EXECUTIVE OFFICERS
The following table sets forth information for our executive officers as of November 7, 2019. Our executive officers are appointed by, and serve at the discretion of, the Board and each holds office until his or her successor is duly elected and qualified or until his or her earlier resignation or removal. There are no family relationships among any of our directors or executive officers.
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Name
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Age
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Position
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Katrina Lake
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36
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Founder, Chief Executive Officer and Director
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Paul Yee
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47
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Chief Financial Officer
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Michael Smith
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49
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President and Chief Operating Officer
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Scott Darling
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47
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Chief Legal Officer and Corporate Secretary
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Katrina Lake. See the section under Proposal 1 – Election of Directors titled “Directors Continuing in Office Until the 2021 Annual Meeting.”
Paul Yee. Mr. Yee has served as our Chief Financial Officer since June 2017. From April 2013 to June 2017, he served as the Chief Financial Officer of Method Products, PBC, and subsequently as Chief Financial Officer of its parent companies PAD NV and People Against Dirty Holdings Ltd., a green cleaning products company known for its Method and Ecover brands. From June 2017 to September 2017, Mr. Yee served in a limited capacity as a consultant to People Against Dirty Holdings Ltd. as it contemplated a sale to a third party. From 2007 to 2013, Mr. Yee served in multiple capacities at Peet’s Coffee & Tea, Inc., a specialty coffee and tea company, including his most recent role as Vice President of Finance & Investor Relations from 2011 to 2013. From 1999 to 2006, Mr. Yee served in multiple capacities at Gap, Inc., a global retailer of clothing and accessories, including in leadership roles in finance and inventory planning. Mr. Yee holds a B.A. in Urban Studies and an M.B.A. from Stanford University.
Michael Smith. Mr. Smith has served as our President and Chief Operating Officer since October 2018. Mr. Smith previously served as Chief Operating Officer from September 2017 to October 2018, was our General Manager, Stitch Fix Men from March 2016 to September 2017, and served as our Chief Operating Officer from June 2012 to March 2016. From 2003 to 2012, Mr. Smith served in a variety of capacities at Walmart.com, Inc., an online retail company, including Vice President from 2008 to 2010 and Chief Operating Officer from 2010 to 2012. Mr. Smith holds a B.A. in Interdisciplinary Studies from the University of Virginia and an M.B.A. from the University of California, Berkeley.
Scott Darling. Mr. Darling has served as our Chief Legal Officer since October 2016 and as our Corporate Secretary since March 2017. From August 2015 to May 2016, Mr. Darling served as Chief Legal Officer and Corporate Secretary of Beepi, Inc., an online automobile retailer. From October 2011 to August 2015, Mr. Darling served as the Vice President, General Counsel and Corporate Secretary of Trulia, Inc., a home search marketplace. Prior to joining Trulia, Mr. Darling served as Vice President, General Counsel and Corporate Secretary at Imperva Inc., a cybersecurity company, from 2010 until 2011, and as Senior Attorney with Microsoft Corporation, a multinational technology company, from 2008 to 2010. Mr. Darling started his career with the law firm Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP. Mr. Darling holds a B.A. in Ethics, Politics, and Economics from Yale University and a J.D. from the University of Michigan.
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership of the Company’s Class A and Class B common stock as of October 21, 2019, by: (i) each director and nominee for director; (ii) each of the Company’s named executive officers; (iii) all executive officers and directors of the Company as a group; and (iv) all those known by the Company to be beneficial owners of more than 5% of its Class A common stock or Class B common stock. Unless otherwise indicated, the address for each beneficial owner listed in the table below is c/o Stitch Fix, Inc., 1 Montgomery Street, Suite 1500, San Francisco, California 94104.
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Class A
Common Stock
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Class B
Common Stock
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% of Total Voting Power(2)
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Name of Beneficial Owner(1)
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Shares
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%
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Shares
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%
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5% Stockholders:
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Entities affiliated with Baseline Ventures(3)
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24,622,309
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52.8
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47.2
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Entities affiliated with Benchmark Capital Partners(4)
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8,422,235
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18.1
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16.2
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Baillie Gifford & Co (5)
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4,488,246
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8.1
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*
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Jackson Square Partners, LLC(6)
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3,903,264
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7.1
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*
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The Vanguard Group, Inc.(7)
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3,730,987
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6.8
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*
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Named Executive Officers and Directors:
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Katrina Lake(8)
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142,800
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*
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12,588,874
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27.0
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24.2
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Paul Yee(9)
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189,375
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*
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*
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Michael Smith(10)
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47,830
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*
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1,209,227
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2.6
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2.3
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Scott Darling(11)
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36,000
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*
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57,438
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*
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*
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Steven Anderson(3)
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24,622,309
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52.8
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47.2
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J. William Gurley(12)
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755,015
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1.4
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8,422,235
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18.1
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16.3
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Marka Hansen(13)
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166,875
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*
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*
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Kirsten Lynch(14)
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25,715
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*
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*
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Sharon McCollam(15)
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38,200
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*
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*
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Mikkel Svane(16)
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14,908
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*
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*
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Elizabeth Williams(17)
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11,836
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*
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*
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All directors and executive officers as a group (11 persons)(18)
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1,034,104
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1.7
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47,294,533
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99.7
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89.5
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* Less than one percent.
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(1)
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This table is based upon information supplied by officers, directors, and principal stockholders, and Schedules 13D, 13F, and 13G filed with the SEC. Unless otherwise indicated in the footnotes to this table and subject to community property laws where applicable, the Company believes that each of the stockholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned. Applicable percentages are based on 55,099,593 shares of Class A common stock and 46,601,115 shares of Class B common stock outstanding on October 21, 2019, adjusted as required by rules promulgated by the SEC.
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(2)
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Percentage of total voting power represents voting power with respect to all shares of our Class A and Class B common stock, as a single class. The holders of our Class A common stock are entitled to one vote per share, and holders of our Class B common stock are entitled to ten votes per share.
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(3)
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Consists of (i) 16,157,915 shares of Class B common stock held by Baseline Ventures 2009, LLC, (ii) 7,921,083 shares of Class B common stock held by Baseline Increased Exposure Fund, LLC, (iii) 277,911 shares of Class B common stock held by Baseline Cable Car, LLC, and (iv) 265,400 shares of Class B common stock held by Baseline Encore, L.P. Mr. Anderson, the sole managing member of Baseline Ventures 2009, LLC, Baseline Increased Exposure Fund, LLC, Baseline Cable Car, LLC, and Baseline Encore Associates, LLC, and the general partner of Baseline Encore, L.P., has the sole power to vote these shares. The address for the Baseline entities is 7250 Redwood Blvd, Ste. 300, PMB# 023, Novato, CA 94945.
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(4)
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Consists of (i) 7,285,360 shares of Class B common stock held by Benchmark Capital Partners VII, L.P. (“Benchmark VII”) and (ii) 1,136,875 shares of Class B common stock held by Benchmark Capital Partners VI, L.P. (“Benchmark VI”). Benchmark Capital Management Co. VII, L.L.C., the general partner of Benchmark VII, has the sole power to vote the shares held by Benchmark VII, and Matthew R. Cohler, Bruce W. Dunlevie, Peter H. Fenton, J. William Gurley, Kevin R. Harvey, Mitchell H. Lasky, Steven M. Spurlock, and Eric Vishria, the managing members of Benchmark Capital Management Co. VII, L.L.C., have shared power to vote these shares. Benchmark Capital Management Co. VI, L.L.C., the general partner of Benchmark VI, has the sole power to vote the shares held by Benchmark VI, and Alexandre Balkanski, Matthew R. Cohler, Bruce W. Dunlevie, Peter H. Fenton, J. William Gurley, Kevin R. Harvey, Robert C. Kagle, Mitchell H. Lasky, and Steven M. Spurlock, the managing members of Benchmark Capital
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Management Co. VI, L.L.C., have shared power to vote these shares. The address for the Benchmark entities is 2965 Woodside Road, Woodside, CA 94062.
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(5)
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Baillie Gifford & Co (“Baillie Gifford”) reported on its Form 13F-HR filed on August 8, 2019, that it has shared dispositive power over 3,843,557 shares, sole dispositive power over 644,689 shares, and sole voting power over 2,607,487 shares. The address for Baillie Gifford is Calton Square, 1 Greenside Row, Edinburgh, EH1 3AN, Scotland, UK.
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(6)
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Jackson Square Partners, LLC (“Jackson Square Partners”) reported on its Form 13F-HR filed on August 14, 2019, that it has sole dispositive power over 3,903,264 shares, shared voting power over 333,500 shares, and sole voting power over 2,988,557 shares. The address for Jackson Square Partners is 101 California Street, Ste 3750, San Francisco, CA 94111.
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(7)
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The Vanguard Group, Inc. (“Vanguard Group”) reported on Form 13F-HR filed on August 14, 2019, that it has shared dispositive power over 81,145 shares, sole dispositive power over 3,649,842 shares, shared voting power over 3,206 shares, and sole voting power over 82,755 shares. The address for Vanguard Group is PO Box 2600, V26, Valley Forge, PA 19482.
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(8)
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Consists of (i) 11,306,862 shares of Class B common stock held by the Katrina M. Lake Revocable Trust dated May 23, 2016, of which Ms. Lake is the trustee, (ii) 675,932 shares of Class B common stock held by the Katrina M. Lake 2017 Irrevocable Trust, of which Ms. Lake is the trustee, (iii) 20,203 shares of Class A common stock and 560,772 shares of Class B common stock held by the John C. Clifford and Katrina M. Lake Revocable Trust dated May 23, 2016, of which Ms. Lake and John C. Clifford are trustees, (iv) 114,879 shares of Class A common stock issuable under outstanding options exercisable within 60 days of October 21, 2019, (v) 45,308 shares of Class B common stock issuable under outstanding options exercisable within 60 days of October 21, 2019, and (vi) 7,718 shares of Class A common stock issuable upon the vesting of RSUs within 60 days of October 21, 2019.
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(9)
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Includes 171,375 shares of Class B common stock issuable under outstanding options exercisable within 60 days of October 21, 2019.
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(10)
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Includes (i) 35,890 shares of Class A common stock issuable under outstanding options exercisable within 60 days of October 21, 2019, (ii) 365,863 shares of Class B common stock issuable under outstanding options exercisable within 60 days of October 21, 2019, and (iii) 11,940 shares of Class A common stock issuable upon the vesting of RSUs within 60 days of October 21, 2019.
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(11)
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Includes 57,438 shares of Class B common stock issuable under outstanding options exercisable within 60 days of October 21, 2019.
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(12)
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Consists of (i) 7,285,360 shares of Class B common stock held by Benchmark VII, (ii) 1,136,875 shares of Class B common stock held by Benchmark VI, (iii) 694,507 shares of Class A common stock held by Mr. Gurley, and (iv) 60,508 shares of Class A common stock held by limited partnerships controlled by Mr. Gurley. Benchmark Capital Management Co. VII, L.L.C., the general partner of Benchmark VII, has the sole power to vote the shares held by Benchmark VII, and Mr. Gurley, a managing member of Benchmark Capital Management Co. VII, L.L.C., has shared power to vote these shares. Benchmark Capital Management Co. VI, L.L.C., the general partner of Benchmark VI, has the sole power to vote the shares held by Benchmark VI, and Mr. Gurley, a managing member of Benchmark Capital Management Co. VI, L.L.C., has shared power to vote these shares.
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(13)
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Consists of 166,875 shares of Class B common stock issuable under outstanding options exercisable within 60 days of October 21, 2019.
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(14)
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Consists of (i) 22,639 shares of Class A common stock issuable under outstanding options exercisable within 60 days of October 21, 2019, and (ii) 3,076 shares of Class A common stock issuable upon the vesting of RSUs within 60 days of October 21, 2019.
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(15)
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Consists of 38,200 shares of Class B common stock issuable under outstanding options exercisable within 60 days of October 21, 2019.
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(16)
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Consists of (i) 11,832 shares of Class A common stock issuable under outstanding options exercisable within 60 days of October 21, 2019, and (ii) 3,076 shares of Class A common stock issuable upon the vesting of RSUs within 60 days of October 21, 2019.
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(17)
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Consists of (i) 8,064 shares of Class A common stock issuable under outstanding options exercisable within 60 days of October 21, 2019, and (ii) 3,772 shares of Class A common stock issuable upon the vesting of RSUs within 60 days of October 21, 2019.
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(18)
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Consists of (i) 46,449,474 shares of Class B common stock held by our current directors and executive officers, (ii) 811,218 shares of Class A common stock held by our current directors and executive officers, (iii) 845,059 shares of Class B common stock issuable under outstanding stock options exercisable within 60 days of October 21, 2019, (iv) 193,304 shares of Class A common stock issuable under outstanding stock options exercisable within 60 days of October 21, 2019, and (v) 29,582 shares of Class A common stock issuable upon the vesting of RSUs within 60 days of October 21, 2019.
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DELINQUENT SECTION 16(a) REPORTS
Section 16(a) of the Exchange Act requires the Company’s directors and executive officers, and persons who own more than 10% of a registered class of the Company’s equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company. Officers, directors, and greater than 10% stockholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file.
To the Company’s knowledge, based solely on a review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the fiscal year ended August 3, 2019, all Section 16(a) filing requirements applicable to its officers, directors, and greater than 10% beneficial owners were complied with, except for the following: (1) for each of Kirsten Lynch
and Mikkel Svane, a Form 4 reporting an annual equity grant was filed late due to an administrative error; (2) for each of Matthew Cohler, Eric Vishria, and Peter Fenton, managing members of Benchmark Capital Management Co. VI, L.L.C. and/or Benchmark Capital Management Co. VII, L.L.C., a Form 4 reporting a sale of shares was filed late due to an administrative error; and (3) a Form 4 reporting an incorrect number of shares received in a distribution was corrected late for Alexandre Balkanski, a managing member of Benchmark Capital Management Co. VI, L.L.C.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Introduction
This Compensation Discussion and Analysis describes the compensation program for our chief executive officer, our chief financial officer, and our two other executive officers for our fiscal year ended August 3, 2019 (our “named executive officers”). During fiscal year 2019, our named executive officers were:
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Katrina Lake, our Founder and Chief Executive Officer (our “CEO”);
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•
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Paul Yee, our Chief Financial Officer (our “CFO”);
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•
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Michael Smith, our President and Chief Operating Officer (our “COO”); and
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•
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Scott Darling, our Chief Legal Officer and Corporate Secretary.
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As all of our executive officers are named executive officers, we will use those terms interchangeably below. This Compensation Discussion and Analysis describes the material elements of our executive compensation program during fiscal year 2019. It also provides an overview of our executive compensation philosophy and objectives. Finally, it analyzes how and why the Compensation Committee of our Board (the “Compensation Committee”) arrived at the specific compensation decisions for our named executive officers for fiscal year 2019, including the key factors that were considered in determining their compensation.
Executive Summary
Who We Are
Inspired by the vision of a client-first, client-centric new way of retail, we are reinventing the shopping experience by delivering one-to-one personalization to our clients through the combination of data science and human judgment. This combination drives a better client experience and a more powerful business model than either element could deliver independently. Since our founding in 2011, we have helped millions of clients discover and buy what they love through personalized shipments of apparel, shoes, and accessories, hand-selected by our stylists and delivered to our clients’ homes.
Fiscal Year 2019 Business Highlights
During fiscal year 2019, we continued to balance revenue growth and profitability while making strategic investments to drive further growth. In fiscal year 2019, which was a 53-week year, we grew net revenue by more than 28% year over year and maintained strong profitability even as we made further investments in talent, launched our first integrated brand campaign, and expanded our service to the United Kingdom.
Overall, we completed a successful fiscal year 2019 by achieving strong results across the company as reflected by the following accomplishments:
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Active Clients – Our active client population at the end of the year was approximately 3.2 million, representing an increase of 18.0% year over year.
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Revenue – Total net revenue was $1,577.6 million, an increase of 28.6% compared with $1,226.5 million in fiscal year 2018. Fiscal year 2019 net revenue included the benefit of an additional week compared to fiscal year 2018.
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Net Income – Net income was $36.9 million, compared with $44.9 million in fiscal year 2018.
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Adjusted EBITDA – Adjusted EBITDA, which we define as net income (loss) excluding interest income, other (income), net, provision for income taxes, depreciation and amortization, and, when present, the remeasurement of preferred stock warrant liability, was $39.6 million, compared with $53.6 million in fiscal year 2018.*
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Diluted Earnings Per Share – Diluted earnings per share for the year were $0.36 per share, compared with $0.34 per share in fiscal year 2018.
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UK Expansion – Executed on our international expansion strategy by launching our service in the United Kingdom in May 2019.
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New Direct-Buy Functionality – Introduced a direct-buy functionality through Shop New Colors, allowing adult U.S. clients to buy previously purchased items in new colors, prints, and sizes.
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* See Appendix A to this Proxy Statement for a reconciliation of non-GAAP to GAAP financial measures.
Fiscal Year 2019 Executive Compensation Highlights
The Compensation Committee took the following actions with respect to the compensation of our named executive officers for fiscal year 2019:
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Annual Bonus Program – We adopted a cash bonus program, with bonuses based on our actual performance as measured against multiple financial measures (net revenue and adjusted EBITDA) as well as multiple strategic measures (revenue per active client and percentage of fixes with zero items kept (“buy-zero rate”)) for fiscal year 2019. The bonus is based 100% on the achievement of these corporate measures and has no individual performance component. Based on our fiscal year 2019 results, our named executive officers received bonus payouts at 114% of their target annual cash bonus opportunities.
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Long-Term Incentive Compensation – We granted a mix of stock options and restricted stock units (“RSUs”) to our named executive officers. Prior to becoming a public company in November 2017, we generally granted only stock options to our executive officers, which was consistent with our practices for all employees receiving equity. After our IPO, we began granting RSUs as part of our equity compensation program, and in fiscal year 2019, the Compensation Committee granted our named executive officers a mix of stock options and RSUs.
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Pay-for-Performance Analysis
We believe our executive compensation program is reasonable, competitive, and appropriately balances the goals of attracting, motivating, rewarding, and retaining our executive officers with the objective of aligning their interests with those of our stockholders. To ensure this alignment and to motivate and reward individual initiative and effort, we structure a significant portion of our executive officers’ compensation to be variable, at risk, and tied directly to our measurable performance. The pay mix for our CEO and our other named executive officers during fiscal year 2019 reflected this pay-for-performance design:
We emphasize compensation that appropriately rewards our named executive officers through three separate compensation elements:
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Base Salary – We provide annual base salaries that reflect prevailing competitive market practice and levels.
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Annual Bonus – In fiscal year 2019, we introduced a cash bonus program pursuant to our 2017 Incentive Plan (“2017 Plan”), which provides our named executive officers with the opportunity to earn annual cash bonuses (with the target annual cash bonus opportunity of each executive officer expressed as a percentage of his or her annual base salary) if they achieve financial and strategic results that meet or exceed the objectives established by the Compensation Committee and our Board.
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Stock Options and RSUs – We grant a mix of stock options and RSUs to our named executive officers to incentivize them to build sustainable, long-term value for the benefit of our stockholders.
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The introduction of the cash bonus program in fiscal year 2019 was not intended to increase the target total direct compensation for our named executive officers, but to create a balance of cash and long-term equity incentive compensation that is consistent with market practice while maintaining the proportion of compensation that is at risk.
Executive Compensation Policies and Practices
We endeavor 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 given the dynamic nature of our business and the market in which we compete for executive talent. The following summarizes our executive compensation and related policies and practices:
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WHAT WE DO
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WHAT WE DON’T DO
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Maintain an Independent Compensation Committee. The Compensation Committee consists solely of independent directors.
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No Executive Retirement Plans. We do not offer pension or retirement plans or arrangements for our named executive officers that are different from or in addition to those offered to our other employees.
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Retain an Independent Compensation Advisor. The Compensation Committee engaged its own compensation consultant to provide information, analysis, and other advice, independent of management. This consultant performed no other services for us in fiscal year 2019.
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No Perquisites. We do not provide perquisites or other personal benefits to our named executive officers except as generally made available to all our employees.
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Annual Executive Compensation Review. The Compensation Committee conducts an annual review of our compensation strategy, including our compensation peer group and our compensation-related risk profile.
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No Special Welfare or Health Benefits. Our named executive officers participate in broad-based, company-sponsored health and welfare benefits programs on the same basis as our other full-time, salaried employees.
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Compensation at Risk. Our executive compensation program is designed so that a significant portion of compensation is at risk, based on our performance on key metrics, and to align the interests of our named executive officers and stockholders, as reflected in short-term cash bonuses and long-term equity awards.
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No Hedging or Pledging of Our Equity Securities. We do not permit directors or our employees, including our executive officers, to hedge or pledge our equity securities.
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Stock Ownership Policy. We maintain a stock ownership policy that requires our named executive officers to maintain a minimum ownership level of our Class A or Class B common stock.
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No Post-Employment Tax Reimbursement. We do not provide any tax reimbursement payments (including gross-ups) on any executive officer severance or change-in-control payments or benefits.
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Succession Planning. We review the risks associated with our key executive officer positions to ensure adequate succession plans are in place.
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No Dividends or Dividend Equivalents Payable on Unvested Equity Awards. We do not pay dividends or dividend equivalents on unvested RSU awards.
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Stockholder Advisory Vote on Named Executive Officer Compensation
At our 2018 annual meeting of stockholders, we conducted an initial non-binding stockholder advisory vote on the frequency with which we should hold a non-binding stockholder advisory vote on the compensation of our named executive officers (commonly known as a “say-on-pay” vote). Our stockholders overwhelmingly agreed with our Board’s recommendation that we should hold a say-on-pay vote on an annual basis, and as such we are conducting our initial say-on-pay vote at the 2019 Annual Meeting. Our Board is recommending that our stockholders approve the compensation of our named executive officers. For additional information about this advisory vote, see Proposal 2 in this Proxy Statement. Our next say-on-pay vote will be held at our 2020 annual meeting of stockholders.
Executive Compensation Philosophy
Our executive compensation program is guided by our overarching philosophy of paying for demonstrable performance. Consistent with this philosophy, we have designed our executive compensation program to achieve the following primary objectives:
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Provide compensation and benefit levels that will attract, retain, and reward a highly talented team of executive officers while managing costs responsibly;
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Provide incentives that motivate and reward achievement of our key financial and operational results and strategic objectives that enhance stockholder value over the long term;
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Establish a direct link between our financial and operational results and strategic objectives and the compensation of our executive officers; and
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Align the interests and objectives of our executive officers with those of our stockholders by linking their incentive compensation opportunities to stockholder value creation.
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Program Design
We have historically used two principal elements to structure the compensation opportunities of our named executive officers: base salary and long-term incentive compensation opportunities in the form of equity awards. In fiscal year 2019, we added a third element: the opportunity to earn an annual cash bonus based on the achievement of financial and strategic objectives. While the pay mix may vary from year to year, the ultimate goal is to achieve our compensation objectives as described above.
We also provide our named executive officers with benefits available to all our employees, including retirement benefits under our Section 401(k) plan and participation in our employee health and welfare benefit plans.
The design of our executive compensation program is influenced by a variety of factors, with the primary goals of aligning the interests of our executive officers and stockholders and linking pay with performance. We do not have any formal policies for allocating compensation among base salary, annual cash bonuses, and equity awards; short- and long-term compensation; or cash and non-cash compensation. Instead, the members of the Compensation Committee exercise their judgment to establish a total compensation package for each executive officer that is a mix of fixed and variable compensation, and cash and non-cash compensation, that it believes is appropriate to achieve the goals of our executive compensation program and our corporate objectives. Historically, however, the Compensation Committee has structured a significant portion of our executive officers’ target total direct compensation so that it is comprised of long-term incentive compensation in the form of equity awards to align our executive officers’ incentives with the interests of our stockholders and our corporate goals. The Compensation Committee believes that the addition of annual cash bonuses will help drive achievement of specific financial and strategic objectives.
Governance of Executive Compensation Program
Role of the Compensation Committee
The Compensation Committee discharges the responsibilities of our Board relating to the compensation of our named executive officers and the non-employee members of our Board. The Compensation Committee has overall responsibility for reviewing our compensation philosophy and strategy, overseeing our compensation and benefits policies generally, and overseeing and evaluating the compensation plans, policies, and practices applicable to our CEO as well as our other executive officers. The Compensation Committee operates pursuant to a written charter, which is available in the Governance section of our website at investors.stitchfix.com.
Annual Compensation Review
At the beginning of each fiscal year, the Compensation Committee reviews our executive compensation program to assess whether the various elements of our program, as well as its compensation actions and decisions:
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are properly coordinated;
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are aligned with our vision, mission, values, and corporate goals;
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provide appropriate short- and long-term incentives for our executive officers;
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achieve their intended purposes; and
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are competitive with the compensation of executives in comparable positions at the companies with which we compete for executive talent.
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Following this assessment, the Compensation Committee makes any necessary or appropriate modifications to our existing plans and arrangements or adopts new plans or arrangements.
The Compensation Committee also conducts an annual review of our executive compensation strategy to ensure that it is appropriately aligned with our business strategy and achieving our desired objectives. Further, the Compensation Committee reviews market trends and changes in competitive compensation practices, as further described below.
Compensation-Setting Process
In connection with its annual review of our executive compensation program, the Compensation Committee evaluates and establishes the target total direct compensation opportunities for each of our named executive officers. The Compensation Committee does not use a single method or measure in setting or approving the target total direct compensation opportunities or each individual compensation element for our executive officers.
The following factors, which the Compensation Committee considers when selecting and setting the amount of each compensation element for our named executive officers, provide a framework for its compensation decision-making:
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our executive compensation program objectives;
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our performance against the financial and operational goals and objectives established by the Compensation Committee and our Board;
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each individual executive officer’s qualifications, knowledge, skills, experience, and tenure relative to other similarly situated executives at the companies in our compensation peer group;
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•
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the scope of each executive officer’s role and responsibilities compared to other similarly situated executives at the companies in our compensation peer group;
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•
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the prior performance of each individual executive officer, based on a subjective assessment of his or her contributions to our overall performance, ability to lead his or her business unit or function, and work as part of a team;
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•
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the potential of each individual executive officer to contribute to our long-term financial, operational, and strategic objectives;
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•
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our CEO’s compensation relative to that of our executive officers, and compensation parity among our executive officers;
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our financial performance relative to our peers;
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•
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the compensation practices of our compensation peer group and the positioning of each executive officer’s compensation in a ranking of peer company compensation levels based on an analysis of competitive market data;
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•
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in the case of long-term incentive compensation, the value of any outstanding vested and unvested equity awards held by each of our executive officers, including the equity awards and other long-term incentive compensation opportunities granted to each executive officer in prior years; and
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•
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the recommendations provided by our CEO with regard to the compensation of our executive officers, as described below.
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These factors provide the framework for decision-making by the Compensation Committee with respect to the compensation of each of our executive officers. No single factor is determinative in setting compensation levels, nor is the impact of any individual factor on the determination of compensation levels quantifiable.
The Compensation Committee does not weight these factors in any predetermined manner, nor does it apply any formulas in developing its compensation recommendations. The members of the Compensation Committee consider all of this information in light of their individual experience; knowledge of the Company, the competitive market, and each executive officer; and business judgment in making these recommendations.
Role of Chief Executive Officer
In discharging its responsibilities, the Compensation Committee works with members of our management, including our CEO. Our management assists the Compensation Committee by providing information on corporate and individual performance, market compensation data, and management’s perspective on compensation matters. The Compensation Committee solicits and reviews our CEO’s recommendations and proposals with respect to adjustments to annual cash compensation, long-term incentive compensation opportunities, program structures, and other compensation-related matters for our executive officers (other than with respect to her own compensation).
The Compensation Committee reviews and discusses these recommendations and proposals with our CEO and considers them as one factor in determining the compensation for our executive officers other than our CEO. Our CEO recuses herself from all discussions and recommendations regarding her own compensation and is not present when her compensation is discussed.
Role of Compensation Consultant
Pursuant to its charter, the Compensation Committee has the authority to retain the services of one or more executive compensation advisors, as it determines in its sole discretion, including compensation consultants and legal, accounting, and other advisors, to assist in the creation of our compensation plans and arrangements and related policies and practices. The Compensation Committee makes all determinations regarding the engagement, fees, and services of these external advisors, and any such external advisor reports directly to the Compensation Committee.
The Compensation Committee uses an external compensation consultant to assist it by providing information, analysis, and other advice relating to our executive compensation program and the decisions resulting from its annual executive compensation review. For fiscal year 2019, the Compensation Committee engaged Compensia, Inc. (“Compensia”), a national compensation consulting firm, as its compensation consultant to advise it on executive compensation matters, including competitive market pay practices for our executive officers, and data analysis and selection of the compensation peer group. For fiscal year 2019, the scope of Compensia’s engagement included research, analysis, and support relating to:
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the levels of overall compensation and each element of compensation for our executive officers;
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reviewing and providing input on the Compensation Discussion and Analysis section of our Proxy Statement;
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our compensation peer group;
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compensation “best practices” and market trends for our executive officers and the non-employee members of our Board;
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equity utilization and funding;
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the terms of the annual cash bonus program for our executive officers;
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a risk assessment of our executive and other employee compensation programs; and
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other ad hoc matters throughout the year.
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The terms of Compensia’s engagement include reporting directly to the Compensation Committee and the Compensation Committee chair. Compensia also coordinates with our management for data collection and job matching for our executive officers. In fiscal year 2019, Compensia did not provide any other services to us. The Compensation Committee has evaluated Compensia’s independence
pursuant to the Nasdaq listing standards and the relevant SEC rules and has determined that no conflict of interest has arisen as a result of the work performed by Compensia for the Compensation Committee.
Competitive Positioning
For purposes of comparing our executive compensation against the competitive market, the Compensation Committee reviews and considers the compensation levels and practices of a group of peer companies. This compensation peer group consists of consumer, retail, and technology companies that are similar to us in terms of revenue, market capitalization, business focus, and revenue growth.
In developing the compensation peer group in April 2018 to serve as a reference point in our fiscal year 2019 executive compensation decisions, the following criteria were used to identify comparable companies:
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publicly traded companies headquartered in the United States;
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similar industry and competitive market for talent;
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similar revenue size – within a range of approximately 0.3 to 3.0 times our last four quarters’ revenue;
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similar market capitalization – within a range of approximately 0.25 to 4.0 times our market capitalization;
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similar business focus of online retail and e-commerce, and/or apparel/retail sector; and
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positive revenue growth.
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In evaluating the compensation peer group, the Compensation Committee removed Kate Spade due to its acquisition, as well as Michael Kors Holdings and Match Group, which were above range based on revenue and/or market capitalization, from the fiscal year 2018 peer group. The Compensation Committee added Duluth Holdings, Overstock.com, and TripAdvisor, based on the criteria described above.
The Compensation Committee approved the following peer group following a review that included input from Compensia:
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Box
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Nutrisystem
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TripAdvisor
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Columbia Sportswear
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Overstock.com
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Under Armour
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Duluth Holdings
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Pandora Media
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Wayfair
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Etsy
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Shopify
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Yelp
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GrubHub
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Shutterfly
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Zillow Group
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lululemon athletica
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Shutterstock
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This compensation peer group was used by the Compensation Committee during much of fiscal year 2019 as a reference for understanding the competitive market for executive positions in our industry and sector.
Competitive comparison data was collected from publicly available information contained in the SEC filings of the compensation peer group companies, as well as data from a customized version of the Radford Global Technology survey and a broad data cut of technology companies with revenues between $500 million and $3 billion from the Radford Global Technology survey as references, to evaluate the competitive market when determining the total direct compensation packages for our executive officers, including base salary, bonus, and long-term incentive compensation opportunities. These surveys provide compensation market intelligence and are widely used within the technology industry.
The competitive market data described above are not used by the Compensation Committee in isolation, but serve as one point of reference in its deliberations on executive compensation. The Compensation Committee uses the competitive market data as a guide when making decisions about target total direct compensation, as well as individual elements of compensation. However, while market competitiveness is important, it is not the only factor the Compensation Committee considers when establishing compensation opportunities of our executive officers.
The Compensation Committee reviews our compensation peer group at least annually and adjusts the composition of the peer group if warranted, taking into account changes in both our business and that of the companies in the peer group.
Individual Compensation Elements
Our executive compensation program consists of three principal elements: base salary, annual cash bonus, and long-term incentive compensation in the form of equity awards. Our executive officers also participate in several Company-wide health and welfare benefit plans, which are consistent with the arrangements offered to our other employees. Finally, our executive officers are eligible to receive certain post-employment compensation arrangements.
We use these compensation elements to make up our executive compensation program because:
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they are consistent with other programs in our competitive market and allow us to effectively compete for highly qualified talent;
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each element supports achievement of one or more of our compensation objectives; and
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collectively, we believe these elements are effective means for motivating our executive officers.
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We view these primary compensation elements as related, but distinct, components of our total compensation program. We do not believe that total compensation should be derived from a single component, but should be balanced in support of our overall compensation philosophy. Each of these compensation elements is discussed in detail below, including a description of the particular element and how it fits into our overall executive compensation program and a discussion of the amounts paid to our named executive officers in fiscal year 2019 under each of these elements.
Base Salary
Base salary represents the fixed portion of the compensation of our named executive officers and is an important element of compensation intended to attract and retain highly talented individuals.
The Compensation Committee reviews and determines adjustments to the base salaries for each of our named executive officers as part of its annual executive compensation review. In addition, the base salaries of our named executive officers may be adjusted by the Compensation Committee in the event of a promotion or significant change in responsibilities.
The Compensation Committee generally determines base salaries after considering the factors described in “Governance of Executive Compensation Program – Compensation-Setting Process” above. Although our general philosophy is to set base salaries within a competitive range of the market median, actual positioning is based on the Compensation Committee’s assessment of the factors described above.
In October 2018, after considering the recommendations of our CEO (except with respect to her own base salary) as well as the factors described in “Governance of Executive Compensation Program – Compensation-Setting Process” above, the Compensation Committee determined to increase the base salaries of our COO and Chief Legal Officer. Mr. Smith’s increase reflected his transition from COO to President and COO, taking into account market compensation for similar roles. Mr. Darling’s salary was found to be below peer company compensation levels and the Compensation Committee took this into account along with his performance and consideration of the other factors described above. The base salaries of our named executive officers for fiscal years 2018 and 2019 were as follows:
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Named Executive Officer
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Fiscal Year 2018
Base Salary
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Fiscal Year 2019
Base Salary
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Percentage Adjustment
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Ms. Lake
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$
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650,000
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$
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650,000
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—
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Mr. Yee
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440,000
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440,000
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—
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Mr. Smith
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496,000
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535,000
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8
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%
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Mr. Darling
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325,000
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350,000
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8
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%
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The actual base salaries paid to our named executive officers in fiscal year 2019 are set forth in the “Fiscal Year 2019 Summary Compensation Table” below.
Annual Cash Bonuses
We introduced an annual cash bonus program for our executive officers in fiscal year 2019, which is intended to reward participants for achieving annual financial and strategic objectives set by our Compensation Committee and Board. For fiscal year 2019, 100% of the bonus payment was based on the achievement of corporate performance metrics, with no individual performance component.
The Compensation Committee reviews the target annual cash bonus opportunity for the fiscal year (which is expressed as a percentage of annual base salary, prorated for any salary adjustments during the year) of each executive officer as part of its annual executive compensation review and makes adjustments after considering the factors described in “Governance of Executive Compensation Program – Compensation-Setting Process” above. Generally, the Committee seeks to set the target annual cash bonus opportunity so that target total cash compensation (annual base salary and annual cash bonus) is within a competitive range taking into consideration our compensation peer group, but does not target a specific percentile of our compensation peer group. For fiscal year 2019, the target bonus for each of our named executive officers, including our CEO, was 30% of base salary.
In October 2018, the Compensation Committee established targets for the bonus program based on two financial performance metrics, net revenue and adjusted EBITDA, and two strategic metrics, revenue per active client and buy-zero rate, for fiscal year 2019. The Compensation Committee selected net revenue and adjusted EBITDA because it believes these metrics balance the top and bottom lines of the business. It selected revenue per active client as a strategic objective because it believes this metric is closely aligned with revenue while also focusing on the Company’s efforts to acquire high-quality clients, and buy-zero rate to reflect the Company’s goal
of serving clients well and driving client satisfaction and retention. Each of the financial metrics were weighted at 30% of the total bonus payout (shown as the “financial metrics multiplier” below), while the strategic metrics were each weighted at 20% of the total bonus payout (shown as the “strategic metrics multiplier” below). No bonus payment would be made unless both financial metrics were achieved at or above the threshold performance level. If the target performance level for each metric was achieved, the bonus payout would be 100% of target.
If both financial metrics are achieved at or above the threshold performance level, the final bonus payout is determined as follows:
The following table shows the required levels of achievement for the financial metrics to reach threshold, target, and maximum payout levels for the financial metrics multiplier, as well as the actual results as determined by the Compensation Committee:
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Financial Performance Metric
(in millions except percentages)
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Weighting
(% of Total Bonus)
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Threshold
(75% Payout)
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Target
(100% Payout)
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Maximum
(125% of Payout)
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Actual
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Net Revenue
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30
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%
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$
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1,476
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$
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1,546
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$
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1,591
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$
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1,578
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Adjusted EBITDA
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30
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%
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$
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18
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$
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38
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$
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51
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$
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40
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In October 2019, the Compensation Committee determined our actual performance under the bonus program, resulting in a financial metrics multiplier of 110% and a strategic metrics multiplier of 121%, for a final bonus payout at 114% of target. In reaching the strategic metrics multiplier, the Compensation Committee determined that the Company had exceeded the maximum threshold for the revenue per active client metric and performed better than the target threshold for the buy-zero metric.
The Compensation Committee also selected the performance metrics and related weighting for the fiscal year 2020 bonus program in October 2019. The financial performance objectives will continue to be net revenue and EBITDA targets, each weighted at 30% of the total bonus payout, and the strategic performance objectives will be active client count and buy-zero rate, each weighted at 20% of the total bonus payout. The Compensation Committee believes that replacing revenue per active client with active client count reflects our focus on client acquisition to continue growing the business. In addition, the Compensation Committee determined that the target annual cash bonus opportunity for each of our named executive officers, including our CEO, would be 45% of base salary to align more closely to the percentages reflected in the competitive market.
Long-Term Incentive Compensation
We view long-term incentive compensation in the form of equity awards as a critical element of our executive compensation program. The realized value of these equity awards bears a direct relationship to our stock price and, therefore, these awards are an incentive for our named executive officers to create sustainable, long-term value for our stockholders. Equity awards also help us retain our executive officers in a highly competitive market.
Long-term incentive compensation opportunities in the form of equity awards are granted by the Compensation Committee. The amount and forms of such equity awards are determined by the Compensation Committee after considering the factors described in “Governance of Executive Compensation Program – Compensation-Setting Process” above. The amounts of the equity awards are also intended to provide competitively sized awards and target total direct compensation opportunities within a competitive range of the market median relative to our compensation peer group and the Radford Global Technology Executive Compensation survey data for similar roles and positions for each of our executive officers, taking into consideration the factors described above.
In October 2018, the Compensation Committee approved the grant of the following stock option and RSU awards to our named executive officers:
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Ms. Lake – We granted Ms. Lake an equity award with a value of $4,800,000, 50% in RSUs and 50% in stock options. One-third of the RSUs vested on September 18, 2019, with the remainder vesting in eight equal quarterly installments thereafter, provided Ms. Lake remains in service with us on each vesting date. One-third of the options vested on June 30, 2019, with the remainder vesting in 24 equal monthly installments thereafter, provided she remains in service with us on each vesting date.
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Mr. Yee – We did not grant Mr. Yee an equity award in fiscal year 2019 as he had not reached the second anniversary of his hire date. Mr. Yee is eligible to receive an award in fiscal year 2020.
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Mr. Smith – We granted Mr. Smith an equity award with a value of $2,475,000, 50% in RSUs and 50% in stock options. One-fourth of the RSUs will vest on December 18, 2019, with the remainder vesting in 12 equal quarterly installments thereafter, provided Mr. Smith remains in service with us on each vesting date. One-fourth of the options will vest on October
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16, 2019, with the remainder vesting in 36 equal monthly installments thereafter, provided he remains in service with us on each vesting date.
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Mr. Darling – We granted Mr. Darling an equity award with a value of $1,200,000, 50% in RSUs and 50% in stock options. The RSUs will vest in eight equal quarterly installments starting on December 16, 2020, provided Mr. Darling remains in service with us on each vesting date. The options will vest in 24 equal monthly installments starting on November 28, 2020, provided he remains in service with us on each vesting date.
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Health and Welfare Benefits
Our named executive officers are eligible to receive the same employee benefits that are generally available to all our full-time employees, subject to the satisfaction of certain eligibility requirements. These health and welfare benefits include medical and dental benefits, life insurance benefits, and short- and long-term disability insurance.
In addition, we maintain a Section 401(k) savings plan (“401(k) Plan”) that provides eligible U.S. employees with an opportunity to save for retirement on a tax-advantaged basis. Eligible employees are able to defer eligible compensation up to certain limits as set forth in the Internal Revenue Code (the “Code”), which are updated annually. Pre-tax contributions are allocated to each participant’s individual account and are then invested in selected investment alternatives according to the participant’s directions. All participant interests in their contributions are fully vested when contributed. We have the ability to make matching and discretionary contributions to the 401(k) Plan. Currently, we do not make matching contributions or discretionary contributions to the 401(k) Plan. The 401(k) Plan is intended to be qualified under Section 401(a) of the Code, with the related trust intended to be tax exempt under Section 501(a) of the Code. As a tax-qualified retirement plan, contributions to the 401(k) Plan are deductible by us when made, and contributions and earnings on those amounts are not generally taxable to the employees until withdrawn or distributed from the 401(k) Plan.
In structuring these benefit programs, we seek to provide an aggregate level of benefits that are comparable to those provided by similarly situated companies.
Perquisites and Other Personal Benefits
We do not view perquisites or other personal benefits as a significant component of our executive compensation program. Accordingly, we do not provide significant perquisites or other personal benefits to our named executive officers except as generally made available to all our employees, or in situations where we believe it is appropriate to assist an individual in the performance of his or her duties, to make our executive officers more efficient and effective, and for recruitment and retention purposes. During fiscal year 2019, none of our named executive officers received perquisites or other personal benefits except as generally made available to all our employees.
Employment Arrangements
While we do not have employment agreements with any of our executive officers, the initial terms and conditions of employment for Messrs. Darling, Smith, and Yee were set forth in written employment offer letters. In September 2017, we entered into new employment offer letters with each of our named executive officers setting forth the terms and conditions of their employment with us. Each of these employment offer letters provides for “at will” employment and sets forth the named executive officer’s initial base salary. These employment offer letters also contain provisions for certain payments and benefits in the event of certain qualifying terminations of employment, including a termination of employment following a change in control of the Company, as described in more detail in “Post-Employment Compensation Arrangements” below. Each of these arrangements was approved on our behalf by the Compensation Committee.
Each of our named executive officers is subject to customary confidentiality requirements and similar covenants. Each of our named executive officers has also executed our standard proprietary information and inventions agreement.
Post-Employment Compensation Arrangements
Each of our named executive officers is eligible to receive certain payments and benefits in the event of certain qualifying terminations of employment pursuant to their employment offer letters. These agreements provide for the payment of six months’ base salary and COBRA premium reimbursement (12 months in the case of our CEO) in the event that their employment is terminated by us without “cause” or by the executive officer for “good reason” (each as defined in his or her employment offer letter). In addition, if such termination of employment occurs during the period beginning one month prior to a change in control of the Company (as defined in our 2017 Plan) or within 12 months following a change in control of the Company, they will instead receive the payment of 12 months’ base salary and COBRA premium reimbursement (18 months in the case of our CEO), as well as vesting in full of all outstanding equity awards. The receipt of payments and benefits is contingent on the named executive officer’s execution of a release of claims in favor of the Company.
We believe that having in place reasonable and competitive post-employment compensation arrangements are essential to attracting and retaining highly qualified executive officers. These arrangements are designed to provide reasonable compensation to executive officers who leave our employ under certain circumstances to facilitate their transition to new employment. Further, in some instances
we seek to mitigate any potential employer liability and avoid future disputes or litigation by requiring a departing executive officer to sign a separation and release agreement acceptable to us as a condition to receiving post-employment compensation payments or benefits.
The Compensation Committee does not consider the specific amounts payable under these post-employment compensation arrangements when establishing annual compensation. We do believe, however, that these arrangements are necessary to offer compensation packages that are competitive.
We believe that these arrangements are designed to align the interests of our named executive officers and our stockholders when considering our long-term future. The primary purpose of these arrangements is to keep our most senior executive officers focused on pursuing corporate transaction activity that is in the best interests of our stockholders regardless of whether those transactions may result in their own job loss. Reasonable post-acquisition payments and benefits should serve the interests of both the named executive officer and our stockholders.
All payments, benefits, and acceleration of vesting of outstanding equity awards in the event of a change in control of the Company are payable only if there is a subsequent loss of employment by a named executive officer or the refusal of an acquirer to assume or substitute a comparable award for an outstanding equity award (a “double-trigger” arrangement). In the case of the acceleration of vesting of outstanding equity awards, we use this double-trigger arrangement to protect against the loss of retention value following a change in control of the Company and to avoid windfalls, both of which could occur if vesting of either equity or cash-based awards accelerated automatically as a result of the transaction.
We have not had excise tax gross-up provisions relating to a change in control of the Company and have no such gross-up obligations in place with respect to any of our named executive officers.
For detailed descriptions of the post-employment compensation arrangements we maintain with our named executive officers, as well as an estimate of the potential payments and benefits payable under these arrangements, see “Potential Payments upon Termination or Change in Control” below.
Other Compensation Policies and Practices
Stock Ownership Policy
We believe that stock ownership by our executive officers and the non-employee members of our Board is important to link the risks and rewards inherent in stock ownership of these individuals and our stockholders. Our Board has adopted formal stock ownership guidelines that require our executive officers and the non-employee members of our Board to own a minimum number of shares of our Class A or Class B common stock. These mandatory ownership levels are intended to create a clear standard that ties a portion of these individuals’ economic interests to the performance of our stock price. Compliance is evaluated on an annual basis on the last day of the fiscal year.
The current required ownership levels are as follows:
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Individual Subject to Ownership Guidelines
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Minimum Required Level of Stock Ownership
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Chief Executive Officer
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Lesser of five times base salary or 215,000 shares
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Other Executive Officers
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Lesser of two times base salary or 43,000 shares
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Non-Employee Member of our Board
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Lesser of four times annual retainer or 13,000 shares
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The applicable guideline must be achieved by each covered individual within five years after the later of (a) the effective date of the registration statement pertaining to our initial public offering of our Class A common stock or (b) the date the individual became a covered individual, measured as of the last day of the applicable fiscal year.
Hedging and Pledging Activities
Under our insider trading policy, our employees, including our executive officers, and the members of our Board are prohibited from hedging or pledging our stock, engaging in short selling of our securities, trading in derivative securities of the Company, holding our securities in a margin account or otherwise pledging them as collateral for a loan.
Tax and Accounting Considerations
Deductibility of Executive Compensation
In approving the amount and form of compensation for our named executive officers, the Compensation Committee considers all elements of our cost of providing such compensation, including the potential impact of Section 162(m) of the Internal Revenue Code.
Section 162(m) of the Code as in effect prior to the enactment of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) in December 2017 generally disallowed a tax deduction to public companies for compensation of more than $1 million paid in any taxable year to
each “covered employee,” consisting of the chief executive officer and the three other highest paid executive officers employed at the end of the year (other than the chief financial officer). “Performance-based compensation” was exempt from this deduction limitation if the company met the requirements set forth in the Code and applicable Treasury regulations.
Further, as a result of a transition rule applicable to newly public companies, the Section 162(m) deduction limit generally does not apply to compensation paid pursuant to an arrangement that was in existence prior to the Company’s IPO and disclosed in its public filings.
The Tax Act retained the $1 million deduction limit but repealed the “performance-based compensation” exemption from the deduction limit and expanded the definition of “covered employee,” effective for taxable years beginning after December 31, 2017, to, among other things, treat a public company’s chief financial officer as a “covered employee.” Thus, compensation paid to our chief executive officer, chief financial officer, and our three other highest paid executive officers in excess of $1 million will not be deductible unless it qualifies for transitional relief applicable to certain binding, written performance-based compensation arrangements that were in place as of November 2, 2017, and/or qualifies for the transitional rule for newly public companies. As final guidance and regulations relating to Section 162(m), as amended, have not been issued, no assurance can be given that compensation will qualify for this transitional relief or that the transition rule for newly public companies will continue to be available. We will continue to closely monitor developments with respect to Section 162(m) of the Code.
The Compensation Committee believes that our stockholders’ interests are best served if its discretion and flexibility in awarding compensation is not restricted, even though some portion may result in non-deductible compensation expense. While tax deductibility is one item that is considered in determining the form and amount of executive compensation, the Compensation Committee also considers other factors, and reserves the right to pay compensation that is not deductible, including under Section 162(m) of the Code.
Accounting for Stock-Based Compensation
We follow the Financial Accounting Standard Board’s Accounting Standards Codification Topic 718 (“ASC Topic 718”) for our stock-based compensation awards. FASB ASC Topic 718 requires us to measure the compensation expense for all share-based payment awards made to our employees and non-employee members of our Board, including options to purchase shares of our Class A and Class B common stock and restricted stock unit awards that may be settled for shares of our Class A and Class B common stock, based on the grant date “fair value” of these awards. This calculation is performed for accounting purposes and reported in the executive compensation tables required by the federal securities laws, even though the recipient of the awards may never realize any value from their awards.
Compensation Committee Report*
The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis contained in this Proxy Statement. Based on this review and discussion, the Compensation Committee has recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated into the Company’s Annual Report on Form 10-K for the fiscal year ended August 3, 2019.
THE COMPENSATION COMMITTEE
Ms. Marka Hansen (Chair)
Mr. Steven Anderson
Ms. Kirsten Lynch
* The material in this report is not “soliciting material,” is furnished to, but not deemed “filed” with, the SEC, and is not deemed to be incorporated by reference in any filing of the Company under the Securities Act or the Exchange Act, other than the Company’s Annual Report on Form 10-K, where it shall be deemed to be “furnished,” whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.
Compensation-Related Risk
The Compensation Committee has reviewed our compensation policies and practices, in consultation with its external compensation consultant, to assess whether they encourage our employees to take inappropriate risks. After reviewing and assessing our compensation philosophy, policies, and practices, including the mix of fixed and variable, short- and long-term compensation, and overall pay, incentive plan structures, and the checks and balances built into, and oversight of, each plan and practice, the Compensation Committee has determined that any risks arising from our compensation policies and practices for our employees are not reasonably likely to have a material adverse effect on the Company as a whole.
The Compensation Committee believes that the mix and design of the elements of executive compensation do not encourage management to assume excessive risks; the mix of fixed and variable compensation prevents undue focus on short-term results and helps align the interests of our executive officers with the interests of our stockholders. In addition, under our Insider Trading Policy, our executive officers are prohibited from hedging and pledging our equity securities, which protects against short-term decision making.
Compensation Tables
Summary Compensation Table
The following table shows for the fiscal years ended August 3, 2019, July 28, 2018, and July 31, 2017, the compensation awarded or paid to, or earned by, our named executive officers.
Fiscal Year 2019 Summary Compensation Table
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Name and Principal Position
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Year
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Salary
($)
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Stock Awards
($) (1)
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Option Awards
($) (2)
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Non-Equity Incentive Plan Compensation
($)(3)
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All Other Compensation
($)
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Total
($)
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Katrina Lake,
Chief Executive Officer
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2019
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637,288
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2,067,457
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|
2,399,998
|
|
222,690
|
|
—
|
|
5,327,433
|
|
2018
|
601,571
|
|
—
|
|
—
|
|
—
|
|
—
|
|
601,571
|
|
2017
|
534,955
|
|
—
|
|
7,836,827
|
|
—
|
|
744,357(4)
|
|
9,116,139
|
|
Paul Yee,
Chief Financial Officer(5)
|
2019
|
448,462
|
|
—
|
|
—
|
|
150,744
|
|
—
|
|
599,206
|
|
2018
|
440,000
|
|
—
|
|
—
|
|
—
|
|
—
|
|
440,000
|
|
2017
|
59,231
|
|
—
|
|
4,826,721
|
|
—
|
|
—
|
|
4,885,952
|
|
Michael Smith,
President and Chief Operating Officer(6)
|
2019
|
536,288
|
|
1,066,026
|
|
1,237,500
|
|
180,216
|
|
—
|
|
3,020,030
|
|
2018
|
511,288
|
|
—
|
|
—
|
|
—
|
|
—
|
|
511,288
|
|
Scott Darling,
Chief Legal Officer and Corporate Secretary(7)
|
2019
|
350,962
|
|
516,864
|
|
599,998
|
|
117,939
|
|
—
|
|
1,585,763
|
|
2018
|
325,000
|
|
—
|
|
—
|
|
—
|
|
—
|
|
325,000
|
|
2017
|
244,129
|
|
—
|
|
635,362
|
|
—
|
|
—
|
|
879,491
|
|
|
|
(1)
|
The amounts reported in this column represent the aggregate grant date fair value of RSUs computed in accordance with ASC Topic 718. The assumptions used in calculating such amounts are set forth in the notes to our audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended August 3, 2019, filed with the SEC on October 2, 2019 (our “2019 Annual Report”). In order to mitigate the impact of any short-term stock price volatility on the number of stock units granted, the number of stock units in an RSU award is based on the aggregate dollar value of the award divided by the average closing market price of our Class A common stock on Nasdaq for the 30 days immediately prior to the date of grant. As a result, the fair value of the awards at grant date in this column, computed in accordance with ASC Topic 718, may be lower or higher than the equity compensation value approved by the Compensation Committee.
|
|
|
(2)
|
The amounts reported in this column represent the aggregate grant date fair value of options to purchase shares of our Class A or Class B common stock computed in accordance with ASC Topic 718. The assumptions used in calculating such amounts are set forth in the notes to our audited consolidated financial statements included in our 2019 Annual Report. This amount does not reflect the actual economic value that may be realized by our named executive officers from such awards.
|
|
|
(3)
|
The amounts in this column represent bonuses paid under our annual cash bonus program.
|
|
|
(4)
|
Amount paid in connection with a repurchase of shares by us from Ms. Lake pursuant to a tender offer to employees in December 2016, which represents the difference between the purchase price paid by us and the fair market value of the shares on the date of repurchase.
|
|
|
(5)
|
Mr. Yee joined us as our Chief Financial Officer in June 2017.
|
|
|
(6)
|
Mr. Smith first became an executive officer in November 2017 and, therefore, his fiscal year 2017 compensation has been omitted.
|
|
|
(7)
|
Mr. Darling joined us as our Chief Legal Officer in October 2016.
|
Grants of Plan-Based Awards
The following table shows for the fiscal year ended August 3, 2019, certain information regarding grants of plan-based awards to our named executive officers:
Grants of Plan-Based Awards in Fiscal Year 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1)
|
All Other Stock Awards: Number of Shares of Stock or Units
(#)
|
All Other Option Awards: Number of Securities Underlying Options (#)
|
Exercise or Base Price of Option Awards
($/share)
|
Grant Date Fair Value of Stock and Option Awards
($) (2)
|
Name
|
Grant Date
|
Threshold
($)
|
Target
($)
|
Maximum
($)
|
Katrina Lake
|
—
|
|
146,250
|
|
195,000
|
|
243,750
|
|
|
|
|
|
|
12/12/2018
|
|
|
|
92,628(3)
|
|
|
2,067,457
|
|
12/12/2018
|
|
|
|
|
243,248(4)
|
22.32
|
|
2,399,998
|
|
Paul Yee
|
—
|
|
99,000
|
|
132,000
|
|
165,000
|
|
|
|
|
|
|
Michael Smith
|
—
|
|
118,356
|
|
157,807
|
|
197,259
|
|
|
|
|
|
|
12/12/2018
|
|
|
|
47,761(5)
|
|
|
1,066,026
|
|
12/12/2018
|
|
|
|
|
123,054(6)
|
22.32
|
|
1,237,500
|
|
Scott Darling
|
—
|
|
77,455
|
|
103,274
|
|
129,092
|
|
|
|
|
|
|
12/12/2018
|
|
|
|
23,157(7)
|
|
|
516,864
|
|
12/12/2018
|
|
|
|
|
57,643(8)
|
22.32
|
|
599,998
|
|
|
|
(1)
|
The amounts reported represent the threshold, target, and maximum payouts for each named executive officer under our 2019 annual cash bonus program. The actual annual cash bonus payment amounts are included in the “Non-Equity Incentive Plan Compensation” column of the Fiscal Year 2019 Summary Compensation Table above. For more information, see “Compensation Discussion and Analysis – Individual Compensation Elements – Annual Cash Bonuses” above.
|
|
|
(2)
|
The amounts shown in this column represent the aggregate grant date fair value of RSUs and option awards granted during the fiscal year computed in accordance with ASC Topic 718. The assumptions used in calculating such amounts are set forth in the notes to our audited consolidated financial statements included in our 2019 Annual Report. In order to mitigate the impact of any short-term stock price volatility on the number of stock units granted, the number of stock units in an RSU award is based on the aggregate dollar value of the award divided by the average closing market price of our Class A common stock on Nasdaq for the 30 days immediately prior to the date of grant. As a result, the fair value of the awards at grant date in this column, computed in accordance with ASC Topic 718, may be lower or higher than the equity compensation value approved by the Compensation Committee.
|
|
|
(3)
|
One third of these RSUs vested on September 18, 2019, with the remainder vesting in eight equal quarterly installments thereafter, subject to continued service on each vesting date.
|
|
|
(4)
|
One third of this option to purchase shares of our Class A common stock vested on June 30, 2019, with the remainder vesting in 24 equal monthly installments thereafter, subject to continued service on each vesting date.
|
|
|
(5)
|
One fourth of these RSUs vest on December 18, 2019, with the remainder vesting in 12 equal quarterly installments thereafter, subject to continued service on each vesting date.
|
|
|
(6)
|
One fourth of this option to purchase shares of our Class A common stock vested on October 16, 2019, with the remainder vesting in 36 equal monthly installments thereafter, subject to continued service on each vesting date.
|
|
|
(7)
|
These RSUs vest in eight equal quarterly installments starting on December 16, 2020, subject to continued service on each vesting date.
|
|
|
(8)
|
This option to purchase shares of our Class A common stock vests in 24 equal monthly installments starting on November 28, 2020, subject to continued service on each vesting date.
|
Employment Agreements
The terms and conditions of employment for each of our named executive officers are set forth in written employment offer letters. In September 2017, we entered into new employment offer letters with each of our named executive officers setting forth the terms and conditions of his or her employment with us. The employment offer letters generally provide for at-will employment and set forth the executive officer’s initial base salary. They also provide for certain payments and benefits in the event of a termination of employment, including a termination of employment in connection with a change in control of the Company. For more information on these post-employment compensation arrangements, see “Potential Payments upon Termination or Change in Control” below. Each named executive officer is subject to customary confidentiality requirements and similar covenants. In addition, each of our named executive officers has executed our standard proprietary information and inventions agreement.
Katrina Lake
We entered into an employment offer letter with Ms. Lake, dated September 5, 2017. Pursuant to this offer letter, Ms. Lake’s base salary was set at $650,000 per year, subject to adjustment as determined in the discretion of the Compensation Committee. Ms. Lake’s employment is at will and may be terminated at any time, with or without cause.
Paul Yee
We entered into an initial employment offer letter with Mr. Yee dated April 10, 2017, which set forth the initial terms and conditions of his employment with us. We entered into a revised employment offer letter with Mr. Yee, dated September 5, 2017, which replaced
and superseded his prior employment offer letter. Pursuant to this revised offer letter, Mr. Yee’s base salary was set at $440,000 per year, subject to adjustment as determined in the discretion of the Compensation Committee. Mr. Yee’s employment is at will and may be terminated at any time, with or without cause.
Michael Smith
We entered into an initial offer letter with Mr. Smith dated March 7, 2013, which set forth the initial terms and conditions of his employment with us. We entered into a revised employment offer letter with Mr. Smith, dated September 25, 2017, which replaced and superseded his prior employment offer letter. Pursuant to this revised offer letter, Mr. Smith’s base salary was set at $496,000 per year, subject to adjustment as determined in the discretion of the Compensation Committee. Mr. Smith’s employment is at will and may be terminated at any time, with or without cause.
Scott Darling
We entered into an initial offer letter with Mr. Darling dated October 20, 2016, which set forth the initial terms and conditions of his employment with us. We entered into a revised employment offer letter with Mr. Darling, dated September 5, 2017, which replaced and superseded his prior employment offer letter. Pursuant to this revised offer letter, Mr. Darling’s base salary was set at $325,000 per year, subject to adjustment as determined in the discretion of the Compensation Committee. Mr. Darling’s employment is at will and may be terminated at any time, with or without cause.
Outstanding Equity Awards at Fiscal Year End
The following table shows for fiscal year 2019 certain information with respect to the outstanding equity awards held by our named executive officers as of August 3, 2019.
The vesting schedule applicable to each outstanding equity award is described in the footnotes to the table. For information with respect to the vesting acceleration provisions applicable to the equity awards held by our named executive officers, see “Potential Payments upon Termination or Change in Control” below.
Outstanding Equity Awards at Fiscal 2019 Year-End
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
Stock Awards
|
Name
|
Number of
Securities Underlying Unexercised Options
(#)
Exercisable
|
Number of Securities Underlying Unexercised Options
(#)
Unexercisable
|
Option Exercise Price
($)
|
Option Expiration Date
|
Number of Shares or Units of Stock That Have Not Vested
(#)
|
Market Value of Shares or Units of Stock That Have Not Vested
($) (1)
|
Katrina Lake
|
15,103
|
|
166,129(2)
|
16.98
|
|
06/29/27
|
|
|
|
—
|
|
362,465(3)
|
16.98
|
|
07/10/27
|
|
|
|
87,855
|
|
155,393(4)
|
22.32
|
|
12/11/28
|
|
|
|
|
|
|
|
92,628(5)
|
2,299,953
|
|
Paul Yee
|
132,312
|
|
179,688(6)
|
16.98
|
|
06/29/27
|
|
|
Michael Smith
|
125,000
|
|
|
0.064
|
|
06/23/23
|
|
|
|
203,978
|
|
34,826(7)
|
1.30
|
|
03/17/25
|
|
|
|
5,662
|
|
62,280(8)
|
16.98
|
|
06/29/27
|
|
|
|
—
|
|
120,822(9)
|
16.98
|
|
07/10/27
|
|
|
|
|
123,054(10)
|
22.32
|
|
12/11/28
|
|
|
|
|
|
|
|
47,761(11)
|
1,185,906
|
|
Scott Darling
|
38,688
|
|
70,312(12)
|
4.94
|
|
10/28/26
|
|
|
|
|
57,643(13)
|
22.32
|
|
12/11/28
|
|
|
|
|
|
|
|
23,157(14)
|
574,988
|
|
|
|
(1)
|
Amounts represent the market value of unvested RSUs, based on a closing price of our Class A common stock on August 2, 2019, the last trading day of the last completed fiscal year, of $24.83 per share.
|
|
|
(2)
|
This option to purchase shares of our Class B common stock vests in 24 equal monthly installments beginning on June 30, 2019, subject to continued service on each vesting date.
|
|
|
(3)
|
This option to purchase shares of our Class B common stock vests in 24 equal monthly installments beginning on July 11, 2021, subject to continued service on each vesting date.
|
|
|
(4)
|
One third of this option to purchase shares of our Class A common stock vested on June 30, 2019, with the remainder vesting in 24 equal monthly installments thereafter, subject to continued service on each vesting date.
|
|
|
(5)
|
One third of these RSUs vested on September 18, 2019, with the remainder vesting in eight equal quarterly installments thereafter, subject to continued service on each vesting date.
|
|
|
(6)
|
One fourth of this option to purchase shares of our Class B common stock vested on June 12, 2018, with the remainder vesting in 36 equal monthly installments thereafter, subject to continued service on each vesting date.
|
|
|
(7)
|
This option to purchase shares of our Class B common stock vests in 48 equal monthly installments beginning on April 1, 2016, subject to continued service on each vesting date.
|
|
|
(8)
|
This option to purchase shares of our Class B common stock vests in 24 equal monthly installments beginning on June 30, 2019, subject to continued service on each vesting date.
|
|
|
(9)
|
This option to purchase shares of our Class B common stock vests in 24 equal monthly installments beginning on July 11, 2021, subject to continued service on each vesting date.
|
|
|
(10)
|
One fourth of this option to purchase shares of our Class A common stock vested on October 16, 2019, with the remainder vesting in 36 equal monthly installments thereafter, subject to continued service on each vesting date.
|
|
|
(11)
|
One fourth of these RSUs vest on December 18, 2019, with the remainder vesting in 12 equal quarterly installments thereafter, subject to continued service on each vesting date.
|
|
|
(12)
|
One fourth of this option to purchase shares of our Class B common stock vested on October 28, 2017, with the remainder vesting in 36 equal monthly installments thereafter, subject to continued service on each vesting date.
|
|
|
(13)
|
This option to purchase shares of our Class A common stock vests in 24 equal monthly installments starting on November 28, 2020, subject to continued service on each vesting date.
|
|
|
(14)
|
These RSUs vest in eight equal quarterly installments starting on December 16, 2020, subject to continued service on each vesting date.
|
Option Exercises and Stock Vested
The following table shows for fiscal year 2019 certain information regarding options to purchase shares of our Class A and Class B common stock that were exercised and full value awards that may be settled for shares of our Class A and Class B common stock that vested during the last fiscal year with respect to each named executive officer:
Fiscal Year 2019 Option Exercises and Stock Vested Table
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
Stock Awards
|
Name
|
Number of Shares Acquired on Exercise
(#)
|
Value Realized on Exercise
($) (1)
|
Number of Shares Acquired on Vesting
(#) (2)
|
Value Realized on Vesting
($) (3)
|
Katrina Lake
|
—
|
|
—
|
|
160,417
|
|
4,157,777
|
|
Paul Yee
|
45,000
|
|
776,050
|
|
|
|
Michael Smith
|
—
|
|
—
|
|
—
|
|
—
|
|
Scott Darling
|
61,000
|
|
1,141,850
|
|
|
|
|
|
(1)
|
The value realized on exercise of stock options is based on the fair market value of our Class A common stock on the date of exercise minus the exercise price and does not reflect actual proceeds received.
|
|
|
(2)
|
The shares of Class B common stock reported in this column represent shares of restricted stock that were purchased upon the early exercise of options that vested during fiscal year 2019.
|
|
|
(3)
|
The value realized on vesting was calculated by multiplying the number of shares of Class B common stock vesting by the market value of our common stock on each vesting date less the amount paid to purchase such shares of Class B common stock prior to their vesting date.
|
Fiscal Year 2019 Pension Benefits
Our named executive officers did not participate in, or otherwise receive any benefits under, any defined benefit pension or retirement plan sponsored by us during fiscal year 2019.
Fiscal Year 2019 Nonqualified Deferred Compensation
Our named executive officers did not participate in, or earn any benefits under, a non-qualified deferred compensation plan sponsored by us during fiscal year 2019.
Potential Payments upon Termination or Change in Control
Each of our named executive officers is eligible for severance payments and benefits pursuant to the post-employment compensation provisions of their 2017 employment offer letter. These provisions supersede severance provisions in the named executive officers’ prior employment offer letter, if any.
For the purposes of the employment offer letters, “Cause” for a named executive officer’s termination means her or his: (a) conviction (including a guilty plea or plea of nolo contendere) of any felony; (b) commission or attempted commission of or participation in a fraud or act of dishonesty or misrepresentation against us; (c) willful and continued failure to follow the lawful directions of our Board or officers to whom she or he reports, and failure to cure such failure within a reasonable time after receiving written notice from us of the claimed failure; (d) deliberate harm or injury, or attempt to deliberately harm or injure, us; (e) willful misconduct that materially discredits or harms us or our reputation; (f) material violation or breach of any written and fully executed contract or agreement between the named executive officer and us, including without limitation, material breach of her or his Confidentiality Agreement, or of any of our policies, or of any statutory duty owed to us by the named executive officer; (g) gross negligence or willful misconduct; (h) failure to cooperate with any investigation as requested by our Board or officers to whom the named executive officer reports; or
(i) unauthorized use of confidential information that causes material harm to us; and a named executive officer will have “Good Reason” for resigning if any of the following actions are taken by us without her or his prior written consent: (a) a material reduction in her or his base salary or target annual bonus (unless pursuant to a salary reduction program applicable generally to our similarly situated employees); (b) a material reduction in her or his duties (including responsibilities and/or authorities), provided, however, that a change in job position (including a change in title or change resulting from a change in control transaction) shall not be deemed a “material reduction” in and of itself unless her or his new duties are materially reduced from the prior duties; or (c) relocation of her or his principal place of employment to a place that increases her or his one-way commute by more than 35 miles as compared to her or his then-current principal place of employment immediately prior to such relocation.
Involuntary Termination of Employment Not Involving a Change in Control
Pursuant to these provisions, in the event we terminate a named executive officer’s employment without Cause, other than as a result of death or disability, or she or he resigns for Good Reason (an “Involuntary Termination of Employment”) more than one month prior to or 12 months following the closing of a change in control of the Company (as defined in her or his employment offer letter), then, subject to execution and delivery of an effective release of claims in favor of the Company and the return of all Company property as specified in her or his employment offer letter, the named executive officer will receive:
|
|
•
|
a cash payment equal to six months (12 months in the case of our CEO) of her or his then-effective base salary; and
|
|
|
•
|
continued health care coverage for a maximum period of six months (12 months in the case of our CEO), subject to cessation in the event she or he obtains such coverage from a new source.
|
Involuntary Termination of Employment Involving a Change in Control
Pursuant to these provisions, in the event of an Involuntary Termination of Employment within the period beginning one month prior to or ending 12 months following the closing of a change in control of the Company, then, subject to execution and delivery of an effective release of claims in favor of the Company and the return of all Company property as specified in her or his employment offer letter, the named executive officer will receive:
|
|
•
|
a cash payment equal to 12 months (18 months in the case of our CEO) of her or his then-effective base salary;
|
|
|
•
|
continued health care coverage for a maximum period of 12 months (18 months in the case of our CEO), subject to cessation in the event that she or he obtains such coverage from a new source; and
|
|
|
•
|
full accelerated vesting of any and all outstanding and unvested equity awards held by her or him, except to the extent the award agreement for any such equity award contains an explicit provision to the contrary.
|
If any payment or benefit that a named executive officer may receive from us or otherwise would constitute a “parachute payment” within the meaning of Section 280G of the Code, and be subject to the excise tax imposed by Section 4999 of the Code, then such payment or benefit will be reduced to an amount that is either (i) the largest portion of the payment that would result in no portion of the payment being subject to such excise tax or (ii) the largest portion, up to and including the total, of the payment, whichever amount, after taking into account all applicable federal, state, and local employment taxes, income taxes, and the excise tax results in her or his receipt, on an after-tax basis, of the greater economic benefit notwithstanding that all or some portion of the payment may be subject to the excise tax.
The following table presents the estimated payments and benefits that would be received by each of our named executive officers under the arrangements described above, assuming that a termination of employment and, where applicable, a change in control of the Company had occurred on August 3, 2019, the last day of fiscal year 2019, and that the price of our Class A common stock was $24.83 per share, which represents the closing market price of our Class A common stock on August 2, 2019, the last trading day of fiscal year 2019. This table is intended only for illustrative purposes; the rights and benefits due to any named executive officer upon an actual termination of employment or change in control of the Company can only be determined at the time of such event, based on circumstances then existing and arrangements then in effect.
|
|
|
|
|
|
Named Executive Officer
|
Involuntary Termination of Employment Not Involving a Change in Control of the Company ($) (1) (2)
|
Involuntary Termination of Employment Involving a Change in Control of the Company ($) (1) (2) (3) (4)
|
Katrina Lake
|
|
|
Severance Payment
|
650,000
|
|
975,000
|
|
Health Care Coverage
|
24,159
|
|
36,238
|
|
Equity Acceleration - Options
|
—
|
|
4,539,499
|
|
Equity Acceleration - RSUs
|
—
|
|
2,299,953
|
|
Total
|
674,159
|
|
7,850,690
|
|
Paul Yee
|
|
|
Severance Payment
|
220,000
|
|
440,000
|
|
Health Care Coverage
|
12,079
|
|
24,159
|
|
Equity Acceleration - Options
|
—
|
|
1,410,551
|
|
Total
|
232,079
|
|
1,874,710
|
|
Michael Smith
|
|
|
Severance Payment
|
267,500
|
|
535,000
|
|
Health Care Coverage
|
10,934
|
|
21,869
|
|
Equity Acceleration - Options
|
—
|
|
2,565,672
|
|
Equity Acceleration - RSUs
|
—
|
|
1,185,906
|
|
Total
|
278,434
|
|
4,308,447
|
|
Scott Darling
|
|
|
Severance Payment
|
175,000
|
|
350,000
|
|
Health Care Coverage
|
12,079
|
|
24,159
|
|
Equity Acceleration - Options
|
—
|
|
1,543,190
|
|
Equity Acceleration - RSUs
|
—
|
|
574,988
|
|
Total
|
187,079
|
|
2,492,337
|
|
|
|
(1)
|
The amounts reported for “Severance Payment” represent that annual base salary of each named executive officer as of the last day of the last completed fiscal year multiplied by the number of months for which such payment would be provided.
|
|
|
(2)
|
The amounts reported for “Health Care Coverage” represent the Company’s monthly cost of medical, dental, and vision insurance coverage multiplied by the number of months of coverage that would be provided to each named executive officer.
|
|
|
(3)
|
The amounts reported for “Equity Acceleration - Options” represents the number of shares of our Class B common stock subject to unvested and unexercised options to purchase shares of our Class B common stock outstanding as of the last day of the last completed fiscal year multiplied by $24.83 per share, which represents the closing market price of our Class A common stock on August 2, 2019, the last trading day of fiscal year 2019, less the exercise price.
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(4)
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The amounts reported for “Equity Acceleration - RSUs” represents the number of unvested RSUs as of the last day of the last completed fiscal year multiplied by $24.83 per share, which represents the closing market price of our Class A common stock on August 2, 2019, the last trading day of fiscal year 2019.
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In addition to the benefits described and quantified above, the 2011 Equity Incentive Plan (the “2011 Plan”) and 2017 Plan provide for an extended period of time during which an optionholder may exercise options following the optionholder’s termination of service (the “post-termination exercise period”). Generally, under the 2011 Plan and the 2017 Plan, if an optionholder’s service relationship with us ends, the optionholder may exercise any vested options for up to three months after the date that the service relationship ends. However, if the optionholder’s service relationship with us ceases due to disability or death, the optionholder, or his or her beneficiary, may exercise any vested options for up to 12 months in the event of disability, or 18 months in the event of death, after the date the service relationship ends. Accordingly, each of our named executive officers would be entitled to an extended post-termination exercise period in the event of a termination of employment due to death or disability.
Pay Ratio
Under SEC rules, we are required to calculate and disclose the annual total compensation of our median employee and the ratio of the annual total compensation of our median employee as compared to the annual total compensation of our CEO. To identify our median employee, we used the following methodology:
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•
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To determine our total population of employees, we included all full-time and part-time U.S. employees as of August 3, 2019, excluding our CEO.
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•
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As the pay ratio disclosure rules provide an exemption for companies to exclude non-U.S. employees from the median employee calculation if non-U.S. employees in a particular jurisdiction account for 5% or less of the company’s total number of employees, we excluded 114 employees in the United Kingdom, who comprise approximately 1.4% of our total employee population of 7,955 employees on August 3, 2019. After taking into account this exemption, 7,841 U.S. employees were considered for identifying the median employee.
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•
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To identify our median employee from our U.S. employee population (other than Ms. Lake), we calculated the aggregate amount of cash compensation received by each employee in fiscal year 2019, excluding bonuses and other non-regular payments.
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•
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We annualized the base compensation of employees who were employed by us for less than the entire fiscal year.
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Using this approach, we determined our median employee. Our median employee is a part-time remote Senior Stylist. Once the median employee was identified, we then calculated the annual total compensation of this employee for fiscal year 2019 in accordance with the requirements of the Summary Compensation Table.
For fiscal year 2019, the annual total compensation for our median employee was $15,125 and the annual total compensation of Ms. Lake, as reported in the Summary Compensation Table included in this proxy statement, was $5,327,433. Based on this information, the ratio of our CEO’s annual total compensation to the annual total compensation of the median employee was 352:1. This ratio is a reasonable estimate calculated in a manner consistent with SEC rules.
Because SEC rules for identifying the median employee and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, apply certain exclusions, and make reasonable estimates and assumptions that reflect their employee population and compensation practices, the pay ratio reported by other companies may not be comparable to our pay ratio, as other companies have different employee populations and compensation practices and may have used different methodologies, exclusions, estimates, and assumptions in calculating their pay ratios. As explained by the SEC when it adopted these rules, the rule was not designed to facilitate comparisons of pay ratios among different companies, even companies within the same industry, but rather to allow stockholders to better understand and assess each particular company’s compensation practices and pay ratio disclosures.
Equity Compensation Plan Information
The following table provides information as of August 3, 2019, with respect to the shares of our Class A or Class B common stock that may be issued under our equity compensation plans.
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Plan Category
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Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (#) (1)
(a)
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Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights ($) (2)
(b)
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Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (#) (3)
(c)
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Equity compensation plans approved by security holders
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11,498,970
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14.48
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1,133,258
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Equity compensation plans not approved by security holders
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—
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—
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—
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Total
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11,498,970
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1,133,258
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(1)
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Amounts include outstanding awards under the 2011 Plan and 2017 Plan.
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(2)
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The weighted-average exercise price excludes RSU awards, which have no exercise price.
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(3)
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Amounts reflect shares available for future issuance under the 2017 Plan.
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The 2017 Plan provides that the number of shares reserved for issuance may be increased by the Board of Directors as of the first day of each fiscal year, starting in 2018 and ending in 2027, by a number of shares of Class A common stock that does not exceed 5% of the total number of shares of all classes of common stock outstanding on the last day of the preceding fiscal year. Effective as of August 4, 2019, the Board approved an increase to the shares reserved for issuance by 5,069,874 (approximately 5% of the total number of shares of common stock outstanding on August 3, 2019) pursuant to this provision. This increase is not reflected in the table above.