted pursuant to our Amended
and Restated 2007 Long Term Incentive Plan and the approval of our Compensation Committee and Board of Directors. These units
vest on January 13, 2016. |
|
|
(5) |
These options were granted pursuant to our Amended and Restated
2007 Long Term Incentive Plan and the approval of our Compensation Committee and Board of Directors. These stock options vest
in four equal installments, on the later of: (a) each of the first, second, third, and fourth anniversaries of the grant date,
and (b) the first date on which the Company’s stock price – measured on a 20-day average – has increased
25% from the exercise price. This stock price threshold was achieved on February 18, 2015. |
|
|
(6) |
These performance-based restricted stock units were granted pursuant
to our Amended and Restated 2007 Long Term Incentive Plan and the approval of our Compensation Committee and Board of Directors.
The units’ vesting is dependent on the Company’s total shareholder return on its common stock for a 3-year period
commencing on the grant date as compared to the total stock return for the NASDAQ Internet Index over the same period. For
more information, please see the “Compensation Discussion and Analysis— Long-Term Incentive Compensation—Prior
Year Grants with Performance Periods Ending in 2015.” |
|
|
(7) |
These options were granted pursuant to our Amended and Restated
2007 Long Term Incentive Plan and the approval of our Compensation Committee and Board of Directors. The options become exercisable
in four equal installments, on each of the first, second, third and fourth anniversaries of the grant date and have a term
of 7 years. |
|
|
(8) |
These restricted stock awards were granted pursuant to our Amended
and Restated 2007 Long Term Incentive Plan and the approval of our Compensation Committee and Board of Directors. The awards
vest in four equal installments, on each of the first, second, third and fourth anniversaries of the grant date. |
|
|
(9) |
These performance-based restricted stock units were granted pursuant
to our Amended and Restated 2007 Long Term Incentive Plan and the approval of our Compensation Committee and Board of Directors.
The units vest on the second anniversary of the grant date, contingent on compound annual revenue growth over the two years
exceeding 10%. For more information, please see the “Compensation Discussion and Analysis—Long-Term Incentive
Compensation—Prior Year Grants with Performance Periods Ending in 2015.” |
|
|
(10) |
These options were granted pursuant to our Amended and Restated
2007 Long Term Incentive Plan and the approval of our Compensation Committee and Board of Directors. The options become exercisable
in four equal installments, on each of the first, second, third and fourth anniversaries of the grant date and have a term
of 10 years. |
|
|
(11) |
These restricted stock units were granted pursuant to our Amended
and Restated 2007 Long Term Incentive Plan and the approval of our Compensation Committee and Board of Directors. The units
vest in three equal annual installments beginning on November 15, 2016. |
|
|
(12) |
These performance-based restricted stock units were granted pursuant
to our Amended and Restated 2007 Long Term Incentive Plan and the approval of our Compensation Committee and Board of Directors.
The units’ vesting is dependent on the achievement of pre-established revenue goals, and may be earned between 50% and
200% of target depending on achievement relative to the goal. One-third of the shares will be delivered upon certification
of the performance level attainment, and the remaining two-thirds of the shares will be delivered in two equal annual installments
beginning on November 15, 2017, so long as the executive continues to be employed with us. These units will forfeit if the
performance target has not been met. For more information, see the “Compensation Discussion and Analysis—Long-Term
Incentive Compensation–Recruiting and Special Awards.” |
|
|
(13) |
These restricted stock units were granted pursuant to our Amended
and Restated 2007 Long Term Incentive Plan and the approval of our Compensation Committee and Board of Directors. The units
vest in two equal installments, on each of the first and second anniversaries of the grant date. |
Option
Exercises and Restricted Stock Vesting During Fiscal 2015
The
following table sets forth information regarding options exercised by our named executive officers and restricted
stock awards vested during the year ended December 31, 2015.
|
|
Option Awards |
|
|
Restricted Stock
Awards |
|
|
Number
of
Shares
Acquired
on
Exercise |
|
|
Value Realized
on Exercise
(1) |
|
|
Number of
Shares
Acquired
on Vesting |
|
|
Value Realized
on Vesting
(2) |
William Taylor Rhodes - Chief Executive Officer and President |
|
|
|
— |
|
$ |
— |
|
|
54,517 |
|
$ |
2,158,764 |
Karl Pichler - Chief Financial Officer, Senior Vice President and Treasurer |
|
|
|
91,250 |
|
$ |
4,469,052 |
|
|
23,231 |
|
$ |
970,557 |
Mark W. Roenigk - General Manager, Senior Vice President, Worldwide Operations |
|
|
|
25,000 |
|
$ |
757,416 |
|
|
22,573 |
|
$ |
945,160 |
Scott Crenshaw - Senior Vice President, Strategy and Product |
|
|
|
— |
|
$ |
— |
|
|
— |
|
$ |
— |
Tiffany Lathe - General Counsel and Vice President |
|
|
|
— |
|
$ |
— |
|
|
12,506 |
|
$ |
493,351 |
| (1) | The aggregate dollar amount realized upon exercise of
an option represents the difference between the aggregate market price of the shares of our common stock underlying that option
on the date of exercise and the aggregate exercise price of the options. |
| (2) | The aggregate dollar amount realized upon vesting of
a restricted stock unit award represents the aggregate market price of the share of our common stock underlying that award on
the date vested. |
Nonqualified
Deferred Compensation
The following
table sets forth information regarding executive or Company contributions, earnings, withdrawals
and account balances for the named executive officers in our deferred compensation programs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning at
Last
Fiscal Year
1/1/15 |
|
|
Executive
Contributions
in 2015
(1) |
|
|
Registrant
Contributions
in 2015
(1) |
|
|
Aggregate
Earnings
(Losses) in
2015 |
|
|
Aggregate
Withdrawals/
Distributions |
|
|
Aggregate
Balance at
12/31/15 |
William Taylor Rhodes - Chief Executive Officer and President |
|
|
|
|
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Karl Pichler - Chief Financial Officer, Senior Vice President and Treasurer |
|
|
|
|
|
|
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Mark W. Roenigk - Chief Operating Officer and Senior Vice President |
|
|
|
|
|
|
|
|
$ |
654,445 |
|
$ |
186,423 |
|
$ |
— |
|
$ |
(4,589 |
) |
$ |
(36,676 |
) |
$ |
799,603 |
Scott Crenshaw - Senior Vice President, Strategy and Product |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Tiffany Lathe - General Counsel and Vice President |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
| (1) | Represents amounts contributed to our Deferred Compensation
Plan, which was adopted by our Board of Directors on July 8, 2008. The purpose of the Deferred Compensation Plan is to attract
and retain key employees by providing certain eligible employees with the opportunity to defer receipt of a portion of their salary,
bonus and other specified compensation. A committee of directors appointed by our Board of Directors selects the individuals who
are eligible to participate in the Deferred Compensation Plan. Such individuals must consist of management or highly compensated
employees. Once selected, a participant may elect to contribute up to 80% of his or her base salary and up to 100% of his or her
other eligible compensation on a pre-tax basis into the Deferred Compensation Plan, in a manner prescribed by the Compensation
Committee. The Company does not match any deferrals into the Deferred Compensation Plan. |
2015 Non-Employee Director Compensation
Compensation
Philosophy
The
Compensation Committee is responsible for reviewing and making recommendations to the Board of Directors regarding all matters
pertaining to non-employee director compensation. Our approach is guided by the following principles:
| • | Attract top business and industry talent to our Board
through a compensation program that is competitive relative to our size and scope; |
| • | Align long-term interests of our non-employee directors
with our stockholders through robust stock ownership guidelines and the grant of annual equity awards; and |
| • | Ensure the program is transparent, and simple to understand and communicate to both stockholders
and non-employee directors. |
The Compensation
Committee reviews the competitiveness of our non-employee director compensation program every other year, and generally considers
the market median when recommending changes. Our program was last reviewed in 2014 using the then-current Peer Group. The non-employee
director compensation program below was approved by the Board, effective August 1, 2014.
Compensation Schedule
Compensation Element(1) |
|
Current Program |
Annual Board Cash Retainer(1) |
$ |
50,000 |
Annual Board Restricted Stock Unit (“RSUs”) Grant Value(2) |
$ |
240,000 |
Leadership Service Annual Cash Retainers |
|
|
Lead Director |
$ |
50,000 |
Non-Employee Chairman of the Board |
$ |
50,000 |
Audit Committee chairperson |
$ |
35,000 |
Compensation Committee chairperson |
$ |
25,000 |
Real Estate and Finance Committee chairperson |
$ |
15,000 |
Other Committee chairperson |
$ |
12,500 |
Committee Service Annual Cash Retainers |
|
|
Audit Committee member (other than the chairperson) |
$ |
15,000 |
Compensation Committee member (other than the chairperson) |
$ |
12,500 |
Other Committee member (other than the chairperson) |
$ |
7,500 |
(1) | A pro-rata portion of each annual cash retainer is
earned on a monthly basis and is paid following the applicable calendar month in which such compensation was earned. |
(2) | The annual restricted stock unit award is granted
following the annual meeting of stockholders, and vests approximately one year from the date of grant. Non-employee directors
appointed to the Board after the annual meeting receive a pro-rata portion of the annual restricted stock unit award. |
We do not provide
any other compensation to our non-employee directors. Employee directors are not compensated for their service as directors.
Compensation Paid to Non-Employee Directors in 2015
The following table sets forth the annual compensation paid
or accrued by us to individuals who were non-employee directors during any part of 2015. The table excludes Mr. Rhodes who, as
an employee of the Company, did not receive any additional compensation from us for his service as a director. Compensation paid
to Mr. Rhodes is disclosed in the Summary Compensation Table.
Non-Employee Director Compensation for the Year Ended December
31, 2015:
| |
Fees Earned or Paid in Cash | | |
Grant Date Fair
Value for Restricted
Stock Units (1) | | |
Total | |
Graham Weston(2) | |
$ | 112,500 | | |
$ | 239,981 | | |
$ | 352,481 | |
Lew Moorman(2) | |
$ | 55,000 | | |
$ | 239,981 | | |
$ | 294,981 | |
Kevin Costello(2)(3) | |
$ | 68,750 | | |
$ | 329,299 | | |
$ | 398,049 | |
Lila Tretikov(2) | |
$ | 70,833 | | |
$ | 239,981 | | |
$ | 310,814 | |
Fred Reichheld(2) | |
$ | 57,500 | | |
$ | 239,981 | | |
$ | 297,481 | |
S. James Bishkin(4) | |
$ | 29,167 | | |
$ | — | | |
$ | 29,167 | |
Mark P. Mellin(4) | |
$ | 28,333 | | |
$ | — | | |
$ | 28,333 | |
John Harper(2)(5) | |
$ | 82,500 | | |
$ | 292,616 | | |
$ | 375,116 | |
Michael Sam Gilliland(2) | |
$ | 140,000 | | |
$ | 239,981 | | |
$ | 379,981 | |
Ossa Fisher(2) | |
$ | 82,500 | | |
$ | 239,981 | | |
$ | 322,481 | |
| (1) | The dollar amount for restricted stock units granted to
our non-employee directors was computed in accordance with FASB ASC Topic 718. |
| (2) | On May 20, 2015, Messrs. Weston, Moorman, Costello, Reichheld,
Harper, and Gilliland, and Mmes. Tretikov and Fischer were each granted restricted stock unit awards for 5,568 units. The applicable
restrictions will expire and each unit will convert to one share of our common stock on April 1, 2016. |
| (3) | On March 4, 2015, Mr. Costello was granted a restricted
stock unit award for 1,775 units. This amount represents the pro-rated portion of the annual equity award for 2014. The applicable
restrictions expired and each unit was converted to one share of our common stock on April 1, 2015. |
| (4) | Messrs. Bishkin and Mellin retired from the Board effective
May 6, 2015 and did not receive an annual equity grant award in 2015. |
| (5) | On March 4, 2015, Mr. Harper was granted a restricted
stock unit award for 1,046 units. This amount represents the pro-rated portion of the annual equity award for 2014. The applicable
restrictions expired and each unit was converted to one share of our common stock on April 1, 2015. |
Non-Employee Director Stock Ownership Guidelines
The Board believes that our non-employee directors should
hold a significant equity interest in Rackspace. Under our stock ownership guidelines for directors, each non-employee director
is required to own, within five years after becoming a director, shares of our common stock with a value equal to five times the
annual Board cash retainer. The holding requirements are measured as of the first trading day of each calendar year. As of February
29, 2016, all of the non-employee directors, are in compliance with the policy. However, Kevin Costello, Ossa Fisher, John Harper
and Lila Tretikov have not achieved the required stock ownership level but continue to have two to four years to meet the requirements.
EMPLOYMENT CONTRACTS AND CHANGE-OF-CONTROL ARRANGEMENTS
Employment Agreements
As of December 31, 2015, we have entered into employment
agreements with Messrs. Rhodes, Roenigk, and Crenshaw, and Ms. Lathe which include, among other things, confidentiality and non-compete
covenants.
Mr. Rhodes’s agreement provides for severance payments
and benefits equal to:
|
• |
six months’ salary, twelve months target bonus, and six months of COBRA continuation upon resignation for Good Reason, termination of employment without cause, death, or disability unrelated to a Change of Control; |
|
|
|
|
• |
24 months’ salary, 24 months target bonus, and 24 months of COBRA continuation upon resignation for Good Reason, termination of employment without cause, death, or disability within 12 months after a Change of Control; and |
|
|
|
|
• |
For any termination of employment without cause, full accelerated vesting of the March 6, 2014 RSUs. |
Mr. Roenigk’s agreement provides for severance
payments and benefits equal to 12 months’ salary for termination of employment without cause or resignation for good reason.
If his employment is terminated without cause within 12 months of a Change of Control, Mr. Roenigk will receive salary continuation
for the greater of 12 months or the remaining period of his employment agreement term. In addition, the RSUs and PSUs Mr. Roenigk
received on December 14, 2015 will accelerate in full if his employment is terminated without cause during the vesting period.
If Mr. Roenigk’s employment is terminated during the PSUs’ performance period, the awards will truncate and accelerate
for actual performance-to-date.
Mr. Crenshaw’s agreement provides for severance payments and benefits equal to six months’
salary for termination of employment without cause or resignation for good reason.
Ms. Lathe’s agreement provides for, among other
things, confidentiality obligations and a three month notice requirement in order to terminate employment.
Our Amended and Restated 2007 Long-Term Incentive Plan
generally requires forfeiture of service-vesting awards upon separation as a Service Provider from the Company, except upon death,
disability, or termination of employment without cause within 12 months following a Change of Control. PSU awards granted prior
to December 2015 truncate on a Change of Control, and shares are earned based on actual performance achieved as of the truncation
event. Starting in December 2015, PSUs will convert at the target performance level to service-based awards upon Change of Control,
and will continue to vest.
Potential Payments upon Termination or Change of Control
The table below summarizes the potential payments and
benefits to be received by our named executive officers upon a Change of Control and upon termination of employment without cause,
both in connection with a Change of Control and not in connection with a Change of Control, as if each executive officer’s
employment terminated as of December 31, 2015, pursuant to the agreements described above and the applicable equity incentive plan
terms and award agreements.
Each severance amount is based on the named executive
officer’s 2015 base salary.
The value of the vesting acceleration shown in the table
below was calculated based on the assumption that the Change of Control, if applicable, occurred and the named executive officer’s
employment terminated on December 31, 2015 and that the fair market value per share of our common stock on the applicable date
was $25.32, the closing market price on December 31, 2015. The value of the option vesting acceleration was calculated by multiplying
the number of unvested shares subject to each option by the difference between the market price and the exercise price per share
of the option. The value of restricted stock unit vesting acceleration was calculated by multiplying the number of unvested RSUs
and target number of PSUs by the market price on December 31, 2015.
| |
| Termination | |
| | | |
| | | |
| |
| Without
a | |
| | | |
| Termination | |
| |
| Change
of | |
| Change
of | |
| upon
a Change | |
|
Benefit | |
| Control | | |
Control | | |
of Control | |
William Taylor Rhodes - Chief Executive Officer and President |
| | | |
| | | |
| | |
|
Severance | |
$ | 357,902 | (1) | |
| — | | |
$ | 1,431,608 | (2) |
|
Bonus | |
$ | 805,000 | (1) | |
| — | | |
$ | 1,610,000 | (2) |
|
Award Acceleration | |
$ | 1,562,016 | (3) | |
$ | 4,665,033 | (4) | |
$ | 10,310,025 | (5) |
Karl Pichler - Chief Financial Officer, Senior Vice President and Treasurer |
| | | |
| | | |
| | |
|
Severance | |
| — | | |
| — | | |
| — | |
|
Bonus | |
| — | | |
| — | | |
| — | |
|
Award Acceleration | |
| — | | |
$ | 1,257,594 | (4) | |
$ | 2,823,307 | (5) |
Mark W. Roenigk - General Manager, Senior Vice President, Worldwide Operations |
| | | |
| | | |
| | |
|
Severance | |
$ | 485,000 | (6) | |
| — | | |
$ | 1,422,667 | (7) |
|
Bonus | |
| — | | |
| — | | |
| — | |
|
Award Acceleration | |
$ | 3,062,859 | (8) | |
$ | 1,174,468 | (4) | |
$ | 5,710,774 | (5) |
Scott Crenshaw - Senior Vice President, Strategy and Product - US |
| | | |
| | | |
| | |
|
Severance | |
$ | 200,000 | (9) | |
| — | | |
$ | 200,000 | (9) |
|
Bonus | |
| — | | |
| — | | |
| — | |
|
Award Acceleration | |
| — | | |
$ | 587,449 | (4) | |
$ | 2,405,425 | (5) |
Tiffany Lathe - General Counsel and Vice President |
| | | |
| | | |
| | |
|
Severance | |
| — | | |
| — | | |
| — | |
|
Bonus | |
| — | | |
| — | | |
| — | |
|
Award Acceleration | |
| — | | |
$ | 379,977 | (4) | |
$ | 1,157,149 | (5) |
(1) |
Represents the cash benefit due to Mr. Rhodes if he is terminated without cause. $350,000 of the severance amount is equal to six months of base salary, and $7,902 is equal to six months of COBRA continuation. Mr. Rhodes also receives a payout equal to his annual bonus target, or $805,000. The terms of the employment agreement include a six month noncompetition provision. |
|
|
(2) |
Represents the cash benefit due to Mr. Rhodes if he is terminated without cause following a Change of Control. $1,400,000 of the severance amount is equal to twenty-four months of base salary, and $31,608 is equal to twenty-four months of COBRA continuation. Mr. Rhodes also receives a payout equal to two times his annual bonus target, or $1,610,000. The terms of the employment agreement include a twelve month noncompetition provision. |
|
|
(3) |
Represents the acceleration of the unvested March 6, 2014 RSUs awarded to Mr. Rhodes as of December 31, 2015. |
|
|
(4) |
Represents the acceleration of unvested performance stock awarded to Messrs. Rhodes, Pichler, and Roenigk, and Ms. Lathe as of December 31, 2015. Under the terms of our Amended and Restated 2007 Long-Term Incentive Plan and Performance Stock Agreement, the performance period under a performance stock grant will truncate upon a Change of Control, and the unvested shares will vest based on actual performance achieved. |
|
|
(5) |
Represents the acceleration of unvested options and restricted stock awarded to Messrs. Rhodes, Pichler, Roenigk, and Crenshaw and Ms. Lathe as of December 31, 2015. Under the terms of our Amended and Restated 2007 Long-Term Incentive Plan and Option Agreement, the unvested shares under an option or restricted stock grant will vest if there is a Change of Control and the employee is terminated without cause within one year of that Change of Control. |
|
|
(6) |
Represents the cash benefit due to Mr. Roenigk if he is terminated without cause. $485,000 of the severance amount is equal to twelve months of base salary. The terms of the employment agreement include a twelve month noncompetition provision and a nonsolicitation provision. |
|
|
(7) |
Represents the cash benefit due to Mr. Roenigk if he is terminated without cause following a Change of Control. The full severance amount represents salary continuation for the greater of 12 months or the remainder of the term of Mr. Roenigk’s employment agreement term. The terms of the employment agreement include a twelve month noncompetition provision and a nonsolicitation provision. |
|
|
(8) |
Represents the acceleration of the unvested December 14, 2015 RSUs and PSUs awarded to Mr. Roenigk as of December 31, 2015. |
|
|
(9) |
Represents the cash benefit due to Mr. Crenshaw if he is terminated without cause. $200,000 of the severance amount is equal to six months of base salary. The terms of the employment agreement include a six month noncompetition provision and a nonsolicitation provision. |
Equity Compensation Plan Information
The following table provides information as of December
31, 2015, with respect to shares of our common stock that may be issued, subject to certain vesting requirements, under our existing
equity compensation plans, including our Amended and Restated 2007 Long-Term Incentive Plan and our employee stock purchase plan:
| |
| A | | |
| B | | |
C |
|
| |
| | | |
| | | |
Number of securities |
|
| |
| | | |
| | | |
remaining available for |
|
| |
| Number
of securities to be | | |
| Weighted-average | | |
future issuance under |
|
| |
| issued
upon exercise of | | |
| exercise
price of | | |
equity compensation plans |
|
| |
| outstanding
options, | | |
| outstanding
options | | |
(excluding securities |
|
Plan Category |
| |
| warrants,
and rights | | |
| warrants,
and rights | | |
reflected in column (A)) |
|
Equity compensation plans approved by security holders | |
| 9,993,838 | (1) | |
| $ 16.99 | | |
14,201,710 |
(2) |
Equity compensation plans not approved by security holders | |
| — | | |
| — | | |
800,000 |
(3) |
Total | |
| 9,993,838 | | |
| $ 16.99 | | |
15,001,710 |
|
(1) |
Consists of 151,359 shares of common stock underlying outstanding options granted under our 2005 Non-Qualified Stock Option Plan and Webmail.us, Inc. 2004 Stock Incentive Plan and 9,842,479 shares of common stock underlying outstanding options and restricted stock units granted under our Amended and Restated 2007 Long-Term Incentive Plan. |
|
|
(2) |
Includes 4,933,260 shares of common stock available for issuance under our employee stock purchase plan and 9,268,450 shares of common stock available for issuance under our 2007 Long Term Incentive Compensation Plan. |
|
|
(3) |
Represents 800,000 shares of common stock available for issuance under our Inducement Equity Incentive Plan. |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information regarding
beneficial ownership of our common stock as of February 29, 2016 by: (i) all those known by us to be beneficial owners of more
than five percent of the outstanding shares of our common stock; (ii) each of our directors and director nominees; (iii) each named
executive officer included in the Summary Compensation Table above; and (iv) all directors and executive officers as a group. This
table is based on information provided to us or filed with the SEC by our directors, executive officers and principal stockholders.
Unless otherwise indicated in the footnotes below, and subject to community property laws where applicable, each of the named persons
has sole voting and investment power with respect to the shares shown as beneficially owned.
Applicable percentage ownership is based on 130,109,632
shares of common stock outstanding at February 29, 2016. In computing the number of shares of common stock beneficially owned by
a person and the percentage ownership of that person, we deemed to be outstanding all shares of common stock subject to options,
warrants or other convertible securities held by that person or entity that are currently exercisable or exercisable within 60
days of February 29, 2016. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership
of any other person. Beneficial ownership representing less than 1% is denoted with an “*”. Except as indicated in
the footnotes to this table and subject to applicable community property laws, each stockholder named in the table has sole voting
and investment power with respect to the shares shown as beneficially owned by them. This table also includes shares owned by a
spouse as community property. Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o
Rackspace Hosting, Inc., 1 Fanatical Place, City of Windcrest, San Antonio, Texas 78218.
Shares
Beneficially Owned | |
| |
| (a) | | |
| (b) | | |
| (a)
+ (b) | | |
| | |
| |
| | | |
| Common
Shares | | |
| | | |
| | |
| |
| | | |
| That
May Be | | |
| | | |
| | |
| |
| | | |
| Acquired
Within | | |
| | | |
| | |
| |
| | | |
| 60
Days of | | |
| Total | | |
| | |
| |
| Common
Shares | | |
| February
29, | | |
| Beneficial | | |
| | |
| |
| Currently
Held | | |
| 2016 | | |
| Ownership | | |
| Percent
of | |
Name of Beneficial Owner |
| |
| (#
of shares) | | |
| (#
of shares) | | |
| (#
of shares) | | |
| Class
(%) | |
5% Stockholders: | |
| | | |
| | | |
| | | |
| | |
FMR LLC | |
| 20,204,214 | (1) | |
| — | | |
| 20,204,214 | | |
| 15.5 | % |
Blue Harbour Group, LP | |
| 11,363,939 | (2) | |
| | | |
| 11,363,939 | | |
| 8.7 | % |
BlackRock, Inc. | |
| 9,039,686 | (3) | |
| — | | |
| 9,039,686 | | |
| 6.9 | % |
The Vanguard Group | |
| 8,230,820 | (4) | |
| | | |
| 8,230,820 | | |
| 6.3 | % |
Directors and Executive Officers: | |
| | | |
| | | |
| | | |
| | |
Graham Weston | |
| 18,922,751 | (5) | |
| 5,568 | | |
| 18,928,319 | | |
| 14.5 | % |
Kevin Costello | |
| 1,775 | | |
| 5,568 | | |
| 7,343 | | |
| * | |
Ossa Fisher | |
| 6,343 | | |
| 5,568 | | |
| 11,911 | | |
| * | |
Michael Sam Gilliland | |
| 12,290 | | |
| 5,568 | | |
| 17,858 | | |
| * | |
John Harper | |
| 1,046 | | |
| 5,568 | | |
| 6,614 | | |
| * | |
Lewis J Moorman | |
| 418,702 | (6) | |
| 173,278 | | |
| 591,980 | | |
| * | |
Fred Reichheld | |
| 38,206 | | |
| 5,568 | | |
| 43,774 | | |
| * | |
Lila Tretikov | |
| 3,521 | | |
| 5,568 | | |
| 9,089 | | |
| * | |
Taylor Rhodes | |
| 77,416 | | |
| 77,105 | | |
| 154,521 | | |
| * | |
Karl Pichler | |
| 50,021 | | |
| 155,718 | | |
| 205,739 | | |
| * | |
Mark Roenigk | |
| 24,889 | | |
| 110,804 | | |
| 135,693 | | |
| * | |
Scott Crenshaw | |
| — | | |
| — | | |
| — | | |
| * | |
Tiffany Lathe | |
| 4,869 | | |
| 33,947 | | |
| 38,816 | | |
| * | |
All directors and executive officers as a group (16 people) | |
| 19,573,237 | | |
| 627,982 | | |
| 20,201,219 | | |
| 15.5 | % |
| |
| | | |
| | | |
| | | |
| | |
* |
Less than 1%. |
|
|
(1) |
The information provided is pursuant to the information provided in a Schedule 13G/A filed by FMR LLC on February 12, 2016. The address of FMR LLC is 245 Summer Street, Boston, MA 02210. |
|
|
(2) |
The information provided is pursuant to the information provided in a Schedule 13D filed by Blue Harbour Group, LP. on August 13, 2015. The address of Blue Harbour Group, LP. is 646 Steamboat Road, Greenwich, Connecticut 06830. |
|
|
(3) |
The information provided is pursuant to the information provided in a Schedule 13G filed by BlackRock, Inc. on February 10, 2016. The address of BlackRock, Inc. is 55 East 52nd Street, New York, NY 10055. |
|
|
(4) |
The information provided is pursuant to the information provided in a Schedule 13G filed by The Vanguard Group, Inc. on February 10, 2016. The address of The Vanguard Group, Inc. is P.O. Box 2600 V26, Valley Forge, PA 19482. |
|
|
(5) |
Includes: |
|
• |
233,255 shares held directly by Mr. Weston; |
|
|
|
|
• |
13,278,564 shares held by Trout, Ltd.; |
|
|
|
|
• |
4,957,012 shares held by Wittington America, Ltd.; |
|
|
|
|
• |
10,412 shares held by Knightsbridge L.C.; |
|
|
|
|
• |
685 shares held by Overlord Capital, Inc.; |
|
|
|
|
• |
85,227 shares held by the Weston Remainderman Fund; |
|
|
|
|
• |
100,596 shares held by or for the benefit of family members; and |
|
|
|
|
• |
257,000 shares held by or for The Ruby USA Trust. |
Mr. Weston, the Chairman of our Board of Directors, is the sole owner of Knightsbridge,
L.C., which is the general partner of Trout, Ltd. and general partner of Wittington America, Ltd. Mr. Weston is the sole owner
of Overlord Capital, Inc., and The Ruby Trust USA. Mr. Weston’s children are the beneficiaries of the Weston Remainderman
Fund trust. Mr. Weston disclaims any beneficial ownership of shares held by Trout, Ltd., Wittington America, Ltd., Knightsbridge
L.C., Overlord Capital, Inc., Weston Remainderman Fund, and by or for the benefit of family members, except to the extent of any
pecuniary interest therein.
(6) Includes:
|
• |
208,119 shares held directly by Mr. Moorman; |
|
|
|
|
• |
51,275 shares held by Mrs. Moorman; |
|
|
|
|
• |
49,965 shares held in trust for the benefit of Mr. Moorman’s children; and |
|
|
|
|
• |
109,343 shares held in trust of which Mr. Moorman is the beneficiary |
CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS
Employment Arrangements and Indemnification
Agreements
We have entered into
employment agreements with some of our executive officers. See the section titled “Employment Contracts and Change of
Control Arrangements” for a description of these agreements.
We
have also entered into indemnification agreements with each of our directors and executive officers. The indemnification agreements
and our amended and restated certificate of incorporation and amended and restated bylaws require us to indemnify our directors
and officers to the fullest extent permitted by Delaware law.
Other Transactions with Related Parties
We leased approximately
16,446 square feet of office space in the Weston Centre from Santa Clara Land Company, Ltd., an affiliate of Mr. Weston. We entered
into the Office Building Lease Agreement with Santa Clara Land Company, Ltd. effective May 1, 2013. The leased space is currently
utilized by the Open Cloud Academy, LLC, a subsidiary with a mission to provide advanced technology training that an individual
needs to become a top entry-level Open Cloud Technologist. Our Audit Committee discussed this lease as a potential related party
transaction and approved the terms of the lease as fair and in the best interests of the Company on April 30, 2013. The lease
transaction will be reviewed annually by the Board or a Committee of the Board. We paid an aggregate of $220,022 to the Santa
Clara Land Company, Ltd. during 2015 under this lease. Mr. Weston is a limited partner and minority interest holder in Santa Clara
Land Company, Ltd. The dollar value of Mr. Weston’s interest in the above described transaction, without regard to the amount
of profit or loss, would be approximately $105,610.
We, through one of
our subsidiaries, leased approximately 12,462 square feet of office space in the Rand Building from Weston Urban, LLC., an
affiliate of Mr. Weston and owner of the Rand Building. Our subsidiary, Open Cloud Academy, LLC, entered into the Office
Lease with the Rand Building, LTD., effective May 27, 2015. The leased space is currently utilized by the Open Cloud Academy,
LLC. Our Audit Committee discussed this lease as a potential related party transaction and approved the terms of the lease as
fair and in the best interests of the Company on May 5, 2015. The lease transaction will be reviewed annually by the Board or
a Committee of the Board. We paid an aggregate of $115,544 to Weston Urban, LLC. during 2015 under this lease. Mr. Weston is
a member and majority interest holder in Weston Urban, LLC. The dollar value of Mr. Weston’s interest in the above
described transaction, without regard to the amount of profit or loss, would be approximately $115,544.
We believe that the
transactions described above were made on terms no less favorable to us than could have been obtained from unaffiliated third
parties.
Corporate Opportunity Waiver
Under the
“corporate opportunity doctrine,” in certain circumstances our directors, officers and stockholders may have a
duty to present to us matters that come before them that are within our line of business or would be deemed of interest to
us. Pursuant to our restated certificate of incorporation, we have renounced any such duty with respect to our non-employee
directors except where such matters are presented to them solely in their capacities as our directors. A company is permitted
to renounce or waive its right to corporate opportunities under Section 122(17) of Delaware General Corporation Law. An
example of when the corporate opportunity waiver could be applicable is in the event that a non-employee director was
approached by a company that would like to be acquired, and which is engaged in a line of business that relates to our
business. Under Delaware law, a director may, under certain circumstances, be obligated to present this kind of opportunity
to the corporation for which they serve as a director. With the waiver set forth in our restated certificate of
incorporation, we have eliminated uncertainty about this kind of question, and our non-employee
directors would not have any obligation
to present any such opportunities to us. Our non-employee directors would be free to pursue any such opportunities
themselves, or to present them to another company, without notifying us or giving us any ability to participate. We chose to
waive these rights in order to attract and retain highly qualified individuals to our Board of Directors who might be
affiliated with venture funds or other investment entities that are likely to invest in other companies that may be presented
with opportunities similar to those that might be deemed of interest to us. Since all of our non-employee directors are
active investors or serve on the Boards of Directors of other companies, our Board of Directors desired to avoid any
uncertainty as to their duties to the Company with respect to corporate opportunities. In addition, our Board of Directors
considered the effect of not having the waiver in place on recruiting new directors and concluded that it would be more
difficult to recruit new directors without the waiver.
Policies and Procedures for Related-Party
Transactions
We have adopted a
formal written policy that our executive officers, directors, and principal stockholders, including their immediate family
members and affiliates, are not permitted to enter into a related-party transaction with us without the prior consent of our
Audit Committee, or other independent members of our Board of Directors in the case it is inappropriate for our Audit
Committee to review such transaction due to a conflict of interest. Any request for us to enter into a transaction with an
executive officer, director, principal stockholder, or any of such persons’ immediate family members or affiliates, in
which the amount involved exceeds $120,000 must first be presented to our Audit Committee for review, consideration and
approval. All of our directors, executive officers, and employees are required to report to our Audit Committee any such
related party transaction. In approving or rejecting the proposed agreement, our Audit Committee shall consider the relevant
facts and circumstances available and deemed relevant to the Audit Committee, including, but not limited to the risks, costs
and benefits to us, the terms of the transaction, the availability of other sources for comparable services or products, and,
if applicable, the impact on a director’s independence. Our Audit Committee shall approve only those agreements that,
in light of known circumstances, are in, or are not inconsistent with, our best interests, as our Audit Committee determines
in the good faith exercise of its discretion.
In
accordance with our Code of Business Conduct and Ethics, all transactions entered into in 2015 involving any of our
directors or officers have been submitted to our Board of Directors for review and approval by our disinterested directors in
accordance with Section 144 of the Delaware General Corporation Law.
SECTION 16(A) BENEFICIAL
OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”) requires our officers and directors and persons who beneficially
own more than 10% of the Company’s common stock (collectively, “Reporting Persons”) to file reports of beneficial
ownership and changes in beneficial ownership with the SEC. Reporting Persons are required by SEC regulations to furnish the Company
with copies of all Section 16(a) forms they file. Based solely on our review of such reports received or written representations
from certain Reporting Persons during fiscal year ended December 31, 2015, we believe that all Reporting Persons complied with
all applicable reporting requirements, except that the following Form 4 was not filed timely: Mark Roenigk, reporting the acquisition
of restricted stock which occurred on December 14, 2015.
STOCKHOLDER PROPOSALS
FOR 2017 ANNUAL MEETING
Stockholders who intend to have a proposal considered for inclusion in our proxy materials for presentation at the 2017 Annual
Meeting of Stockholders pursuant to Rule 14a-8 of the Exchange Act, including submissions for a nominee or nominees for one
or more of our director positions, must submit the proposal to us no later than November 18, 2016, which is one hundred twenty
(120) calendar days before the one-year anniversary of the date on which we first mailed this Proxy Statement to stockholders
in connection with the 2016 Annual Meeting. Stockholder proposals intended for inclusion in our proxy materials must comply
with the requirements of Rule 14a-8 promulgated under the Securities Exchange Act of 1934, as amended, and any other
applicable rules established by the SEC. Pursuant to Rule 14a-4(c) of the Exchange Act and our bylaws, as amended, stockholders
who intend to present a proposal at the 2017 Annual Meeting without inclusion of such proposal in the proxy materials are
required to notify us of such proposal no later than the close of business on the later of (i) one hundred twenty (120) calendar
days before the one-year anniversary of the date on which we first mailed our proxy statement to stockholders in connection
with this year’s Annual Meeting; provided, however, in the event the date of the 2017 Annual Meeting has been changed
by more than thirty (30) days from the date of the 2016 Annual Meeting, notice by a stockholder of a proposal must be received
no later than the close of business on the latter of one hundred twenty (120) calendar days in advance of the 2017 Annual
Meeting and (ii) ten (10) calendar days following the date on which public announcement of the date of the 2017 Annual Meeting
is first made. If we do not receive notification of the proposal within that time, the proxy holders will be allowed to use
their discretionary voting authority to vote on such proposal when the proposal is raised at the 2017 Annual Meeting.
OTHER MATTERS
The Board of Directors
knows of no other matters to be presented for stockholder action at the Annual Meeting. However, if other matters do properly come
before the Annual Meeting or any adjournments or postponements thereof, the Board of Directors intends that the persons named in
the proxies will vote upon such matters in accordance with their best judgment.
Accompanying this proxy
statement and posted on our website with this proxy statement, is our Annual Report on Form 10-K, for the fiscal year ended December
31, 2015. Copies of our Annual Report on Form 10-K, for the fiscal year ended December 31, 2015, as filed with the SEC, are available
free of charge on our website at http://ir.rackspace.com under the “Investor” section.
The Board of Directors of Rackspace Hosting,
Inc.
March 18, 2016
APPENDIX A
RACKSPACE HOSTING, INC.
EXECUTIVE BONUS PLAN
RACKSPACE
HOSTING, INC.
EXECUTIVE BONUS PLAN
SECTION
1
BACKGROUND
AND PURPOSE
1.1 Purpose
of the Plan. The Plan is intended to motivate Participants to achieve excellent short and long term financial performance
for the Company and its business units. The Plan also is intended to form part of a total rewards program that is highly
competitive with those of peer companies. The Plan’s goals are to be achieved by providing Participants with the
opportunity to earn incentive awards for the achievement of goals relating to the performance of the Company. The Plan also
is designed to permit the payment of bonuses that are intended to qualify as performance-based compensation under Code
Section 162(m).
1.2
Effective Date. The Plan is effective as of January 1, 2016 (the “Effective Date”), subject to the approval
of a majority of the shares of the Company’s common stock that are present in person or by proxy and entitled to vote at
the 2016 Annual Meeting of Stockholders.
SECTION
2
DEFINITIONS
The following
words and phrases shall have the following meanings unless a different meaning is plainly required by the context:
2.1 “Actual
Award” means as to any Performance Period, the actual award (if any) payable to a Participant for the Performance Period.
Each Actual Award is determined by the Payout Formula for the Performance Period, subject to the Committee’s authority under
Section 3.6 to increase, eliminate or reduce the award otherwise indicated by the Payout Formula.
2.2 “Affiliate”
means any corporation or other entity (including, but not limited to, partnerships and joint ventures) controlled by the
Company.
2.3 “Base
Salary” means as to any Performance Period, the Participant’s earned salary during the Performance Period.
Such Base Salary shall be before both (a) deductions for taxes or benefits, and (b) deferrals of compensation pursuant to
Company-sponsored plans and Affiliate-sponsored plans.
2.4 “Board” means
the Board of Directors of the Company.
2.5 “Code”
means the Internal Revenue Code of 1986, as amended. Reference to a specific section of the Code or regulation thereunder shall
include such section or regulation, any valid regulation promulgated under such section, and any comparable provision of any future
legislation or regulation amending, supplementing or superseding such section or regulation.
2.6 “Committee”
means the committee appointed by the Board (pursuant to Section 5.1) to administer the Plan. As of the Effective Date and until
otherwise determined by the Board, the Compensation Committee of the Board shall serve as the Committee.
2.7 “Company”
means objective and measurable goals that relate to the acquisition, retention and/ or satisfaction of customers of the
Company’s products or services.
2.8 “Customer Metrics”
means net revenue.
2.9 “Determination
Date” means the latest possible date that will not jeopardize a Target Award or Actual Award’s qualification as
performance-based compensation under Section 162(m) of the Code.
2.10 “Disability”
means a permanent disability in accordance with a policy or policies established by the Committee (in its discretion) from time
to time.
2.11 “Earnings”
means income.
2.12 “Employee”
means any employee of the Company or of an Affiliate, whether such employee is so employed at the time the Plan is adopted or becomes
so employed subsequent to the adoption of the Plan.
2.13 “Fiscal Quarter”
means a fiscal quarter within a Fiscal Year of the Company.
2.14 “Fiscal Year”
means the fiscal year of the Company.
2.15
“Maximum Award” means as to any Participant for all Performance Periods ending during a Fiscal Year, $6 million.
The Maximum Award is the maximum amount which may be earned by a Participant for all Performance Periods ending during that Fiscal
Year.
2.16 “Participant”
means as to any Performance Period, an employee of the Company or of an Affiliate who has been selected by the Committee for participation
in the Plan for that Performance Period.
2.17 “Payout
Formula” means as to any Performance Period, the formula or payout matrix established by the Committee pursuant to Section
3.4 in order to determine the Actual Awards (if any) to be paid to Participants. The formula or matrix may differ from Participant
to Participant.
2.18
“Performance Goals” means the goal(s) (or combined goal(s)) determined by the Committee, in its
discretion, to be applicable to a Participant for a Performance Period. As determined by the Committee (in its discretion),
the Performance Goals applicable to each Participant shall provide for a targeted level or levels of achievement using one or
more of the following measures: (a) Customer Metrics, (b) Earnings, (c) Revenue, and (d) Total Shareholder Return. Any
Performance Goal used may be measured (1) in absolute terms, (2) in combination with another Performance Goal or Goals (for
example, but not by way of limitation, as a ratio or matrix), (3) in relative terms (including, but not limited to, as
compared to results for other periods of time, against other objective metrics, and/or against another company, companies or
an index or indices), (4) with respect to equity, assets or human resources of the Company, (including, for example, on a
per-share or per- capita basis), (5) against the performance of the Company as a whole or a specific business unit(s)
(including acquired business units), business segment(s) or product(s) of the Company, (6) on a pre-tax or after-tax basis
and/or (7) on a GAAP (generally accepted accounting principles) or non-GAAP basis. For example, but not by way of limitation,
the Committee could determine that bonuses will be earned for a Performance Period for the achievement of goals for Earnings
calculated before interest, taxes, depreciation and amortization (in other words, EBITDA). As another example, the Committee
could determine that bonuses will be earned for a Performance Period for the achievement of goals for Earnings divided by the
number of shares of Company common stock that are outstanding (in other words, earnings per share or EPS). Prior to the
Determination Date, the Committee, in its discretion, will determine whether any significant element(s) or item(s) will be
included in or excluded from the calculation of any Performance Goal with respect to any Participants (for example, but not
by way of limitation, the effect of mergers, acquisitions and/or dispositions). As determined in the discretion of the
Committee prior to the Determination Date, achievement of Performance Goals for a particular Award may be calculated
in accordance with the Company’s financial statements, prepared in accordance with generally accepted accounting
principles, or as adjusted for certain costs, expenses, gains and losses to provide non-GAAP measures of operating
results.
2.19 “Performance
Period” means any period of not shorter than a Fiscal Quarter or longer than three Fiscal Years (or twelve (12) consecutive
Fiscal Quarters), as determined by the Committee in its sole discretion.
2.20 “Plan”
means the Rackspace Hosting, Inc. Executive Bonus Plan, as set forth in this instrument and as hereafter amended from time to time.
2.21 “Retirement”
means with respect to any Participant, a Termination of Employment occurring in accordance with a policy or policies established
by the Committee (in its discretion) from time to time.
2.22 “Revenue”
means net revenue.
2.23 “Section
16 Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated thereunder.
2.24 “Section
409A” means Section 409A of the Internal Revenue Code of 1986, as amended and the regulations and guidance
thereunder, as they may be amended or modified from time to time.
2.25 “Target
Award” means the target award payable under the Plan to a Participant for the Performance Period, expressed as a percentage
of his or her Base Salary, a specific dollar amount, or a result of a formula or formulas, as determined by the Committee in accordance
with Section 3.3.
2.26 “Termination
of Employment” means a cessation of the employee-employer relationship between an Employee and the Company or an Affiliate
for any reason, including, but not by way of limitation, a termination by resignation, discharge, death, Disability, Retirement,
or the disaffiliation of an Affiliate, but excluding any such termination where there is a simultaneous reemployment by the Company
or an Affiliate.
2.27 “Total
Shareholder Return” means the total return (change in share price, including treatment of dividends as determined by
the Committee) of a share of the Company’s common stock.
SECTION
3
SELECTION
OF PARTICIPANTS AND DETERMINATION OF AWARDS
3.1 Selection
of Participants. The Committee, in its sole discretion, shall select the Employees of the Company who shall be
Participants for the Performance Period. The Committee, in its sole discretion, also may designate as Participants one or
more individuals (by name or position) who are expected to become Employees during a Performance Period. Participation in the
Plan is in the sole discretion of the Committee, and on a Performance Period by Performance Period basis. Accordingly, an
Employee who is a Participant for a given Performance Period in no way is guaranteed or assured of being selected for
participation in any subsequent Performance Period. It is anticipated (but not required) that each Employee selected for
participation also will be a Section 16 Officer.
3.2 Determination
of Performance Goals. The Committee, in its sole discretion, shall establish the Performance Goal(s) for the Participants for
the Performance Period. Each Participant’s Performance Goal(s) shall be determined by the Committee and set forth in writing.
The Committee, in its discretion, may adjust any Performance Goal (or actual performance versus the Performance Goal) for
the effects of charges for restructurings, discontinued operations, extraordinary items and all items of gain, loss or expense
determined to be extraordinary or unusual in nature or related to the disposal of a segment of a business or related to a change
in accounting principle, asset write-downs, litigation, claims, judgments or settlements, the effect of changes in tax law or other
such laws or provisions affecting reported results, accruals for reorganization and restructuring programs, provided that any such
adjustment shall be intended to not jeopardize the qualification of an Actual Award as performance-based
compensation under Code Section 162(m).
3.3 Determination
of Target Awards. The Committee, in its sole discretion, shall establish a Target
Award for each Participant. Each Participant’s Target Award shall be determined by the Committee in its sole discretion,
and each Target Award shall be set forth in writing.
3.4 Determination
of Payout Formula. The Committee, in its sole discretion, shall establish a Payout Formula for purposes of determining the
Actual Award, if any, payable to each Participant. Each Payout Formula shall (a) be in writing, (b) be based on a comparison of
actual performance to the Performance Goals,
(c) provide for the payment
of a Participant’s Target Award if the Performance Goals for the Performance Period are achieved, and (d) to the extent determined
by the Committee, provide for an Actual Award greater than or less than the Participant’s Target Award, depending upon the
extent to which actual performance exceeds or falls below the Performance Goals. Notwithstanding the preceding, in no event shall
a Participant’s Actual Award(s) under the Plan exceed his or her Maximum Award for the applicable Fiscal Year.
3.5 Date
for Determinations. The Committee shall make all determinations under Sections 3.1 through 3.4 on or before the Determination
Date.
3.6 Determination
of Actual Awards. After the end of each Performance Period, the Committee shall certify in writing (for example, in its meeting
minutes) the extent to which the Performance Goals applicable to each Participant for the Performance Period were achieved or
exceeded, as determined by the Committee. The Actual Award for each Participant shall be determined by applying the Payout Formula
to the level of actual performance that has been certified by the Committee, subject to the following. Notwithstanding any contrary
provision of the Plan, the Committee, in its sole discretion, may (a) eliminate or reduce (but not increase) the Actual Award
payable to any Participant below the amount that otherwise would be payable under the Payout Formula, and (b) determine whether
or not a Participant will receive an Actual Award in the event the Participant incurs a Termination of Employment prior to the
date the Actual Award is to be paid pursuant Section 4.2 below.
SECTION
4
PAYMENT
OF AWARDS
4.1 Right to Receive Payment.
Each Actual Award that may become payable under the Plan shall be paid solely from the general assets of the Company or the Affiliate
that employs the Participant (as the case may be), as determined by the Committee. Nothing in this Plan shall be construed to create
a trust or to establish or evidence any Participant’s claim of any right to payment of an Actual Award other than as an unsecured
general creditor with respect to any payment to which he or she may be entitled.
4.2 Timing
of Payment. Payment of each Actual Award shall be made after the end of the Performance Period during which the Actual Award
was earned but no later than 15th day of the second calendar month after the end of the Fiscal Year in which such Performance
Period ended. For the avoidance of doubt, timing of any payments under the Plan should be designed to occur within the “short-term
deferral” period provided under Section 409A of the Code. Notwithstanding the preceding, if it is impossible or infeasible
for the Committee to certify the results for a Performance Period under Section 3.6 before the standard payment deadline described
in the preceding sentence (for example, but not by way of limitation, due to the unavailability of financial information), the
payment deadline shall be extended until thirty (30) days after certification, subject to the following: (a) the Company and the
Committee must have used their good faith reasonable efforts to cause certification to occur before the standard payment deadline,
(b) the Committee must certify the results as soon as administratively practicable, and (c) payment will be made only to Participants
who do not incur a Termination of Employment before the date on which the Actual Award is paid.
4.3 Form
of Payment. Each Actual Award shall be paid in cash (or its equivalent) in a single lump sum.
4.4 Payment
in the Event of Death. If a Participant dies prior to the payment of an Actual Award (determined under Section 3.6) that was
scheduled to be paid to him or her prior to death for a prior Performance Period, the Award shall be paid to his or her designated
beneficiary or, if no beneficiary has been designated, to the administrator or representative of his or her estate.
4.5 Compensation
Recovery Policy. The Committee, in its sole discretion, may require Participant to forfeit, return or reimburse to the
Company all or a portion of any Actual Award received in accordance with any then-effective Company compensation clawback or recovery
policy, as may be established or amended from time to time. Any such policy generally shall be intended to apply substantially
equally to all officers of the Company, except as the Committee (or the Board or a committee of the Board, as determined by the
Board), in its discretion, determines is reasonably necessary or appropriate to comply with applicable laws.
SECTION
5
ADMINISTRATION
5.1 Committee
is the Administrator. The Plan shall be administered by the Committee. The Committee shall consist of not less than two (2)
members of the Board. Any member of the Committee may resign at any time by notice in writing mailed or delivered to the Secretary
of the Company. As of the Effective Date of the Plan and until otherwise determined by the Board, the Plan shall be administered
by the Compensation Committee of the Board. The members of the Committee shall be appointed from time to time by, and serve at
the pleasure of, the Board. Each member of the Committee shall qualify as an “outside director” under Section 162(m)
of the Code. If it is later determined that one or more members of the Committee do not so qualify, actions taken by the Committee
prior to such determination shall be valid despite such failure to qualify.
5.2 Committee
Authority. It shall be the duty of the Committee to administer the Plan in accordance with the Plan’s provisions. The
Committee shall have all powers and discretion necessary or appropriate to administer the Plan and to control its operation, including,
but not limited to, the power to (a) determine which Employees shall be granted awards, (b) prescribe the terms and conditions
of awards, (c) interpret the Plan and the awards, (d) adopt such procedures and subplans as are necessary or appropriate to permit
participation in the Plan by Employees who are foreign nationals or employed outside of the United States, (e) adopt rules for
the administration, interpretation and application of the Plan as are consistent therewith, and (f) interpret, amend or revoke
any such rules.
5.3 Decisions
Binding. All determinations and decisions made by the Committee, the Board, and any delegate of the Committee pursuant to the
provisions of the Plan shall be final, conclusive, and binding on all persons, and shall be given the maximum deference permitted
by law.
5.4 Delegation
by the Committee. The Committee, in its sole discretion and on such terms and conditions as it may provide, may delegate all
or part of its authority and powers under the Plan to one or more directors and/or officers of the Company; provided, however,
that the Committee may delegate its authority and powers only to the extent that the delegation would not be expected to jeopardize
the qualification of an Actual Award as performance-based compensation under Code Section 162(m).
SECTION
6
GENERAL
PROVISIONS
6.1 Tax
Withholding. The Company or an Affiliate, as determined by the Committee, shall withhold all applicable taxes and any other
required amounts from any Actual Award, including (but not limited to) any federal, state, local and other taxes.
6.2 No
Effect on Employment. Nothing in the Plan shall interfere with or limit in any way the right of the Company or an Affiliate,
as applicable, to terminate any Participant’s employment or service at any time, with or without cause. For purposes of the
Plan, transfer of employment of a Participant between the Company and any one of its Affiliates (or between Affiliates) shall not
be deemed a Termination of Employment. Employment with the Company and its Affiliates is on an at-will basis only. The Company
expressly reserves the right, which may be exercised at any time and without regard to when during or after
a Performance Period such
exercise occurs, to terminate any individual’s employment with or without cause, and to treat him or her without regard
to the effect which such treatment might have upon him or her as a Participant.
6.3 Participation. No Employee
shall have the right to be selected to receive an award under this Plan, or, having been so selected, to be selected to receive
a future award.
6.4 Indemnification.
Each person who is or shall have been a member of the Committee, or of the Board, shall be indemnified and held harmless by the
Company against and from (a) any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her
in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or
she may be involved by reason of any action taken or failure to act under the Plan or any award, and (b) from any and all amounts
paid by him or her in settlement thereof, with the Company’s approval, or paid by him or her in satisfaction of any judgment
in any such claim, action, suit, or proceeding against him or her, provided he or she shall give the Company an opportunity, at
its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The
foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled
under the Company’s Certificate of Incorporation or Bylaws, by contract, as a matter of law, or otherwise, or under any power
that the Company may have to indemnify them or hold them harmless.
6.5 Successors.
All obligations of the Company and any Affiliate under the Plan, with respect to awards granted hereunder, shall be binding on
any successor to the Company and/or such Affiliate, whether the existence of such successor is the result of a direct or indirect
purchase, merger, consolidation, or otherwise, of all or substantially all of the business or assets of the Company or such Affiliate.
6.6 Beneficiary Designations
(a) Designation.
Each Participant may, pursuant to such uniform and nondiscriminatory procedures as the Committee may specify from time to time,
designate one or more Beneficiaries to receive any Actual Award payable to the Participant at the time of his or her death. Notwithstanding
any contrary provision of this Section 6.6 shall be operative only after (and for so long as) the Committee determines (in its
sole discretion) to permit the designation of Beneficiaries.
(b) Changes.
A Participant may designate different Beneficiaries (or may revoke a prior Beneficiary designation) at any time by delivering a
new designation (or revocation of a prior designation) in like manner. Any designation or revocation shall be effective only if
it is received by the Committee. However, when so received, the designation or revocation shall be effective as of the date the
designation or revocation is executed (whether or not the Participant still is living), but without prejudice to the Committee
on account of any payment made before the change is recorded. The last effective designation received by the Committee shall supersede
all prior designations.
(c)
Failed Designation. If the Committee (in its discretion) does not make this Section 6.6 operative or if Participant dies
without having effectively designated a Beneficiary, the Participant’s Account shall be payable to the administrator or representative
of his or her estate.
6.7 Nontransferability
of Awards. No award granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated,
other than by will, by the laws of descent and distribution, or to the limited extent provided in Section 6.6. All rights with
respect to an award granted to a Participant shall be available during his or her lifetime only to the Participant.
6.8 Deferrals.
The Committee, in its sole discretion, may permit a Participant to defer receipt of the payment of cash that would otherwise be
delivered to a Participant under the Plan. Any such deferral elections shall be subject to such rules and procedures as shall be
determined by the Committee in its sole
discretion.
Unless otherwise expressly determined by the Committee, the rules and procedures for any deferral elections and deferrals
shall be designed to comply with Section 409A of the Code.
6.9 Section 409A
It is intended
that all bonuses payable under this Plan will be exempt from the requirements of Section 409A pursuant to the “short-term
deferral” exemption or, in the alternative, will comply with the requirements of Section 409A so that none of the payments
and benefits to be provided under this Plan will be subject to the additional tax imposed under Section 409A, and any ambiguities
or ambiguous terms herein shall be interpreted to so comply or be exempt. Each payment and benefit payable under this Plan is intended
to constitute a separate payment for purposes of Section 1.409A-2(b)(2) of the Treasury Regulations. The Company may, in good faith
and without the consent of any Participant, make any amendments to this Plan and take such reasonable actions which it deems necessary,
appropriate or desirable to avoid imposition of any additional tax or income recognition under Section 409A prior to actual payment
to the Participant. However, unless explicitly determined otherwise in writing by the Committee, in no event will the Company or
any Affiliate pay or reimburse any Participant for any taxes or other costs that may be imposed on the Participant as a result
of Section 409A or any other section of the Code or other tax rule or regulation.
SECTION
7
AMENDMENT,
TERMINATION AND DURATION
7.1 Amendment,
Suspension or Termination. The Board or the Committee, each in its sole discretion, may amend or terminate the Plan, or any
part thereof, at any time and for any reason. No award may be granted during any period of suspension or after termination of the
Plan.
7.2 Duration of the Plan.
The Plan shall commence on the date specified herein, and subject to Section 7.1 (regarding the Board or the Committee’s
right to amend or terminate the Plan), shall remain in effect thereafter.
SECTION
8
LEGAL
CONSTRUCTION
8.1
Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the
feminine; the plural shall include the singular and the singular shall include the plural.
8.2 Severability.
In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had
not been included.
8.3 Requirements of Law.
The granting of awards under the Plan shall be subject to all applicable laws, rules and regulations, and to such approvals by
any governmental agencies or national securities exchanges as may be required.
8.4 Bonus Plan. The Plan
is intended to be a “bonus program” as defined under U.S. Department of Labor regulation 2510.3-2(c) and will be construed
and administered in accordance with such intention.
8.5 Governing Law. The Plan
and all awards shall be construed in accordance with and governed by the laws of the State of Texas, but without regard to its
conflict of law provisions.
8.6 Captions.
Captions are provided herein for convenience only, and shall not serve as a basis for interpretation or construction of the Plan.
EXECUTION
IN WITNESS WHEREOF, Rackspace Hosting,
Inc., by its duly authorized officer, has executed the amended and restated Plan on the date indicated below.
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RACKSPACE HOSTING, INC. |
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Dated: |
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By: |
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Name: |
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Title: |
RACKSPACE
HOSTING, INC.
1 FANATICAL PLACE
CITY OF WINDCREST
SAN ANTONIO, TX 78218 |
VOTE
BY INTERNET - www.proxyvote.com
Use
the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time
the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions
to obtain your records and to create an electronic voting instruction form.
ELECTRONIC
DELIVERY OF FUTURE PROXY MATERIALS
If
you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future
proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery,
please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access
proxy materials electronically in future years.
VOTE
BY PHONE - 1-800-690-6903
Use
any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date
or meeting date. Have your proxy card in hand when you call and then follow the instructions.
VOTE
BY MAIL
Mark,
sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o
Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
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TO
VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
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KEEP
THIS PORTION FOR YOUR RECORDS
DETACH AND RETURN THIS PORTION ONLY
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THIS PROXY CARD IS VALID
ONLY WHEN SIGNED AND DATED.
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The Board of Directors recommends
you vote FOR the following:
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1. Election of Class II Directors
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Nominees
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For
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Abstain
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1A William Taylor Rhodes
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1B Lila Tretikov
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The Board of Directors recommends you vote
FOR proposals 2 and 3.
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For
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Abstain
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02 Ratification
of the Appointment of KPMG, LLP as the Company’s independent registered public accounting
firm for the fiscal year ending December 31, 2016.
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03 Approval
of the Executive Bonus Plan
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NOTE: IN THEIR DISCRETION,
the proxyholders are authorized to vote upon such other business as may properly come before the meeting
or any adjournments or postponement thereof.
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Please sign exactly as your
name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please
give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation
or partnership, please sign in full corporate or partnership name, by authorized officer.
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Signature [PLEASE SIGN WITHIN BOX]
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Date
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Signature (Joint Owners)
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0000273874_1 R1.0.1.25
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Notice
& Proxy Statement, Annual Report is/are available at www.proxyvote.com
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RACKSPACE HOSTING, INC. |
Annual Meeting of Stockholders
Wednesday April 27, 2016 |
8:30 a.m. CDT |
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The stockholder(s) hereby appoint(s) William Alberts and Taylor Rhodes, or either of them, as proxies, each with the power to appoint (his/her) substitute, and hereby authorizes them to represent and to vote, as designated on the reverse side of this ballot, all of the shares of Common stock of RACKSPACE HOSTING, INC. that the stockholder(s) is/are entitled to vote at the Annual Meeting of stockholder(s) to be held at 08:30 AM, CDT on April
27, 2016, at 1 Fanatical Place, City of Windcrest, San Antonio, Texas 78218, and any adjournment or postponement thereof.
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This proxy, when properly executed, will be voted in the manner directed herein. If no such direction is made, this proxy will be voted in accordance with the Board of Directors’ recommendations. |
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Continued and
to be signed on reverse side |
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0000273874_2 R1.0.1.25
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