SNCR Synchronoss Technologies Inc

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Synchronoss Technologies, Inc.

200 Crossing Boulevard, 3^rd Floor

Bridgewater, New Jersey 08807

This proxy statement (“Proxy Statement”) is furnished in connection with solicitation of proxies by our Board of Directors (“Board”) for use at the 2021 Annual Meeting of Stockholders (the “Annual Meeting”) to be held via a live interactive audio webcast on the Internet at 11:00 a.m. Eastern Time on [      ], and any postponements or adjournments thereof. Beginning on or about [     ], we mailed to our stockholders a Notice of Internet Availability of Proxy Materials (the “Notice”) containing instructions on how to access our proxy materials. As used in this Proxy Statement, the terms “Synchronoss,” the “Company,” “we,” “us,” and “our” mean Synchronoss Technologies, Inc. and its subsidiaries unless the context indicates otherwise.

If you are a beneficial owner holding shares through a bank, broker or other nominee, please refer to your Notice or other information forwarded by your bank or broker to see which voting options are available to you.

 

Our Advanced Messaging solutions continue to engage Japanese subscribers, resulting in additional licenses purchased in the fourth quarter of 2021. There are now more than 25 million +Message subscribers and we expect this number to continue to grow. We anticipate launching Advanced Messaging at Verizon this year and our email products continued to provide positive cash flow contributions in 2021.

Our Digital business continued to have strong performance from the Financial Analytics and Spatial product lines, including multi-million dollar wins from key partnerships for Financial Analytics and a new win with Quasar for our Spatial product line.

Importantly, we continued to focus on cost optimization across the entire organization to maximize profitability and streamline the focus of the business to promote growth in the high-performing recurring revenue products and solutions. As we look ahead, there are several market factors that we believe will influence our success in 2022, particularly the roll outs of 5G, fixed wireless access, the growing market for bundled service offerings and total protection services. Cloud and messaging solutions have the potential to be key value-added services in the 5G ecosystem to increase customer engagement and revenue for carriers. Similarly, carriers are employing digital bundling strategies to simplify onboarding, consumption, billing and authentication to drive higher adoption of premium rate plans, including personal cloud offerings. The advent of fixed wireless access into the market has ushered in an array of new connected devices, which is expected to lead to an increased demand for cloud storage in the home. Finally, the addition of cloud to total protection services through carriers and insurance companies is a natural fit, providing protection for the consumer’s data along with the protection of their hardware and goods. We believe that we stand positioned in the market to meet these growing needs for the carriers and the consumers.

At Synchronoss we stand for something beyond the products and services we provide to the market. We are committed to advancing the principles of Environmental sustainability (E), Social responsibility (S), good corporate Governance (G) and providing a fulfilling work environment for all Synchronoss employees. In connection with our corporate values—We come together to get the job done, We go above and beyond, We are resilient, We are dedicated to our customers, and We are one team—we consider our efforts in these areas to be of paramount importance in providing value back to the market and promoting an inclusive corporate culture where all employees thrive. We believe that by incorporating initiatives in the key areas of ESG and positive people management into our operations we not only improve our performance, but also create a constructive culture that benefits our employees, customers and investors.

With the guidance of our Board and our senior leadership team, we are working to build a comprehensive program which will drive our commitment to ESG and positive people management. We will continue to evaluate our efforts in these areas with the goal of building sustainability into our business operations globally.

Highlights from the Initiatives under way:

You can find directions on how to instruct us to send future proxy materials to you by email at www.proxyvote.com. Choosing to receive future proxy materials by email will save us the cost of printing and mailing documents to you and will reduce the impact of our annual meetings on the environment. If you choose to receive future proxy materials by email, you will receive an email message next year with instructions containing a link to those materials and a link to the proxy voting website. Your election to receive proxy materials by email will remain in effect until you terminate it.

If, on      , 2022, your shares of Common Stock were registered in your name with our transfer agent, American Stock Transfer & Trust Company, then you are a stockholder of record and may vote at the Annual Meeting or vote by proxy. Whether or not you plan to attend the Annual Meeting, we urge you to vote by proxy on the internet or via telephone as instructed below or submit your proxy card to ensure your vote is counted.

If you are a stockholder of record, you may vote at the Annual Meeting or by one of the following methods:

Please note that the internet (other than during the Annual Meeting) and telephone voting facilities for stockholders of record is available 24 hours a day and will close at 11:59 p.m., Eastern Time on      , 2022. The individuals named as proxies will vote your shares in accordance with your instructions.

We provide internet proxy voting to allow you to vote your shares on-line, with procedures designed to ensure the authenticity and correctness of your proxy vote. However, please be aware that you must bear any costs associated with your internet access, such as usage charges from internet access providers and telephone companies.

Beneficial Owner: Shares Registered in the Name of a Broker or Bank

If, on      , 2022, your shares of Common Stock were held in an account at a brokerage firm, bank, dealer or other similar organization, then you are the beneficial owner of shares held in “street name” and these proxy materials are being forwarded to you by that organization. The organization holding your account is considered the stockholder of record for purposes of voting at the Annual Meeting. As a beneficial owner, you may direct your broker or other agent on how to vote the shares in your account.

If you are a beneficial owner of shares registered in the name of your broker, bank, or other agent, you should have received instructions for granting proxies with these proxy materials from that organization rather than from us. A number of brokers and banks participate in a program provided through Broadridge Financial Services that enables beneficial holders to grant proxies to vote shares via telephone or the internet. If your shares are held by a broker or bank that participates in the Broadridge program, you may grant a proxy to vote those shares telephonically by calling the telephone number on the instructions received from your broker or bank, or via the internet at Broadridge’s website at www.proxyvote.com. To vote by internet during the Annual Meeting, you must obtain your 16-digit control number from your broker, bank, or other agent.

then your shares will be voted “For” the election of Laurie L. Harris and Jeffrey G. Miller as members of the Company’s Board of Directors, “For” the ratification of Ernst & Young LLP as our independent registered public accounting firm for its fiscal year ending December 31, 2022, “For” the approval of the compensation of our named executive officers, “For” the Authorized Shares Amendment, and “For” the 2015 Equity Plan Amendment. If any other matter is properly presented at the Annual Meeting, your proxy (one of the individuals named on your proxy card) will vote your shares using his or her best judgment.

Beneficial Owner — If you are a beneficial owner of shares held in street name and do not provide the organization that holds your shares with specific voting instructions then, under applicable rules, the organization that holds your shares may generally vote on “routine” matters but cannot vote on “non-routine” matters. If the organization that holds your shares does not receive instructions from you on how to vote your shares on a non-routine matter, that organization will inform the inspector of election that it does not have the authority to vote on any matter other than Proposal 2 with respect to your shares. This is generally referred to as a “broker non-vote.”

If you are a beneficial owner of your shares and wish to change or revoke your previously delivered proxy, you must contact the broker, bank or other agent holding your shares and follow their instructions for changing your vote.

Our directors are elected by a plurality of the votes cast at an annual meeting of stockholders, meaning the two nominees receiving the most “For” votes (among votes properly cast at the Annual Meeting or by proxy) will be elected. An instruction to “Withhold” authority to vote for a nominee will result in the nominee receiving fewer votes but will not count as a vote against the nominee. If you do not instruct your broker how to vote with respect to this proposal, your broker may not vote with respect to this proposal. Abstentions and “broker non-votes” (i.e., shares held by a broker or nominee that are represented at the Annual Meeting, but with respect to which such broker or nominee is not instructed to vote on a particular proposal, such broker or nominee does not have discretionary voting power) will have no effect on the election of a nominee.

Ratification of the appointment by our Board of Ernst & Young LLP as the Company’s independent registered public accounting firm for our fiscal year ending December 31, 2022 requires a “For” vote from the majority of the outstanding shares that are present at the Annual Meeting or represented by proxy and cast affirmatively or negatively at the Annual Meeting. Abstentions and broker non-votes will not be counted “For” or “Against” this proposal and will have no effect on this proposal. Because this proposal is a routine matter, a broker or other nominee may generally vote, although several large brokerage firms, such as Charles Schwab and TD Ameritrade have announced that they have eliminated discretionary voting even for “routine” matters. Therefore, if you hold your shares through such brokerage firms, then your shares might not be voted, even for “routine” matters if you do not give voting instructions to your broker.

The advisory approval of the compensation of the Company’s NEOs as described in this Proxy Statement requires a “For” vote from the majority of all of the outstanding shares that are present at the Annual Meeting or represented by proxy and cast affirmatively or negatively at the Annual Meeting. Abstentions and broker non-votes will not be counted “For” or “Against” this proposal and will have no effect on this proposal. Even though your vote is advisory and therefore will not be binding on the Company, our Compensation Committee will review the voting results and take them into consideration when making future executive compensation decisions.

The amendment of our restated Certificate of Incorporation to increase the aggregate number of authorized shares, or the Authorized Share Amendment, requires a “For” vote from the majority of the outstanding shares of our Common Stock. Abstentions and broker non-votes have the effect of a vote “Against” this proposal. Because this proposal is a non-routine matter, broker non-votes are expected to exist in connection with this proposal.

The 2015 Equity Plan Amendment requires a “For” vote from the majority of the outstanding shares that are present in person or represented by proxy and cast affirmatively or negatively at the Annual Meeting. Abstentions and broker non-votes will not be counted “For” or “Against” this proposal and will have no effect on this proposal. Because this proposal is a non-routine matter, broker non-votes are expected to exist in connection with this proposal.

If there are insufficient votes to approve any of the matters, your proxy may be voted by the persons named in the proxy to adjourn the Annual Meeting in order to solicit additional proxies in favor of the approval of such proposal(s). If the Annual Meeting is adjourned for any reason, at any subsequent reconvening of the meeting, your proxy will be voted in the same manner as it would have been voted at the original Annual Meeting unless you revoke or withdraw your proxy. Your proxy may be voted in this manner even though it may have been voted on the same or any other matter at a previous session of the Annual Meeting.

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE

STOCKHOLDER MEETING TO BE HELD ON      , 2022.

 

The Proxy Statement and annual report to stockholders is available at

Synchronoss is committed to strong and systematic corporate governance, which we believe helps us sustain our success and build long-term value for our stockholders. In 2022, our Board adopted updated Corporate Governance Guidelines (the “Guidelines”) to ensure we have implemented the most recent best practices in governance. This document sets forth the framework within which our Board can effectively function and govern the business. The Guidelines address, among other things, the composition and responsibilities of our Board, director independence, management succession planning and evaluation, access to information, executive sessions, communication with stockholders, target ownership by, and remuneration of, our directors, Board committees and selection of new directors. The Guidelines also specify the ways in which our Chief Compliance Officer interacts with the Board, and the responsibilities of our Disclosure Committee. We have also adopted a Workplace Code of Ethics and Business Conduct (the “Code”) that applies to all of our employees, officers (including our principal executive officer, principal financial officer, principal accounting officer, or those serving similar functions) and directors. In concert with our Code, we have developed a Supplier Code of Conduct to ensure we flow down our values and the values of our customers to our suppliers. The Guidelines and Code are available on the Investor Relations section of our website at www.synchronoss.com.

Our Board regularly reviews legal and regulatory requirements, evolving best practices and other developments, and may modify, waive, suspend or repeal the Guidelines or Code from time to time as it deems necessary or appropriate in the exercise of our Board’s judgment or in the best interests of our stockholders. If our Board makes any substantive amendments to the Guidelines or the Code, we will promptly disclose the nature of the amendment or waiver on our website to the extent required by applicable law or regulations.

Consistent with the Guidelines, our Board believes it is important to retain its flexibility to allocate the responsibilities of our Chief Executive Officer (“CEO”) and Chair of the Board in any way that is in the best interests of our Company. Our Board believes that it should periodically assess who should serve these roles and whether the offices should be served independently or jointly, and that our Board should not be restricted by any strict policy directive when making these decisions. In the event the Board determines it is in the best interest of the Company to combine the roles of CEO and Chair of the Board, the Guidelines provide that a Lead Independent Director shall be elected by a majority vote of the independent members of the Board. The Lead Independent Director shall be responsible for coordinating the activities and meetings of the independent members, determining an appropriate schedule and agendas for meetings of the Board, and ensuring robust corporate governance. In addition, our Board continually evaluates its leadership structure to ensure that the Board is structured to address the best interests of our Company and our stockholders as they evolve over time.

Our Board has determined that our Company and our stockholders are best served by having Mr. Waldis, one of our founders, serve as our Executive Chair of the Board, and Mr. Miller serve as our CEO and a member of our Board. As CEO, Mr. Miller is the individual with primary responsibility for managing our day-to-day operations, setting our overall business strategy, and ensuring the successful growth of our business. Mr. Waldis’ in-depth experience as our founder and long-time CEO and Chair of the Board position him well to serve as our Executive Chair of the Board, where he will remain on our Board, assisting on certain sales and business development activities, and providing other consultative support to the CEO, upon Mr. Miller’s request.

Each year, as part of our assessment of director independence, our Nominating/Corporate Governance Committee and our full Board conduct a review of the financial and other relationships between each director, or any of their immediate family members, and our Company, our senior management, companies with whom we have business dealings and our independent registered public accounting firm. Our Board also consults with our legal counsel to ensure that its determinations are consistent with all relevant laws and regulations regarding the definition of independence, including those set forth in pertinent listing standards of The Nasdaq Global Market (“Nasdaq”), as amended from time to time. Consistent with those considerations, after review of all relevant transactions or relationships, our Board has affirmatively determined that all of our directors are independent directors within the meaning of the applicable Nasdaq listing standards, except for Stephen G. Waldis, who serves as our Executive Chair, and Jeffrey Miller, who serves as our CEO. Our independent directors meet in regularly scheduled executive sessions where only independent directors are present. There are no family relationships among any of our directors or executive officers.

Risk is inherent with every business and how well a business manages risk can ultimately determine its success. We face a number of risks, including risks relating to our operations, strategic direction and intellectual property as more fully discussed under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and our other SEC filings. Assessing and managing risk is the responsibility of our management. Our Board oversees management in the execution of its responsibilities and for assessment of our approach to risk management. An overall review and assessment of risk is inherent in our Board’s consideration of our operations, business plans, and proposed strategy. Additionally, our Board regularly reviews various risks arising out of transactions and strategic opportunities that are presented to our Board. At least annually, our Board also reviews and analyzes the strategic and operational risks and opportunities that face our Company as a whole, as well as those related to specific areas of our business, including governance, audit and cybersecurity.

Our Board delegates the oversight of certain categories of risk affecting our operations to designated Board committees, who report their findings to our full Board. The Audit Committee is responsible for overseeing our Board’s execution of its risk management oversight responsibility. It implements and oversees policies governing the process by which our leadership team and other persons responsible for risk management assess and manage our exposure to major financial risk, and the steps they have taken to monitor and control such exposure, based on consultation with the leadership team and independent auditors. Our Audit Committee also annually reviews the audit plan of management, our information technology and cybersecurity risks and mitigation strategies, the domestic and international tax function and treasury operations and conformity with ethics and compliance standards. In addition, our Board has delegated to other Board committees the oversight of risks within their areas of responsibility and expertise. For example, our Compensation Committee oversees the risks associated with our compensation practices, including an annual assessment of our compensation policies and practices for our employees

Stockholders may communicate with our management and independent directors by sending a letter to Synchronoss Technologies, Inc., 200 Crossing Boulevard, Third Floor, Bridgewater, New Jersey 08807, Attention: Secretary. Each communication should set forth the (i) name and address of the stockholder as they appear on our books and, if the shares of our Common Stock are held by a broker, bank or other agent, the name and address of the beneficial owner of such shares, and (ii) number of shares of our Common Stock that are owned of record by such record holder and/or beneficially by such beneficial owner. Our Secretary will review all communications from stockholders and has the authority to disregard any inappropriate communications or take other appropriate actions with respect to any inappropriate communications. If deemed an appropriate communication, our Secretary will forward it, depending on the subject matter, to the chairperson of a committee of our Board or a particular director, as appropriate.

Our Nominating/Corporate Governance Committee oversees an annual self-evaluation process to analyze and review our Board’s performance and the performance of each of the members of our Board. Our Nominating/Corporate Governance Committee reviews these results and discusses them with the full Board with the intention of utilizing them to enhance our Board’s effectiveness and, if necessary, develop action plans.

The Nominating/Corporate Governance Committee is responsible for recommending to our Board nominees for election as directors each year and evaluating new candidates as appropriate. This assessment includes an evaluation of each director’s skills and experience, qualification as independent, as well as various other factors including the differences in perspectives, experiences, and background each member of the Board individually brings to the Board. The Nominating/Corporate Governance Committee then looks for the following skills and experience in individual members of the Board to enhance the function of the Board as a whole.

 

 

Our Board oversees, counsels and directs management in the long-term interests of our Company and our stockholders. Our Board, individually and through its committees, is responsible for:

 

The following table sets forth the compensation awarded to, earned by, or paid to each person who served as a non-employee director during 2021. Mr. Miller, our current Chief Executive Officer and President, was appointed a director of our Company in March 2021 and does not receive additional compensation for his service as a director. Mr. Miller is not included in the table below.

We have established stock ownership guidelines for our directors to retain an equity stake in the Company to more closely align their interests with those of our stockholders. Each director is required to own the number of shares of our Common Stock with a value equal to three times the annual cash retainer for service on our Board. Ownership is calculated annually based on the closing sales price of our Common Stock on Nasdaq for the last trading day in the prior year. Any newly elected director has three years from the date of his or her election to achieve the targeted equity ownership level. As of December 31, 2021, each of our directors, owned at least the number of shares of our Common Stock required by these guidelines based on the price of our Common Stock on such date or were within their 3-year accumulation period.

As permitted by Section 145 of the Delaware General Corporation Law, our amended and restated bylaws provide that we are authorized to (i) enter into indemnification agreements with our directors and officers and (ii) purchase directors’ and officers’ liability insurance, which we currently maintain to cover our directors and executive officers. The form of indemnification agreement with our directors provides that we will indemnify each director against any and all expenses incurred by that director because of his or her status as one of our directors, to the fullest extent permitted by Delaware law, our restated certificate of incorporation and amended and restated bylaws. In addition, the form agreement provides that, to the fullest extent permitted by Delaware law, but subject to various

exceptions, we will advance all expenses incurred by our directors in connection with a legal proceeding. Our restated certificate of incorporation and bylaws contain provisions relating to the limitation of liability and indemnification of directors. The restated certificate of incorporation provides that our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duty as a director, except for liability:

Our restated certificate of incorporation also provides that if Delaware law is amended after the approval by our stockholders of our restated certificate of incorporation to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of our directors will be eliminated or limited to the fullest extent permitted by Delaware law. The foregoing provisions of the restated certificate of incorporation are not intended to limit the liability of directors or officers for any violation of applicable federal securities laws. As permitted by Section 145 of the Delaware General Corporation Law, our restated certificate of incorporation provides that we may indemnify our directors to the fullest extent permitted by Delaware law and the restated certificate of incorporation provisions relating to indemnity may not be retroactively repealed or modified so as to adversely affect the protection of our directors.

Each year, our Compensation Committee reviews our compensation practices and policies for all employees, including our NEOs, and assesses whether they have the potential to incentivize employees taking risks that are reasonably likely to have a material adverse effect on our Company. Since our annual performance-based bonus and equity programs are designed to align our employees’ compensation with both our short- and long-term business objectives and performance, and therefore enhance stockholder value, our Compensation Committee believes that our compensation practices and policies discourage behavior that leads to excessive risk-taking. Therefore, our Compensation Committee believes our practices and policies will promote balanced risk management and are not likely to have a material adverse effect on our Company. Set forth below are the key risk-balancing elements of our compensation practices and policies:

Our executive compensation philosophy and programs are designed to attract, retain and motivate high-quality executives who possess the diverse skills and talents required to help us achieve our short and long-term financial and strategic goals. Our executive compensation programs are designed to foster a performance-oriented culture that aligns our executives’ interests with those of our stockholders over the long term. To provide for this alignment of interests, our compensation programs provide that over 90% of our CEO’s and an average of approximately 76% of our NEOs’ targeted compensation is tied to long-term, equity-based incentives. By tying a majority of our NEOs’ targeted compensation to equity-based incentives, our common stock’s value needs to increase in order for our NEOs to realize any value related to our Company’s stock options or increase in value related to our restricted shares or cash units. Moreover, our Company needs to hit certain financial and strategic metrics in order for our NEOs to vest in the shares underlying our performance-based restricted shares or cash units. To further provide for performance-based equity awards, 100% of the total 2021 equity grants to each of our NEOs, other than our CEO, are either options to purchase our common stock, restricted shares of our common stock, or cash units subject to performance-based vesting. Accordingly, we believe that the compensation of our NEOs is both appropriate for, and responsive to, the goal of maximizing stockholder value, as the majority of each NEO’s compensation is allocated to performance-based incentives.

On July 27, 2021, Ronald Prague left his position as our Executive Vice President, General Counsel, Chief Legal Officer and Secretary to the Company. He remained an employee of the Company through September 2, 2021. In connection with his departure, we entered into a separation agreement with Mr. Prague. See Management Changes-Named Executive Officer Separation Agreements. Christina Gabrys was appointed as our Chief Legal Officer in July 2021, after serving in various positions in our legal department since 2016.

On June 16, 2021 David Clark entered into a Transition and Separation Agreement, under which he continued to perform the duties of the Chief Financial Officer of the Company until August 9, 2021. See Management Changes-Named Executive Officer Separation Agreements. Louis Ferraro served as Acting Chief Financial Officer from August 5, 2021 until Taylor Greenwald joined the Company on November 1, 2022 as our Executive Vice President Chief Financial Officer.

The following highlights some of the key components of our pay for performance policies and practices:

Our Compensation Committee oversees the design and administration of the compensation of our NEOs and certain other executive officers, with an enhanced focus on the individual compensation of our NEOs. For 2021, our CEO assessed the performance of our NEOs (other than himself), consulted with other members of management, including our Executive Chairman and our compensation consultant, and made recommendations to our Compensation Committee regarding the amount and the form of the compensation of our NEOs and other key employees, including the performance goals, weighting of goals, and equity compensation awards of our NEOs. Our CEO was not present during discussions regarding his compensation.

For our NEOs’ Annual Cash Incentive Bonuses in 2021, our Compensation Committee approved the following metrics:

Each year, our Compensation Committee may award time-based vesting restricted shares, stock options and/or performance-based restricted cash units or shares to our NEOs as the long-term incentive component of their compensation. The annual mix and number, if any, of stock options, performance-based restricted cash units or shares and time-based vesting restricted shares granted to our NEOs are based on our Compensation Committee’s general understanding of pay practices for equivalent positions in our peer group, as well as published survey data for comparable roles at companies of a similar financial size in the same industry, our CEO’s recommendations (except for his own equity grants) and other factors it deemed appropriate. In 2021, our Compensation Committee granted time-based vesting stock options, performance-based restricted cash units and time-based vesting restricted shares to our NEOs except that Mr. Greenwald, who joined in November 2021, did not receive any performance-based restricted cash units.

Our 2021 long-term equity incentive plan was designed to reward financial and strategic performance during a three-year period from 2021 through 2023, and the restricted cash units granted under the long-term incentive plan (the “2021-2023 Performance Units”) are earned and vest, subject to the Company’s achievement of pre-determined performance criteria during that period. Our NEOs are required to remain employed by our Company through February 2024 in order to vest in the cash units. Our Compensation Committee approved the following performance metrics for the 2021-2023 Performance Units:

At our 2021 Annual Meeting of Stockholders, approximately 87% of the shares voted were cast in favor of the advisory vote on executive compensation. We continuously strive to improve the level of stockholder support for our executive compensation program. Our Compensation Committee evaluates our executive compensation program each year with the goal of ensuring it is in line with our stockholders’ interests. We encourage stockholders to take into account the continuous changes to our executive compensation program in considering the advisory vote presented below including adding new metrics to both our short-term and long-term compensation plans, and adding non-financial metrics to our short-term incentive plan.

Our Compensation Committee’s compensation consultant, Deloitte Consulting LLP (“Deloitte”), generally attends regular Compensation Committee meetings and meets with our Compensation Committee without management present. Deloitte has been our compensation consultant since 2013. When making decisions with respect to compensation matters and to gain a better understanding of the competitive landscape, our Compensation Committee considers various analyses prepared by Deloitte, along with information it receives from management and its own judgment and experience.

Our Compensation Committee reviewed the companies in our 2021 peer group in early 2022 in connection with its determination of the companies in our peer group for 2022 executive compensation decisions and, in consultation with Deloitte, and determined that no changes were necessary. We believe the peer group utilized for purposes of 2022 executive compensation decisions is representative of companies that we compete with for executive talent. When making compensation decisions for our NEOs, our Compensation Committee also reviews published survey and peer group compensation data for other software/services companies or companies that operate in the same space as our Company. Competitive market practices are an important factor in our Compensation Committee’s decision-making process, although its decisions are not entirely based upon these factors. Rather, our Compensation Committee reviews and considers the peer group and other survey data to obtain a general understanding of current competitive compensation practices. Additionally, reviewing the peer group and survey compensation data enables our Compensation Committee to accomplish our goal of paying our NEOs what is appropriate and necessary to attract and retain qualified and committed executives while incentivizing achievement of our corporate goals and conserving cash and equity.

Our executive compensation program has the following principal elements: base salary, annual cash incentive bonuses, long-term incentive awards, severance and change in control benefits. For base salary, annual cash bonuses and long-term incentive awards for our executive officers, our Company’s compensation philosophy generally is to evaluate individual experience and contribution, as well as corporate performance, and then consider competitive market analysis. The markets we are serving are narrow and highly competitive for large-scale implementations leveraging unique technologies. With respect to all compensation components, we generally use the median compensation of our peer group and the markets for which we compete for talent as the starting point for the compensation decision making process. We seek to drive our Company to over-perform the market in the long term, and we believe that to ensure an appropriate pay-for-performance alignment, it may be appropriate for our Compensation Committee to approve compensation levels for individual executives that may be above or below target pay for similar positions based on experience, individual contribution and corporate performance. Additionally, our Compensation Committee may exercise discretion to issue one-time equity awards where appropriate to ensure alignment with key strategic business initiatives. The following table describes the primary compensation elements used by our Company and the objectives of each element:

Mr. Miller’s base salary is $500,000. Mr. Miller received no additional equity in 2020 other than the equity he received as Chief Commercial Officer. Effective March 2021, Mr. Miller was appointed as our President and CEO. In addition to the long-term incentive grants made to all NEOs and discussed in this Compensation Discussion and Analysis section, on March 8, 2021 Mr. Miller received a special grant of 455,695 performance based cash units which are earned and vest in 2023, subject to the Company’s certain performance criteria through that period.

In keeping with our results-driven culture, our Compensation Committee expects our NEOs to deliver superior performance in a sustained fashion and believes that a substantial portion of their overall compensation should be at-risk and tied to our short- and long-term performance. As shown below, approximately 89% of Mr. Miller, our CEO’s targeted compensation and an average of approximately 77% of the targeted compensation of our other NEOs for 2021 was tied to long-term term incentives^{2, 3}.

 

In determining the criteria for our NEOs’ incentive compensation, our Compensation Committee considers a variety of factors, including alignment of our NEOs’ compensation with our stockholders’ returns, and from time to time may adjust these factors or performance metrics based on our Company’s transactions or the occurrence of unknown or unexpected events during the applicable measurement period. On the corporate level, our Compensation Committee selected revenue, adjusted EBITDA and operating cash flow as metrics that our Compensation Committee believes appropriately value our Company on both a short- and long-term basis and are targeted to emphasize strong growth on gross revenue while also managing our earnings per share. We believe several of these are also the key metrics we believe our stockholders use in their evaluation of our Company. As a result, our NEOs are focused on growing revenue, adjusted EBITDA, total shareholder return and operating cash flows, which we believe is aligned with our stockholders’ perspective on our Company’s ability to grow and succeed on the short- and long-term.

Base salaries for our NEOs are reviewed and may be adjusted annually. Base salaries may also be adjusted during the year upon promotion or based on internal equity or external market conditions. Our Compensation Committee makes these decisions after reviewing the recommendation of our CEO (except as it concerns his own salary) and consulting with our compensation consultant.

In 2021, Chris Hill received an increase in his base salary from $350,000 to $385,000, Mr. Ferraro received an increase in his base salary from $307,500 to $350,000 during the period when he was acting Chief Financial Officer and a decrease in his base salary effective December 1, 2021 to $325,000, and Patrick Doran received an increase in his base salary from $357,410 to $364,558. The table below sets forth each of our NEOs’ 2021 base salary as of December 31, 2021.

Our Annual Cash Incentive Bonus Compensation Program promotes our pay-for-performance philosophy by providing all executives and other management-level corporate employees with direct financial incentives in the form of annual cash awards for achieving Company, business and individual performance goals.

Our Compensation Committee sets each NEO’s individual target cash incentive amount (expressed as a percentage of base salary) based on its general understanding of competitive pay practices, our CEO’s recommendation (except with respect to his own target), its consultation with our compensation consultant, and other factors it deems appropriate. Based on its review of these factors, in March 2021, our Compensation Committee kept the target bonus percentage of each of our NEOs at the same level as in 2020.

Mr. Prague and Mr. Clark did not receive 2021 bonuses as they left their positions with the Company prior to the end of 2021; however, they received severance payments upon leaving their respective positions. See Management Changes-Named Executive Officer Separation Agreements.

The target cash incentive and maximum bonus percentages for each of our other NEOs for 2021 were as follows:

For 2021, the cash incentive bonus actually received by each of our NEOs (other than Mr. Greenwald) was determined based on certain corporate objectives.

Our Compensation Committee established (i) revenue, (ii) adjusted EBITDA and (iii) non-GAAP operating cash flow as the corporate components of our 2021 annual cash incentive bonus program, with each of the components weighted as set forth below. We utilize non-GAAP financial measures of adjusted EBITDA and operating cash flow internally in analyzing our financial results and evaluating our ongoing operational performance because they exclude certain non-cash adjustments and non-recurring charges required under GAAP. These metrics were also selected because they are several of the key performance metrics stockholders use in evaluating our Company. In calculating adjusted EBITDA, we add back stock-based compensation expense, acquisition and divestiture related costs, restructuring charges, certain litigation expenses, changes in the contingent consideration obligation, deferred compensation expense related to earn-outs, interest income and expense, provisions or benefits for income taxes, preferred dividend expense, net income or loss attributable to non-controlling interest and depreciation and amortization expense. Operating cash flow is defined as EBITDA less software capitalization, capital expenditures, net bonus accrual, cash taxes and the change in deferred revenue.

Each of the components was assigned a “threshold” level, which is the minimum achievement level that must be satisfied to receive a portion of the applicable bonus amounts, and a “maximum” level, which, if achieved or exceeded, would result in our NEOs receiving up to 175% of the target amount attributed to that component.

The components of the 2021 cash incentive compensation plan are set forth below:

In 2021, our revenue was $280,800,000 and therefore, our NEOs received 64.5% payout for this metric. Our adjusted EBITDA for 2021 was $49,400,000, which was 98% of the target adjusted EBITDA and therefore, our NEOs received 98% payout for this metric. Our operating cash flow was $1,490,000, which was below the minimum operating cash flow target and therefore, our NEOs did not receive any payout for this metric.

As Mr. Prague and Mr. Clark were not employed by our Company on December 31, 2021, neither of them received any cash incentive bonus for 2021. The above calculations resulted in the following payout amounts under the 2021 cash incentive bonus plan for each of our NEOs:

Our Compensation Committee awarded time-based vesting stock options, time-based restricted shares, and performance-based restricted cash units to our NEOs as the long-term equity incentive component of their compensation, targeting an annual mix with the intent to provide NEOs with a balanced retention and performance opportunity and serve to closely align our NEOs’ long-term objectives with those of our stockholders. The number of shares underlying time-based vesting stock options and the target number of performance-based restricted cash units granted to our NEOs is based on our Compensation Committee’s general understanding of competitive pay practices, our CEO’s recommendation (except with respect to his own awards), consultation with our compensation consultant, and other factors that our Compensation Committee deems appropriate.

In February 2021, in consultation with our compensation consultant, our Compensation Committee granted time-based vesting options to purchase shares of our Common Stock (25% of such NEO’s equity award), time-based restricted shares of our Common Stock (25% of such NEO’s equity award), and performance-based restricted cash units (50% of such NEO’s equity award) to each of our NEOs (other than Mr. Greenwald). The time-based vesting stock options vest one-third on each of the first, second and third anniversary of their grant date. The time-based vesting restricted shares vest one-third on each of the first, second and third anniversary of their grant date. The performance-based restricted cash units vest upon the Compensation Committee approving the level of performance against pre-established metrics for such grants, and such approval is expected to occur on or about February 28, 2024. Each component is subject to the NEO remaining employed through the date of such approval in 2024. The time-based vesting helps tie our NEOs’ variable realizable compensation to our performance and further align their interests with those of our stockholders. See “Description of Awards Granted in 2021,” below. In connection with his appointment to CEO, Mr. Miller also received 455,695 performance based cash units, and in connection with his promotion to Acting CFO, Mr. Ferraro also received 20,000 stock options. Mr. Greenwald was not an employee and therefore not a NEO at the time equity was granted to the NEOs; however, Mr. Greenwald was granted 206,711 stock options and 360,000 restricted shares (but no performance based cash units as part of his hiring package. In connection with his promotion to Chief Commercial Officer, Mr. Hill received 33,334 stock options, 33,334 restricted shares of common stock and 66,667 Performance-based Cash Units.

The following table sets forth the number of performance-based restricted cash units awarded, the number of time-based stock options to purchase shares of our Common Stock, and the number of time-based restricted shares of our Common Stock granted to our NEOs in 2021.

The 2019-2021 Performance-Based Restricted Units provide the opportunity to earn the identified performance-based restricted cash units based on the performance of our business during 2019, 2020 and 2021. Our NEOs are required to remain employed by our Company through March 2022 in order to vest in the cash units. Our Compensation Committee will determine whether to settle the vested performance-based restricted cash units in cash or shares of our Common Stock at the time they vest.

The following were the performance targets for the plan established by our Compensation Committee: 40% based on revenue, 40% based on non-GAAP EBITDA and 20% based on a strategic objective established by our Compensation Committee.

For the 2019-2021 period, our Compensation Committee designated “revenue diversity” as the strategic metric which was defined as year-over-year revenue growth for DXP and the internet of things (“IoT”), with the target year-over-year revenue growth of 35%.

Each of the components was separately assigned a “threshold” level, which established the minimum achievement necessary to be satisfied to receive any portion of the applicable bonus amounts, and a “maximum” level, which, if achieved or exceeded, would result in 200% of the target cash units being earned with respect to such component as described below.

As previously disclosed in the Compensation Discussion and Analysis section of our proxy statement for our 2019 and 2020 annual meeting of stockholders, our NEOs earned 20% of the target number of the 2019-2021 Performance Units allocable to 2019 based on

the Company’s 2019 financial performance and 36% of the target number of the 2019-2021 Performance Units allocable to 2020 based on the Company’s 2020 financial performance. The actual number of 2019-2021 Performance Units earned based on each of our 2019 and 2020 performance is set forth below, which performance units vested in February 2022:

In 2021, using the same adjustments and calculations as described above under our 2021 cash incentive compensation plan, our NEOs did not receive any portion with respect to the revenue metric and received 200% with respect to the EBITDA metric. With respect to the TSR, based on the same analysis, our TSR was in the 17^th percentile, resulting in no payment for this metric. As a result, each NEO received the following payout with respect to our Company’s 2021 performance:

As a result, our NEOs earned 80% of the target number of the 2019-2021 Performance Units allocable to 2021 based on our Company’s 2021 financial performance. The actual number of 2019-2021 Performance Units earned based on our 2021 performance is set forth below, which performance units shall vest in or about February 2023 provided the NEO remains employed by our Company through such date:

In February 2020, our Compensation Committee granted 2020-2022 performance-based restricted cash units to our NEOs (other than Mr. Greenwald, Mr. Hill and Mr. Ferraro, who were not NEOs on such date) employed as of the grant date. Mr. Prague and Mr. Clark left their respective positions in the Company prior to December 31, 2021 and therefore will not be entitled to any 2020-2022 performance based restricted cash units.

The following table sets forth the 2020-2022 performance-based restricted cash units (the “2020-2022 Performance Units”) awarded to our NEOs:

The 2020-2022 Performance Units provide the opportunity to earn the identified performance-based restricted cash units based on the performance of our business during 2020, 2021 and 2022. Our NEOs are required to remain employed by our Company through February 2023 in order to vest in the cash units. Our Compensation Committee will determine whether to settle the vested performance-based restricted cash units in cash or shares of our Common Stock at the time they vest.

The following were the performance targets for the plan established by our Compensation Committee: 40% based on revenue, 40% based on non-GAAP EBITDA and 20% based on a strategic objective established by our Compensation Committee. For 2021, our Compensation Committee designated TSR as the strategic metric.

Each of the components was separately assigned a “threshold” level, which established the minimum achievement necessary to be satisfied to receive any portion of the applicable bonus amounts, and a “maximum” level, which, if achieved or exceeded, would result in 200% of the target cash units being earned with respect to such component as described below.

As previously disclosed in the Compensation Discussion and Analysis section of our proxy statement for our 2020 annual meeting of stockholders, our NEOs earned 43.33% of the target number of the 2020-2022 Performance Units allocable to 2020 based on the Company’s 2020 financial performance. The actual number of 2020-2022 Performance Units earned based on the Company’s 2020 performance is set forth below, which performance units will be issued in or about February 2023 provided the NEO remains employed by our Company through such date:

In 2021, using the same adjustments and calculations as described above under our 2021 cash incentive compensation plan, our NEOs did not receive any portion with respect to the revenue metric and received 200% with respect to the EBITDA metric. With respect to the TSR, based on the same analysis, our TSR was in the 17th percentile, resulting in no payment for this metric. As a result, each NEO received the following payout with respect to our Company’s 2021 performance:

As a result, our NEOs earned 66.7% of the target number of the 2020-2022 Performance Units allocable to 2021 based on our Company’s 2021 financial performance. The actual number of 2020-2022 Performance Units earned based on our 2021 performance is set forth below, which performance units shall vest in or about February 2023 provided the NEO remains employed by our Company through such date:

In February 2021, our Compensation Committee granted 2021-2023 performance-based restricted cash units to our NEOs (other than Mr. Greenwald, who was not a NEO on such date) employed as of the grant date. Mr. Prague and Mr. Clark left their respective positions in the Company prior to December 31, 2021 and therefore will not be entitled to any 2021-2023 performance based restricted cash units.

The following table sets forth the 2021-2023 performance-based restricted cash units (the “2021-2023 Performance Units”) awarded to our NEOs:

The 2021-2023 Performance Units provide the opportunity to earn the identified performance-based restricted cash units based on the performance of our business during 2021, 2022 and 2023. Our NEOs are required to remain employed by our Company through February 2024 in order to vest in the cash units. Our Compensation Committee will determine whether to settle the vested performance-based restricted cash units in cash or shares of our Common Stock at the time they vest.

The following were the performance targets for the plan established by our Compensation Committee: 33¹∕3% based on revenue, 33¹∕3% based on non-GAAP EBITDA and 33¹∕3% based on a strategic objective established by our Compensation Committee. For 2021, our Compensation Committee designated TSR as the strategic metric.

Each of the components was separately assigned a “threshold” level, which established the minimum achievement necessary to be satisfied to receive any portion of the applicable bonus amounts, and a “maximum” level, which, if achieved or exceeded, would result in 200% of the target cash units being earned with respect to such component as described below.

In 2021, using the same adjustments and calculations as described above under our 2021 cash incentive compensation plan, our NEOs received 64.5% with respect to the revenue metric and 98% with respect to the Adjusted EBITDA metric. With respect to the TSR, based on the same analysis, our TSR was in the 17th percentile, resulting in no payment for this metric. As a result, each NEO received the following payout with respect to our Company’s 2021 performance:

As a result, our NEOs earned 54.17% of the target number of the 2021-2023 Performance Units allocable to 2021 based on our Company’s 2021 financial performance. The actual number of 2021-2023 Performance Units earned based on our 2021 performance is set forth below, which performance units shall vest in or about February 2024 provided the NEO remains employed by our Company through such date:

Our NEOs are eligible to participate in all of our employee benefit plans (other than our employee stock purchase plan), such as medical, dental, vision, group life and disability insurance and our 401(k) plan, in each case, on the same basis as our other employees. In 2021, we leased an automobile (and paid applicable insurance and gas) for Mr. Clark, to be used primarily for business purposes. There were no other special benefits or perquisites provided to any NEO in 2021.

We have a comprehensive Workplace Code of Ethics and Business Conduct and ensure that our employees comply with this policy. In accordance with this policy, we investigate all reported instances of questionable or unethical behavior, and where improper behavior is found to have occurred, we take appropriate remedial action up to and including termination. If the results of an investigation establish that one of our employees, officers or directors has committed fraud or engaged in some other improper act that has the result of causing our financial statements for any period to be restated or that otherwise adversely affects those financial statements, our Board has discretion to take immediate and appropriate disciplinary action against the individual, including but not limited to termination. In addition, our Board has discretion to pursue whatever legal remedies are available to prosecute the individual to the fullest extent of the law and to claw back or recoup any amounts he or she inappropriately received as a result of the improper action or inaction, including but not limited to any annual or long-term incentives that he or she received but would not have received had such act not be taken.

We have instituted stock ownership guidelines for our executive officers with the purpose of ensuring they maintain a meaningful equity stake in our Company to further align their interests with those of our stockholders. Each executive officer who is also subject to Section 16 of the Exchange Act or who directly reports to our CEO (which includes all of our NEOs) is required to own, as of the later of January 1, 2021 or five years from the date on which the individual first began reporting to our CEO or first became a Section 16 officer, a number of vested shares of our Common Stock having a value at least equal to (a) in the case of our CEO, five times his then current base salary; (b) for any direct report of our CEO, three times that individual’s then current base salary, and (c) for other executive officers subject to this policy, one and one-half times the individual’s then current base salary.

If an executive officer is not compliant at the end of his or her phase-in period, our Compensation Committee may reduce future equity grants to that individual until he or she becomes compliant. Based on shareholdings on December 31, 2021, Mr. Doran has fallen below his applicable minimum holding requirement and Messrs. Greenwald, Ferraro, Hill and Miller are still within the five-year period from becoming executive officers and, therefore, have not had an opportunity to acquire the requisite amount of our Common Stock as of December 31, 2021.

For federal income taxes, compensation is an expense that is fully tax deductible for almost all of our U.S. employees. As a result of changes made by the 2017 Tax Cuts and Jobs Act, compensation in excess of $1 million paid to anyone who serves as the Chief Executive Officer, Chief Financial Officer or who is among the three most highly compensated executive officers for any year beginning after December 31, 2016 generally is not deductible. The only exception is for compensation that is paid pursuant to a binding contract in effect on November 2, 2017, that would have otherwise been deductible under the prior Section 162(m) rules, of which the Company has none. Our Compensation Committee considers tax and accounting implications in determining all elements of our compensation plans, programs and arrangements.

David Clark’s employment with our Company as Chief Financial Officer terminated effective as of August 9, 2021. In connection with his departure, Mr. Clark entered into a Transition and Separation Agreement with our Company, consistent with the terms of his employment agreement. The Transition and Separation Agreement includes a general release of claims in favor of our Company, and provides for the following payments to Mr. Clark: (i) severance payment in the amount of $586,162 (less applicable withholdings and deductions) paid in 36 equal bi-monthly payments, (ii) lump sum severance payment in the amount of $160,023 (less applicable withholdings and deductions) to be paid no later than December 31, 2022, (iii) lump sum 2020 bonus payment in the amount of $183,274 (less applicable withholdings and deductions) paid by December 31, 2021, and (iv) the gross amount of $51,722, which is intended to cover the employer portion of any COBRA payments for a period of twenty-four (24) months following the termination date. All such payments are consistent with the terms of our Executive Compensation Plan. All of Mr. Clark’s unvested equity terminated as of August 9, 2021.

Ronald Prague left his position as Chief Legal Officer of our Company effective July 27, 2021 and his employment terminated effective as of September 2, 2021. In connection with his departure, Mr. Prague entered into a Transition and Separation Agreement with our Company, consistent with the terms of his employment agreement. The Transition and Separation Agreement includes a general release of claims in favor of our Company, and provides for the following payments to Mr. Prague: (i) severance payment in the amount of $535,805 (less applicable withholdings and deductions) paid in 36 equal bi-monthly payments, (ii) lump sum severance payment in the amount of $192,260.25 (less applicable withholdings and deductions) to be paid no later than June 30, 2022, (iii) lump sum 2020 bonus payment in the amount of $151,286 (less applicable withholdings and deductions) paid by December 31, 2021, and (iv) the gross amount of $51,722, which is intended to cover the employer portion of any COBRA payments for a period of twenty-four (24) months following the termination date. In September 2021, Mr. Prague entered into a Consulting Agreement with the Company under which he provides services to the Company from time to time through June 15, 2022, unless earlier terminated by the parties. Under the Consulting Agreement, the Company paid Mr. Prague a retainer fee in the amount of $15,000 September through November 30 2021 and shall pay Mr. Prague at a rate of $250 per hour for services performed after November 30, 2021. Mr. Prague’s previously granted and outstanding restricted common stock and stock option awards continue to vest through the term of the Consulting Agreement.