ITEM 11. Executive Compensation
Compensation Discussion and Analysis
In this Compensation Discussion and Analysis, we address the compensation provided to our named executive officers (NEOs). We also discuss the goals for our executive compensation program and other important factors underlying our compensation practices and policies.
Executive Summary
Our Company
At Vonage, our vision is to accelerate the world's ability to connect. We are observing a secular change in the way business is done, with a fundamental shift in how communications technologies are being leveraged in almost every industry. Through the Vonage Communications Platform ("VCP"), our strategy is to deliver a single leading cloud communications platform that powers our customers' and partners' global engagement solutions using our APIs, Unified Communications, and Contact Center innovations. We believe that the Vonage Communications Platform's products and services are well positioned to take advantage of emerging trends with sizable, growing total addressable markets as companies look to cloud-based communications solutions and API programming architectures as part of their digital transformation.
For our Consumer customers, we enable users to access and utilize our services and features, via their existing internet connections, including over 3G/4G, LTE, Cable, or DSL broadband networks. This technology enables us to offer our Consumer customers attractively priced voice and messaging services and other features around the world on a variety of devices. Our Consumer strategy is focused on the continued penetration of our core North American markets, which provide value in international long distance and target under-served segments.
On November 22, 2021, the Company, Telefonaktiebolaget LM Ericsson (publ) ("Ericsson" or "Parent") and Ericsson Muon Holding Inc. entered into an Agreement and Plan of Merger (the "Merger Agreement") providing for the acquisition of the Company by Ericsson for approximately $6.2 billion in cash. The proposed transaction received the required approval of the Company's stockholders on February 9, 2022. Ericsson and Vonage continue to work toward closing this acquisition during the first half of 2022, on and subject to the terms of the merger agreement and subject to receiving regulatory approval.
Named Executive Officers
Our “Named Executive Officers” are the executive officers who are included in the Summary Compensation Table. They include the following current and former officers:
•Rory Read, Chief Executive Officer
•Stephen Lasher, Chief Financial Officer
•Timothy Shaughnessy, Interim Chief Financial Officer
•Jay Bellissimo, Chief Operating Officer
•Savinay Berry, EVP, Product and Engineering
•Joy Corso, Chief Marketing Officer
For the 2021 compensation period, we are reporting six named executive officers based on transitions of our CFO during the fiscal year. On January 13, 2020, we announced that Mr. Pearson planned to retire. He served as the Chief Financial Officer
22 VONAGE ANNUAL REPORT 2021
though August 15, 2020 and was succeeded by Mr. Shaughnessy on an interim basis. On January 29, 2021, Stephen Lasher was appointed as the Company's Chief Financial Officer. Mr. Shaughnessy remained as the Company's Interim Chief Financial Officer through February 28, 2021 for transition purposes.
For information regarding termination payments, see "Potential Payments Upon Termination of Employment or Change-in-Control," below.
2021 Performance
Our fiscal 2021 financial performance served as a key factor in determining compensation for 2021. In 2021, our management team continued to successfully pivot to cloud communications for the business market and drove business revenues to record levels. The team accomplished these results while also optimizing the profitability of our consumer services business. Building on the momentum of previous years, Vonage delivered strong financial and operational results in 2021, as follows:
•Delivered total revenues of $1,409 million, an increase from $1,248 million in the prior year, and our seventh consecutive year of consolidated revenue growth.
•Grew Vonage Business revenue 22% to $1,120 million, up from $915 million in 2020.
•GAAP Net Loss was $24.5 million or ($0.10) Per Share on a diluted basis, and Net Income, excluding adjustments*, of $32 million or $0.12 Per Share on a diluted basis.
•Achieved Adjusted EBITDA* of $198 million.
•Produced net cash provided by operating activities of $159 million, and Free Cash Flow* of $103 million, our eleventh consecutive year of positive Free Cash Flow*.
*Adjusted EBITDA, GAAP net income (loss) excluding adjustments, and free cash flow are non-GAAP financial measures. We define adjusted EBITDA as GAAP net income (loss) before interest, tax, depreciation and amortization, share-based expense, amortization of costs to implement cloud computing arrangements, acquisition related transaction and integration costs, organizational transformation costs, restructuring activities, and other non-recurring items. We define adjusted net income (loss), as GAAP net income (loss) excluding amortization of acquisition-related intangible assets, amortization of costs to implement cloud computing arrangements, acquisition related transaction and integration costs, amortization of debt discount, organizational transformation, restructuring costs, other non-recurring items and tax effect on adjusting items. We define free cash flow as net cash provided by operating activities minus capital expenditures, purchase of intangible assets, and acquisition and development of software assets. Please refer to Appendix A for reconciliations of: (1) adjusted EBITDA to GAAP net income (loss), (2) net income excluding certain adjustments to GAAP net income (loss), and (3) free cash flow to GAAP cash provided by operating activities.
2021 Executive Compensation Program Outcomes
The Company exceeded the ambitious target levels of performance on the measures used to assess annual corporate performance (which included VCP service revenue, VCP Adjusted EBITDA, and Customer Satisfaction (NPS). As a result, the annual performance-based executive compensation program delivered above-target payouts to our named executives for 2021.
For performance grants made in 2019 to our NEOs, at the end of 2021, the Company's three-year cumulative TSR was approximately 93%, which ranked at the 62nd percentile of the performance peer group and resulted in the vesting of 140.23% of the target number of shares awarded.
Compensation and Governance Matters
Our compensation committee reviews our compensation programs, technology company data and best practices in the executive compensation area annually to determine whether changes should be made to address the objectives described below. We continue to believe that our current structure helps to align executive and shareholder interests while providing performance and retention incentives in a competitive compensation package.
23 VONAGE ANNUAL REPORT 2021
We have adopted compensation practices and policies that our Board believes advance our compensation objectives, including: | | | | | | | | |
| Things We Do | Summary |
ü
| Emphasize Pay for Performance | We link our named executive officers’ incentive compensation to our financial performance and the attainment of specified goals that drive shareholder value. |
ü
| Retain an Independent Compensation Consultant | Our compensation committee uses an independent compensation consultant to advise the committee on its oversight of our compensation program. The compensation consultant does not provide services to management. |
ü
| Grant Performance-Based Equity | We award a significant portion of our long-term incentive compensation in the form of performance-based restricted stock units. The number of units actually earned is determined at the end of the three year period based on company performance. |
ü
| Maintain Robust Stock Ownership Guidelines | Our stock ownership guidelines require that our CEO maintain a stock ownership level equal to 5x base salary and that our other NEOs maintain a stock ownership level equal to 3x base salary. |
ü
| Maintain Incentive Compensation Recovery Policy | Our Incentive Compensation Recovery Policy permits the Company to recoup from a covered officer (including NEOs) excess compensation and to recover improper gains in the event of a material restatement of the Company's financial results caused by the misconduct of the covered officer. |
ü
| Incorporate Best Practices in our Incentive Compensation Plan
| Our 2015 Equity Plan includes several provisions that are protective of our shareholders, including annual award limitations, and minimum vesting and exercise price provisions. |
ü
| Have "double-trigger" vesting of equity awards upon a change-in-control | Our 2015 Equity Plan includes "double trigger" vesting upon a change-in-control. Our compensation committee has discretion whether to accelerate vesting upon a change of control. |
| | | | | | | | |
| Things We Don't Do | Summary |
x | Use Stock Options in our Long-Term Incentive Program | We do not provide annual long-term incentive compensation in the form of stock options. Stock options are available for promotion, special, or new hire grants. |
x | Allow the repricing of options or "evergreen" share counting under our 2015 Equity Plan | Our 2015 Equity Plan contains prohibitions on evergreen provisions, and a prohibition on the repricing of options. |
x | Permit Hedging of Company Stock | Our securities trading compliance policy prohibits any director, officer or employee from engaging in any strategy or using any product to hedge against potential changes in the value of Vonage securities. |
x | Permit Pledging of Company Stock | Our securities trading compliance policy prohibits any director, officer or employee, except in limited circumstances, from directly or indirectly pledging Vonage securities. |
x | Pay Excise Tax Gross-ups Upon Change of Control. | Our 2015 Equity Plan does not allow for the payment of excise tax gross-ups upon a change of control. |
x | Provide Material Perquisites to our NEOs.
| We only provide minimal perquisites deemed necessary to support greater efficiency in how our executives work for us. |
2021 Executive Compensation Program
The 2021 compensation for our executive officers was designed to meet the following objectives:
•Provide competitive compensation in order to attract, retain, and motivate highly-skilled executives. We refer to this objective as “competitive compensation.”
•Reinforce the importance of meeting and exceeding identifiable and measurable goals, while not encouraging our management to take unreasonable risks. We refer to this objective as “performance incentives.”
•Provide opportunities for our executive officers to acquire meaningful equity ownership that will encourage the creation of shareholder value. We refer to this objective as “alignment with shareholder interests.”
•Provide an incentive for long-term continued employment with us. We refer to this objective as “retention incentives.”
24 VONAGE ANNUAL REPORT 2021
The principal components of 2021 compensation were as follows:
| | | | | | | | |
| Type of Compensation | | Objectives Addressed |
| Salary | | Competitive Compensation |
| |
| Annual Cash Bonus | | Performance Incentives
Competitive Compensation |
| |
| Long-Term Incentives | | Retention Incentives
Alignment with Shareholder Interests
Performance Incentives
Competitive Compensation |
When reviewing the compensation program, our compensation committee, with the assistance of an independent compensation consultant, considers the impact of the compensation program on Vonage's risk profile. Our compensation committee believes that our compensation program has been structured to provide strong incentives for executives to appropriately balance risk and reward. See also “Impact of Compensation Policies on Risk Management” above.
Engagement of Compensation Consultant
The compensation committee has the authority to engage its own independent consultants, counsel and other advisors to assist in carrying out its responsibilities under its charter. The compensation committee retained Meridian Compensation Partners, LLC, an independent compensation consultant, as described in further detail under “Compensation Committee” above, to advise the committee in connection with its oversight of our compensation program for 2021.
Our management, aided by our human resources and finance departments, and eConsultingNetwork, a compensation consultant retained by management, provided statistical data and survey information to the compensation committee to assist it in determining 2021 compensation levels. The compensation committee considered various factors, including the factors set forth in SEC rules, and determined that the services provided by eConsultingNetwork in 2021 did not raise any conflicts of interest. While the compensation committee utilized this information and valued management's observations with regard to compensation, the ultimate decisions regarding executive compensation were made by the compensation committee in consultation with the committee's own compensation consultant.
Determination of Competitive Compensation
As part of our annual process for assessing the competitiveness of executive compensation, we compare the compensation of our executives to survey data. For 2021 pay decisions, we used the following data sources:
•2020 Radford Global Technology Survey - Communications/Internet/Software (revenue $0.2B - $3.0B).
•2020 Equilar Top 25 Survey - Internet Services, Software, Technology, (revenue $0.5B - $3.0B).
Because the compensation committee was seeking survey data covering a broad range of companies meeting the revenue and industry criteria set forth above, the compensation committee did not focus on the individual companies included in the survey data. We refer to the data sources described above as the “market sample.”
We placed equal weight on each survey source. We believe that communications, software, internet companies, and technology companies in general with comparable revenues represent an appropriate comparison group for our executives because they are the companies against which we are most likely to compete for executive talent. The comparative analysis described above provides only guidelines, and we do not follow them rigidly.
Salaries
None of our NEOs received a salary increase in 2021. The salaries of our named executive officers for 2021 were as follows:
25 VONAGE ANNUAL REPORT 2021
| | | | | | | | |
| Name | 2020 Salary | 2021 Salary |
| Rory Read | $ | 850,000 | | $ | 850,000 | |
Stephen Lasher (1) | $ | — | | $ | 650,000 | |
Tim Shaughnessy (2) | $ | — | | $ | — | |
Jay Bellissimo (3) | $ | — | | $ | 600,000 | |
Savinay Berry (4)
| $ | — | | $ | 500,000 | |
| Joy Corso | $ | 400,000 | | $ | 400,000 | |
(1)Joined the Company in January 2021.
(2)Joined the Company in August 2020 as the interim CFO through February 2021. Mr. Shaughnessy received a fixed payment of $300,000 per month and was not eligible to receive incentive compensation.
(3)Joined the Company in January 2021.
(4)Joined the Company in February 2021.
Annual Cash Bonuses
When determining the annual cash bonuses of our executive officers, the compensation committee reviews achievement of objective performance criteria. The compensation committee may also consider discretionary factors relating to the executive's individual performance. For 2021, the target bonus opportunity percentages for the participating named executive officers were as follows:
| | | | | |
| Name | Target Percentage
of Base Salary |
| Rory Read | 125 | % |
| Stephen Lasher | 100 | % |
Tim Shaughnessy (1) | — | % |
| Jay Bellissimo | 100 | % |
| Savinay Berry | 100 | % |
| Joy Corso | 60 | % |
(1)As interim CFO, Mr. Shaughnessy did not participate in the 2021 bonus program.
Generally, there were three metrics applicable to all participants in the 2021 bonus program: VCP Service Revenue, Adjusted EBITDA (excluding Consumer), and Customer Satisfaction (NPS). The weighting of these metrics were as follows:
| | | | | |
| Corporate Metrics | Weighting |
| VCP Service Revenues | 60% of target bonus |
| Adjusted EBITDA (excluding Consumer) | 30% of target bonus |
| Customer Satisfaction (NPS) | 10% of target bonus |
•VCP Service Revenues includes revenues from the Vonage Communications Platform (UCaaS, CCaaS, and API service offerings).
•Adjusted EBITDA (excluding Consumer). Adjusted EBITDA is calculated as GAAP net income (loss) before interest, tax, depreciation and amortization, share-based expense, amortization of costs to implement cloud computing arrangements, acquisition related transaction and integration costs, organizational transformation, restructuring costs and other non-recurring items.
•Customer Satisfaction ("NPS") measures the satisfaction of our VCP segment customers.
Each metric has a minimum, target, and maximum performance level that would result in certain payments of the weighted target bonus for the metric. No payment is made for performance below the minimum performance level.
The following table shows the performance levels upon which minimum, target, and maximum bonuses would have been paid, the payout percentages associated with those performance levels, and the actual 2021 performance for the metrics.
26 VONAGE ANNUAL REPORT 2021
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (amounts in thousands) | 2021 |
| Performance Measure | Weighting | | Minimum (50%) | | Target (100%) | | Maximum (150%) | | Actual Performance | | Weighted Attainment | | Attainment |
| VCP Service Revenues | 60.0 | % | | $ | 968,000 | | | $ | 1,003,000 | | | $ | 1,037,000 | | | $ | 1,054,000 | | | 167.0 | % | | 100.3 | % |
| Adjusted EBITDA (excluding Consumer) | 30.0 | % | | $ | (10,000) | | | $ | 13,000 | | | $ | 29,000 | | | $ | 11,000 | | | 96.0 | % | | 28.8 | % |
| Customer Satisfaction (NPS) | 10.0 | % | | 24 | | | 26 | | | 28 | | | 20 | | | — | % | | — | % |
| Total Bonus Payout | 100.0 | % | | | | | | | | | | | | 129.0 | % |
For Mr. Read and Mr. Lasher, there were four metrics applicable in the 2021 bonus program: VCP Service Revenue, Adjusted EBITDA (excluding Consumer), Adjusted EBITDA (Consumer only), and Customer Satisfaction (NPS). The weighting of these metrics were as follows:
| | | | | |
| Corporate Metrics | Weighting |
| VCP Service Revenues | 60% of target bonus |
| Adjusted EBITDA (excluding Consumer) | 20% of target bonus |
| Adjusted EBITDA (Consumer only) | 10% of target bonus |
| Customer Satisfaction (NPS) | 10% of target bonus |
The following table shows the performance levels upon which minimum, target, and maximum bonuses would have been paid, the payout percentages associated with those performance levels, and the actual 2021 performance for the metrics.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (amounts in thousands) | 2021 |
| 2021 Metric | Weighting | | Minimum (50%) | | Target
(100%) | | Maximum (150%) | | Weighted Attainment | | Attainment |
VCP Service Revenue | 60.0 | % | | $ | 968,000 | | | $ | 1,003,000 | | | $ | 1,037,000 | | | 167.0 | % | | 100.3 | % |
| Adjusted EBITDA (excluding Consumer) | 20.0 | % | | $ | (10,000) | | | $ | 13,000 | | | $ | 29,000 | | | 96.0 | % | | 19.2 | % |
| Adjusted EBITDA (Consumer only) | 10.0 | % | | $ | 175,000 | | | $ | 192,000 | | | $ | 205,000 | | | 82.0 | % | | 8.2 | % |
| Customer Satisfaction (NPS) | 10.0 | % | | 24 | | | 26 | | | 28 | | | — | % | | — | % |
| Total Corporate Plan | 100.0 | % | | | | | | | | | | 127.6 | % |
Rationale For Performance Measures
2021 performance targets reflect the Company's continued pivot towards the cloud communications for business markets. For 2021:
•VCP Service Revenues represent 60% of overall performance weighting, reflecting the Company's desire to increase focus on business service revenues to align with the Company's overall strategy;
•Adjusted EBITDA (excluding Consumer) reflects the Company's overall desire to increase VCP profitability;
•Adjusted EBITDA (Consumer only) reflects the Company's Consumer profitability; and
•Customer Satisfaction (NPS) measures customer satisfaction within our VCP segment based on a satisfaction score that is weighted by revenue, reflecting the Company's focus on improving customer experience.
27 VONAGE ANNUAL REPORT 2021
Calculation of Annual Cash Bonus Awards
The annual cash bonus awards are calculated by multiplying the total bonus achievement percentages by the executive's target bonus.
Annual Cash Bonus Payouts 2021 | | | | | | | | | | |
| Name | Total 2021 Bonus
Award | Base Metric Achievement Percentage | | |
| Rory Read | $ | 1,355,750 | | 127.6 | % | | |
| Stephen Lasher | $ | 768,790 | | 127.6 | % | | |
Tim Shaughnessy (1) | $ | — | | — | % | | |
| Jay Bellissimo | $ | 741,254 | | 129.0 | % | | |
| Savinay Berry | $ | 545,769 | | 129.0 | % | | |
| Joy Corso | $ | 309,600 | | 129.0 | % | | |
(1) As interim CFO, Mr. Shaughnessy did not participate in the 2021 bonus program.
These payments are reflected in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table.
Long-Term Incentives
2021 LTI Program
We award a significant portion of our long-term incentive compensation in the form of performance-based restricted stock units. The number of units actually earned will be determined at the end of the three-year performance period based on financial performance and relative total shareholder return performance. By linking a significant portion of our long-term incentives to three-year performance goals, we more closely align our NEOs' incentives with our strategic strategic priorities and long-term interests of shareholders.
| | | | | | | | |
| 2021 LTI Program |
| Award Type | % of Award | Vesting |
| Performance-based RSUs | 60% | 3 year cliff |
| Time-based RSUs | 40% | Equal 3 year increments |
We believe that our long-term compensation program elevates the link between pay and performance for our NEOs and closely aligns the interests of management and our shareholders. Performance RSUs are granted subject to the following terms:
•The number of performance RSUs granted is based on a target value determined by the compensation committee.
•For 2021, the number of performance RSUs actually earned will be based on two metrics:
◦25% of the award will be determined by Vonage's performance on the sum of business service revenue growth and consolidated AEBITDA margin (also called "Rule of 40")
◦75% of the award will be determined by Vonage's relative "Total Stockholder Return"( TSR) performance measured against a defined performance group consisting of technology companies we consider to be similar to Vonage, as discussed below. TSR is the percentage growth in stock price over the performance period, plus dividends and adjusted for events such as stock splits. Vonage's TSR performance will be ranked against the other companies in the performance group.
•Performance is measured over a three-year performance period.
•The actual number of shares received at the end of the performance period can range from 0-200% of the target number of shares, based on the Company's performance during the performance period, as follows.
28 VONAGE ANNUAL REPORT 2021
| | | | | | | | | | | | | | | | | | | | |
| TSR Payout Schedule |
| Percentile Ranking | | % of Target Earned |
| Greater than | | 80% | | | | 200% |
| 50 | % | — | 80% | | 100 | % | — | 200% |
| 30 | % | — | 50% | | 50 | % | — | 100% |
| Less than | | 30% | | | | 0% |
Payouts are based on ranking results with linear adjustment between percentile ranks in the chart above. For example, achievement of the 65th percentile would result in 150% of the target number of shares being issued at the end of the performance period and achievement of the 40th percentile would result in 75% of the target number of shares being issued at the end of the performance period.
•TSR payouts are capped at 100% (target) if the Company's TSR performance is negative at the end of the performance cycle, even if the Company's relative TSR performance would have produced a higher payout.
In addition, we believe that the inclusion of the Rule of 40 metric aligns with our business strategy and requires our executives to continue improving business performance.
Our TSR performance group for 2021 awards was based on companies included in our prior period performance group, with modifications approved by our compensation committee to improve relevance to our business. As discussed below, these modifications included the addition of companies in the application software or cloud services industries. Our performance group for 2021 was set as follows:
| | | | | |
| 8x8, Inc. | Microsoft Corporation* |
| Adobe Inc. | Mimecast Limited |
| Akamai Technologies | NICE Systems, Inc. |
| Avaya Holdings Corp. | Nuance Communications |
| Atlassian, Inc. | Ooma, Inc. |
| Bandwidth Inc. | PTC Inc. |
| Cisco Systems | RingCentral, Inc. |
| eGain Corporation | Sinch |
| EnvestNet | Smartsheet Inc |
| Everbridge, Inc. | Splunk Technology |
| Five9, Inc. | Teletech Holdings |
| Intuit Inc. | Twilio Inc. |
| j2 Global, Inc. | Verient Inc. |
| Kaleyra, Inc.* | Zendesk, Inc. |
| LivePerson, Inc. | Zoom Video Communications, Inc. |
*Companies that are new to the list for 2021 awards.
The following companies were removed from the list for 2021 awards: Palo Alto Networks and Paylocity Holdings as they are less relevant to our direct business competition.
We annually evaluate our performance group to ensure its rigor, as reflected by the inclusion of high performing technology and software-as-a-service peers.
29 VONAGE ANNUAL REPORT 2021
Vesting of Prior LTI Awards
In 2021, awards made to our executives under the Company's 2019 LTI Program vested based upon Company TSR performance against the peer group over the three-year period from 2019-2021. To smooth the impacts of short-term price fluctuations in our stock price and provide a more appropriate long-term award result, we use averaging at the beginning and end of our performance period to compute our TSR as well as the TSR for each of the performance peers. For the beginning of period price, we average the closing price of each Company's stock for the 60 days straddling the first day of the performance period. For the end of period price of each Company, we average the final 60 trading days of the performance period. Dividends paid by companies in the peer group are assumed to be reinvested as of the ex-dividend date.
Using this methodology, our TSR performance for the 2019-2021 performance period was 93.02%, ranking at the 62nd percentile, and equating to a 140.23% payout under the terms of the 2019 LTI Program. Our Named Executive Officers did not receive any shares in connection with this performance period.
The named executive officers received the following equity awards in 2021 under the annual LTI program:
| | | | | | | | | | | | | | | |
| Name | | | Number of
Time-based
Restricted Stock
Units | | Target Number of
Performance-based
Restricted Stock
Units |
Rory Read(1) | | | — | | | — | |
| Stephen Lasher | | | 458,123 | | | 113,421 | |
Tim Shaughnessy (2) | | | — | | | — | |
| Jay Bellissimo | | | 340,264 | | | 113,421 | |
| Savinay Berry | | | 446,375 | | | 174,425 | |
| Joy Corso | | | 188,924 | | | 49,886 | |
1.Mr. Read was granted two years of awards under the LTI program in 2020 and was not eligible for additional equity grants until the 2022 annual grant cycle.
2.Mr. Shaughnessy was hired as the interim CFO from August 2020 through February 2021 and did not received any equity in connection with his role.
Stock Ownership Guidelines for Executives
Our compensation committee and Board of Directors have adopted stock ownership guidelines for our named executive officers and certain other covered executives. They believe that these requirements help ensure alignment of executive interests with shareholder interests and promote a focus on long-term growth. The following table shows the stock ownership levels required for our named executive officers, which are measured on a quarterly basis:
| | | | | |
| Name | Stock Ownership Level |
| Rory Read | 5.0x base salary |
| Stephen Lasher | 3.0x base salary |
Tim Shaughnessy (1) | Not applicable |
| Jay Bellissimo | 3.0x base salary |
| Savinay Berry | 3.0x base salary |
| Joy Corso | 3.0x base salary |
(1)Mr. Shaughnessy did not receive in any equity grants during his service and was not required to comply with the stock ownership guidelines.
Shares counted in assessing compliance with the guidelines include shares owned outright and the in-the-money value of vested stock options. While there is no specific time period required to achieve these guidelines, each covered executive must retain 50% of net stock options exercised or stock delivered from vested restricted stock units until the guidelines are met. Executives may be exempted from the guidelines and/or the retention requirement due to financial hardship as determined by the compensation committee in its discretion.
30 VONAGE ANNUAL REPORT 2021
Benefits and Perquisites
We have also taken steps to ensure executives’ continued health and ability to render services to the Company through an annual physical program. Our incremental costs for the perquisites described above are shown in note 6 to the Summary Compensation Table.
We also maintain a 401(k) savings plan, which is a tax-qualified defined contribution plan available to all of our employees. All of our NEOs participated in the plan in 2021. In 2021, we provided a matching contribution equal to 50% of each dollar contributed by a participant, up to a maximum contribution of $6,000. The matching contributions vest after one year following the date of employment. Employee and matching contributions are based on compensation up to annual limits established under the Internal Revenue Code (the eligible compensation limit was $290,000 in 2021). Our matching contributions for the participating named executive officers are shown in note 6 to the Summary Compensation Table. We do not provide any supplemental retirement benefits.
Equity Grant Practices
The compensation committee approves all equity grants to executive officers and ratifies all other new hire and promotion equity grants made on a quarterly basis. In February of each year, the compensation committee considers annual equity grants. The compensation committee's practice is to approve annual equity grants effective on the first trading day on or after March 15.
In addition, the compensation committee delegated to our Chief Executive Officer the ability to make equity grants aggregating up to 400,000 shares of common stock in each quarter for employees that are not executive officers. These awards may not exceed 50,000 shares in each quarter to any individual employee.
For special grants, equity is granted on the first trading day of the month immediately following the month in which the equity grant is approved. For newly hired or promoted employees, restricted stock units are generally granted on the first trading day of the month immediately following the month in which the employee commences employment with us or the promotion is effective. In addition, we do not time equity grants to coincide with the release of material non-public information about Vonage.
Post-Employment Compensation
We have benefit plans, employment and letter agreements, and other arrangements for our named executive officers that provide special benefits upon certain types of termination events. The employment agreements and letter agreements provide financial security in the event the executive officer's employment is terminated without cause or his or her responsibilities are significantly diminished. The agreements also provide clear statements of the rights of the executive officers and protect them against an unfavorable change in employment terms. Absent these provisions, there is an increased risk that executive officers may be encouraged to seek other employment opportunities if they became concerned about their employment security as a result of changes to our Company or in the event of a change in control. None of our current executives is entitled to an excise tax gross up upon a change in control. In addition, all equity grants made to current executives require a “double trigger” (both a change in control and termination) for payout or accelerated vesting to occur.
We believe that our change in control benefits provide appropriate incentives for the executive officers to cooperate in negotiating any change in control of Vonage without regard to the potential effect on their positions. See “Potential Post-Employment Payments” for further information regarding change in control and termination benefits under the arrangements.
31 VONAGE ANNUAL REPORT 2021
Shareholder Outreach and Results of the 2021 Say-on-Pay Voting Results
At our 2021 annual meeting, shareholders did not approve our Say-on-Pay advisory vote. Prior to our 2021 annual meeting, we engaged with a substantial number shareholders regarding our compensation program. Shareholder feedback reflected overall approval of the structure of our compensation program, but some shareholders noted that they would not provide advisory approval based on one-time recruitment compensation to our Chief Executive Officer.
Vonage and its Board take shareholder feedback seriously. In light of discussions with our shareholders, we maintained the following key attributes in our 2022 executive compensation program:
•Continued to include a financial performance metric that accounts for 25% of our performance-based stock awards that we believe fosters greater alignment between rewards and profitable multi-year Vonage Communication Platform service revenue and Adjusted EBITDA* growth (remaining 75% continues to be based on relative Total Shareholder Return (TSR)).
•We maintained the weighting of stock awards to all executive officers at 60% performance-based awards in furtherance of our pay-for-performance philosophy.
Clawback, Anti-Hedging and Anti-Pledging Policies
Incentive Compensation Recovery Policy
The Company has put in place an Incentive Compensation Recovery Policy for incentive awards paid to executive officers. The policy is triggered in the event of a material restatement of the Company's financial results (other than as a result of a change in accounting rules, principles or interpretations) caused or substantially caused by the misconduct of the covered officer (including our NEOs). If triggered, the compensation committee may seek to recoup the portion of cash and equity based incentive awards paid or awarded to the covered officer in excess of the awards that would have been paid or awarded based on the restated financial results to the extent permitted by applicable law. In the case of equity awards that vested based on the achievement of financial results that were subsequently modified, the compensation committee and Board may also seek to recover improper gains from the sale or disposition of vested equity awards.
Hedging and Pledging
The Company's securities trading compliance policy contains prohibitions against certain types of stock-related transactions. The policy prohibits any director, officer or employee from engaging in any strategy or using any product to hedge against potential changes in the value of Vonage securities, including short selling techniques, “sales against the box”, puts, calls and other derivative securities, prepaid variable forwards, equity swaps, collars, exchange funds and forward sale contracts.
In addition, except in limited circumstances, no director or officer or employee may, directly or indirectly, pledge a significant amount of Vonage securities. The restrictions include the intentional creation of any form of pledge, security interest, deposit, or lien, including the holding of shares in a margin account, that entitles a third-party to foreclose against, or otherwise sell, any shares, whether with or without notice, consent, or default.
Company Tax and Accounting Issues
Deductibility of Executive Compensation
As a result of the Tax Cuts and Jobs Act, enacted on December 22, 2017, beginning in 2018, compensation paid to certain executive officers in excess of $1 million will generally be nondeductible for tax purposes. However, the Committee believes that shareholder interests are best served by maintaining flexibility to deliver appropriate levels of compensation even if such compensation is nondeductible.
Share-Based Compensation
We account for compensation expense from our stock awards in accordance with the "Compensation - Stock Compensation Topic" of the Financial Accounting Standards Board Accounting Standards Codification ("FASB Codification") that requires companies to measure the cost of employee stock awards based on the grant date fair value and recognize that cost over the period during which a recipient is required to provide services in exchange for the stock awards, typically the vesting period. We consider the impact on the Company's compensation expense when determining and making stock awards.
32 VONAGE ANNUAL REPORT 2021
Section 280G Mitigation Actions
Pursuant to the terms of the Merger Agreement, the Company is permitted to implement strategies to mitigate the possible impact of Section 280G of the Code. On December 27, 2021, the compensation committee approved with respect to certain executive officers, (i) the payment, on or prior to December 31, 2021, of annual cash bonuses for calendar year 2021 that otherwise would be payable in 2022 and (ii) the settlement (in whole or in part), on or prior to December 31, 2021, of certain restricted stock unit awards and performance stock unit awards for restricted shares of Vonage Common Stock, less the appropriate withholding taxes, with the same vesting terms as such restricted stock unit awards and performance stock unit awards. Such executive officers entered into agreement with the Company providing for the actions described above and including the potential forfeiture and clawback described below. The executive officers have made elections under Section 83(b) of the Internal Revenue Code with respect to such shares of Company restricted stock. The actions described above have the effect of providing compensation in 2021 that would have otherwise been paid in a future year, but have not changed the vesting requirements as a result of the forfeiture and clawback provisions applicable to such compensation, as described below.
The compensation committee approved the following for each applicable named executive officer:
•For Rory Read, an accelerated payment in the amount of $1,221,875 and the settlement of 298,056 restricted stock units with 180,770 restricted shares of Vonage Common Stock (after payment of applicable withholding taxes) subject to forfeiture and clawback as described below.
•For Joy Corso, an accelerated payment in the amount of $276,000 and the settlement of 62,974 restricted stock units and 103,077 performance stock units with 100,706 restricted shares of Vonage Common Stock (after payment of applicable withholding taxes) subject to forfeiture and clawback as described below.
•For Savinay Berry, an accelerated payment in the amount of $575,000 and the settlement of 60,906 restricted stock units with 30,708 restricted shares of Vonage Common Stock (after payment of applicable withholding taxes) subject to forfeiture and clawback as described below.
If the executive officer’s service terminates under circumstances that would otherwise have resulted in the forfeiture of all or any portion of a restricted stock unit award or performance stock unit award, any restricted stock issued in respect of such award will be forfeited and any shares withheld by the Company for the satisfaction of withholding taxes (or cash equal to the fair market value of such shares) will be subject to recovery by the Company. With respect to any performance stock units, if at the end of the applicable performance period, actual performance is less than the assumed level of performance, the applicable number of shares of restricted stock will be forfeited and any shares withheld by the Company for the satisfaction of withholding taxes will be subject to recovery by the Company, and if actual performance is greater than the assumed level of performance, the executive officer will be issued additional shares of restricted stock.
Summary Compensation Table | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Name and
Principal Position | Year | | Salary | | Bonus (6) | | Stock Awards (7) | | Non-Equity Incentive Plan Compensation (8) | | All Other Compensation(9) | | Total |
Rory Read Chief Executive Officer | 2021 | | $ | 850,000 | | | | | | | $ | 1,355,750 | | | $ | 9,542 | | | $ | 2,215,292 | |
| 2020 | | $ | 434,808 | | | $ | 3,000,000 | | | $ | 24,546,250 | | | $ | 1,062,500 | | | $ | 6,000 | | | $ | 29,049,558 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | |
Stephen Lasher Chief Financial Officer (1) | 2021 | | $ | 602,500 | | | $ | 1,500,000 | | | $ | 8,874,373 | | | $ | 768,790 | | | $ | 7,200 | | | $ | 11,752,863 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | |
Tim Shaughnessy Interim Chief Financial Officer (2) | 2021 | | $ | 1,400,000 | | | | | | | | | | | $ | 1,400,000 | |
| 2020 | | $ | 1,200,000 | | | | | | | | | | | $ | 1,200,000 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | |
Jay Bellissimo Chief Operating Officer (3) | 2021 | | $ | 574,615 | | | $ | 2,000,000 | | | $ | 6,131,836 | | | $ | 741,254 | | | $ | 7,200 | | | $ | 9,454,905 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | |
Savinay Berry EVP, Product and Engineering (4) | 2021 | | $ | 423,077 | | | $ | 1,029,231 | | | $ | 9,828,965 | | | $ | 545,769 | | | $ | 6,000 | | | $ | 11,833,042 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | |
Joy Corso Chief Marketing Officer (5) | 2021 | | $ | 400,000 | | | | | $ | 4,470,706 | | | $ | 309,609 | | | $ | 7,500 | | | $ | 5,187,815 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
________________
(1)Mr. Lasher joined the Company in January 2021 as the CFO.
33 VONAGE ANNUAL REPORT 2021
(2)Mr. Shaughnessy was hired as the interim CFO from August 2020 through February 2021 and did not received any equity grants in 2021.
(3)Mr. Bellissimo joined the Company in January 2021 as the Chief Operating Officer.
(4)Mr. Berry joined the Company in February 2021 as the EVP, Product and Engineering.
(5)Ms. Corso joined the Company in August 2020 as the Chief Marketing Officer.
(6)Reflects sign-on cash awards made to Mr. Lasher, Mr. Bellissimo, and Mr. Berry.
(7)Stock awards consist of performance-based and time-based restricted stock units. The dollar amounts for the awards represent the grant-date fair value calculated in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718 (“FASB ASC 718”) by multiplying the number of shares of restricted stock awarded by the closing price of our common stock on the date of grant and based upon, where applicable, the probable outcome of performance conditions. Refer to “Compensation Discussion and Analysis—Long-Term Incentives” for additional information. The grant-date fair value of the stock-based awards will likely vary from the actual amount the named executive officer receives. Actual gains, if any, on shares acquired upon vesting of units are dependent on other factors, including the unit holders' continued employment with us through the vesting period, the achievement of any applicable operating and financial performance conditions, the future performance of our common stock, and overall stock market conditions. There can be no assurance that the values reflected in this table will be achieved. Performance-based restricted stock unit values are based upon achievement of target performance levels. If maximum performance were achieved under 2021 performance-based restricted stock awards, the total value of 2021 stock awards for participating executives would be as follows: Mr. Lasher $3,375977, Mr. Bellissimo $3,375,977, Mr. Berry $5,105,421, and Ms. Joy $1,464,650.
(8)The amounts in this column represent total performance-based bonuses earned for services rendered during 2020 and 2021. These bonuses were based on our operating and financial performance. The bonuses earned in 2020 and 2021, as applicable, were paid in the first quarter of the subsequent year. Please see the section titled “Annual Cash Bonuses” in the Compensation Discussion and Analysis for more information regarding our annual cash bonus for 2021.
(9)The amounts in this column consist of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name | Year | | 401(k)
Match | | HSA Employer Contributions | | | | | | Legal Expense Reimbursement | | Total |
| Rory Read | 2021 | | $ | 6,000 | | | $ | — | | | | | | | $ | 3,542 | | | $ | 9,542 | |
| Stephen Lasher | 2021 | | $ | 6,000 | | | $ | 1,200 | | | | | | | $ | — | | | $ | 7,200 | |
| Tim Shaughnessy | 2021 | | $ | — | | | $ | — | | | | | | | $ | — | | | $ | — | |
| Jay Bellissimo | 2021 | | $ | 6,000 | | | $ | 1,200 | | | | | | | $ | — | | | $ | 7,200 | |
| Savinay Berry | 2021 | | $ | 6,000 | | | | | | | | | | | $ | 6,000 | |
| Joy Corso | 2021 | | $ | 6,000 | | | $ | 1,200 | | | | | | | $ | — | | | $ | 7,200 | |
34 VONAGE ANNUAL REPORT 2021
Grants of Plan-Based Awards—2021
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Name (1) | Grant
Date | Date of
Corporate
Action | Estimated Potential Payouts Under Non-Equity Incentive Plan Awards (2) | | Estimated Future Payouts Under Equity Incentive Plan Awards (3) | All Other Stock Awards: Number of Shares of Stock or Units (4) | Grant Date Fair Value of Stock and Option Awards (5) |
Threshold | Target | Maximum | | Threshold | Target | Maximum |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Rory Read | 3/15/2021 | 2/10/2021 | $ | 1,062,500 | | $ | 1,062,500 | | $ | 2,125,000 | | | | | | | |
| Stephen Lasher | 2/1/2021 | 1/3/2021 | | | | | | | | 302,457 | | $ | 3,950,089 | |
| 11/8/2021 | 10/27/2021 | | | | | | | | 155,666 | | $ | 3,236,296 | |
| 2/1/2021 | 1/3/2021 | | | | | 56,711 | | 113,421 | | 226,842 | | | $ | 1,687,989 | |
| 2/1/2021 | 1/3/2021 | $ | 325,000 | | $ | 650,000 | | $ | 1,300,000 | | | | | | | |
| Jay Bellissimo | 2/1/2021 | 12/28/2020 | | | | | | | | 340,264 | | $ | 4,443,848 | |
| 2/1/2021 | 12/28/2020 | | | | | 56,711 | | 113,421 | | 226,842 | | | $ | 1,687,989 | |
| 2/1/2021 | 12/28/2020 | $ | 300,000 | | $ | 600,000 | | $ | 1,200,000 | | | | | | | |
| Savinay Berry | 4/1/2021 | 1/19/2021 | | | | | | | | 290,709 | | $ | 4,039,958 | |
| 11/8/2021 | 10/27/2021 | | | | | | | | 155,666 | | $ | 3,236,296 | |
| 4/1/2021 | 1/19/2021 | | | | | 87,213 | | 174,425 | | 348,850 | | | $ | 2,552,711 | |
| 4/1/2021 | 1/19/2021 | $ | 250,000 | | 500,000 | | $ | 1,000,000 | | | | | | | |
| Joy Corso | 3/15/2021 | 2/10/2021 | | | | | | | | 33,258 | | $ | 502,085 | |
| 11/8/2021 | 10/27/2021 | | | | | | | | 155,666 | | $ | 3,236,296 | |
| 3/15/2021 | 2/10/2021 | | | | | 24,943 | | 49,886 | | 99,772 | | | $ | 732,325 | |
| 3/15/2021 | 2/10/2021 | $ | 120,000 | | $ | 240,000 | | $ | 480,000 | | | | | | | |
(1)Mr. Shaughnessy was hired as the interim CFO from August 2020 through February 2021 and did not receive any equity grants in 2021.
(2)As discussed in the Compensation Discussion and Analysis, the annual cash bonus awards are attributable to operating and financial measures. The amount shown in the “Target” column represents a payout at the target bonus percentage for each named executive officer's base salary. The amount shown in the “Threshold” column represents the amount payable if only the minimum level of Company performance was attained for each metric applicable to the executive, which is 50% of the target amount shown above. If performance did not meet the minimum level of performance for any metric, then no bonus would have been paid. The amount shown in the “Maximum” column represents the amount payable if the maximum level of Company performance was attained for all metrics applicable to the executive, which is 200% of the corporate metrics.
Please see the section titled “Annual Cash Bonuses” in the Compensation Discussion and Analysis for additional information including the minimum threshold, target, and maximum level of performance for each performance measure, the calculation of the award payable based upon actual performance in 2021, the amount of the award and award as a percentage of the target award opportunity, and adjustments.
The annual cash bonus payments to our NEOs under our bonus plan for 2021 are reflected in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table.
(3)Amounts in this column represent performance-based restricted stock units granted under our 2015 Plan. The performance restricted stock units vest on a three-year cliff basis. The number of units actually earned will be determined after the end of the three-year performance period and can range from 0-200% of the target number of shares, based on the Company's Rule of 40 and TSR performance during the three-year performance period. Please see the section titled “Long-Term Incentives” in the Compensation Discussion and Analysis for additional information.
(4)Amounts in this column represent restricted stock units granted under our 2015 Plan. Generally, the restricted stock units granted under the 2015 Plan vest in equal annual installments on the first through third anniversaries. Please see the section titled “Potential Post-Employment Payments—Employment and Related Agreements” for a discussion of the acceleration of vesting of our restricted stock units in certain circumstances, including upon a change in control.
(5)The value of a stock award or option award represents the grant-date fair value calculated in accordance with FASB ASC 718. Stock awards consist only of restricted stock units. Actual gains, if any, on shares acquired upon vesting of restricted stock units or option exercises are dependent on other factors, including the holder's continued employment with us through the vesting period or option exercise period, the outcome of any performance conditions, the future performance of our common stock, and overall market conditions. There can be no assurance that the values reflected in this table will be achieved.
35 VONAGE ANNUAL REPORT 2021
Outstanding Equity Awards at Fiscal Year-End—2021
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Stock Awards | | |
Name(1) | | Number of Shares or Units of Stock that Have Not Vested (2)(13) | | Market Value of Shares or Units of Stock that Have Not Vested (3) | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that Have Not Vested(13) | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights that Have Not Vested |
| Rory Read | | 541,944 | | (4) | $ | 11,267,016 | | | | | |
| | 173,334 | | (5) | $ | 3,603,614 | | | | | |
| | | | | | 780,000 | | (11) | $ | 16,216,200 | |
| Stephen Lasher | | 226,843 | | (6) | $ | 4,716,066 | | | | | |
| | 155,666 | | (7) | $ | 3,236,296 | | | | | |
| | | | | | 113,421 | | (12) | $ | 2,358,022 | |
| Jay Bellissimo | | 340,264 | | (6) | $ | 7,074,089 | | | | | |
| | | | | | 113,421 | | (12) | $ | 2,358,022 | |
| Savinay Berry | | 229,803 | | (8) | $ | 4,777,604 | | | | | |
| | 155,666 | | (7) | $ | 3,236,296 | | | | | |
| | | | | | 174,425 | | (12) | $ | 3,626,296 | |
| Joy Corso | | 30,328 | | (9) | $ | 630,519 | | | | | |
| | 22,172 | | (10) | $ | 460,956 | | | | | |
| | 103,778 | | (7) | $ | 2,157,545 | | | | | |
| | | | | | 6,095 | | (11) | | $ | 126,715 | |
| | | | | | 49,886 | | (12) | | $ | 1,037,130 | |
(1)Mr. Shaughnessy was hired as the interim CFO from August 2020 through February 2021 and did not receive any equity grants in 2021.
(2)Please see the section titled “Potential Post-Employment Payments—Employment and Related Agreements” for a discussion of the acceleration of our option and stock awards upon a change in control.
(3)Based on the closing price of our common stock as of December 31, 2021 of $20.79, as reported on the Nasdaq Stock Market.
(4)The restricted stock units vest in equal annual installments on the first through third anniversaries of July 1, 2020.
(5)The restricted stock units vest in equal annual installments on the first through third anniversaries of March 15, 2020.
(6)The restricted stock units vest in equal annual installments on the first through third anniversaries of February 1, 2021.
(7)The restricted stock units vest in equal annual installments on the first through third anniversaries of November 8, 2021.
(8)The restricted stock units vest in equal annual installments on the first through third anniversaries of April 1, 15, 2021.
(9)The restricted stock units vest in equal annual installments on the first through third anniversaries of August 3, 2020.
(10)The restricted stock units vest in equal annual installments on the first through third anniversaries of March 15, 2021.
(11)The restricted stock units vest upon the satisfaction of certain performance criteria based upon Company performance from January 1, 2020 through December 31, 2022.
(12)The restricted stock units vest upon the satisfaction of certain performance criteria based upon Company performance from January 1, 2021 through December 31, 2023.
(13)Outstanding equity award amounts do not include restricted shares that were accelerated for purposes under Section 280G of the Code.
36 VONAGE ANNUAL REPORT 2021
Option Exercises and Stock Vested—2021 | | | | | | | | | | | | | | |
| | | |
Name (1) | | Number of Shares
Acquired on
Vesting
(#) | | Value Realized on Vesting ($)(2) |
| Rory Read | | 804,722 | | | $ | 13,091,514 | |
| Savinay Berry | | 60,906 | | | $ | 1,257,709 | |
| Stephen Lasher | | 75,614 | | | $ | 1,078,256 | |
| Joy Corso | | 181,211 | | | $ | 3,648,451 | |
_____________ (1)Mr. Shaughnessy served as the Company's interim CFO from August 2020 through February 2021 and did not received any equity grants in 2020. Mr. Bellissimo joined the Company in January 2021 as the COO and did not have any equity grants prior to 2021.
(2)Value realized upon exercise or vesting is based on the closing sales price of our common stock on the Nasdaq Global Select Market on the applicable exercise or vesting date.
Potential Post-Employment Payments
The following are descriptions of our employment arrangements with our named executive officers. The table following the description of our employment arrangements quantifies the potential payments and benefits to which the named executive officer would be entitled to under our arrangements with them for various scenarios involving a termination of employment or change-in-control. The amounts shown are estimated amounts that assume that the termination or change-in-control was effective as of December 31, 2021, and thus include amounts earned through such time. The actual amounts to be paid out can only be determined at the time of such executive's separation.
Employment and Related Agreements
Rory Read
Employment Agreement
Vonage entered into an employment agreement with Mr. Read on June 5, 2020. The employment agreement provides for Mr. Read’s employment for a three-year term commencing July 1, 2020 to serve as President and Chief Executive Officer of the Company, reporting directly to the Board.
In the event Mr. Read’s employment is terminated by the Company without cause or he resigns with “good reason”, he is entitled to the following severance benefits, subject to his execution and non-revocation of a general release of claims: (i) 12 months base salary plus his target bonus amount for the year in which his employment terminates, payable over the 12 month period following termination of employment, (ii) an annual bonus for the year of termination, based on actual performance for such year and pro-rated for the period he is employed during such year, (iii) any earned but unpaid bonus for a previously completed fiscal year, and (iv) continued participation in medical, dental and vision plans at the same cost to Mr. Read as other executives of the Company until he is eligible for COBRA coverage.
If Mr. Read’s employment is terminated due to his death or disability, he (or his estate) is entitled to (i) an annual bonus for the year of termination, based on actual performance for such year and pro-rated for the period he is employed during such year and (ii) any earned but unpaid bonus for a previously completed fiscal year.
If Mr. Read’s employment is terminated for cause or he resigns without “good reason”, he will be entitled only to accrued but unpaid compensation and benefits due to him in accordance with the Company’s benefit plans (“Accrued Rights”). Mr. Read will also be entitled to the Accrued Rights in the event of a termination of employment for any other reason.
Mr. Read is subject to non-competition, non-solicitation and non-hire restrictions, which will be in effect during his employment and for twelve months thereafter. Mr. Read is subject to non-disparagement and confidentiality restrictions during his employment and perpetually thereafter.
37 VONAGE ANNUAL REPORT 2021
Letter Agreement
On November 21, 2021, Mr. Read entered into a letter agreement with Parent (the “Letter Agreement”) setting forth certain understandings with respect to Mr. Read’s Employment Agreement with the Company dated June 5, 2020 and his outstanding Restricted Stock Units and Performance Restricted Stock Units, to be effective on, and subject to the occurrence of, the closing of the Merger.
Pursuant to the Letter Agreement, Mr. Read has agreed that his Employment Agreement will be amended to remove his existing right to resign for “good reason” as a result of his no longer holding the position of Chief Executive Officer of a publicly traded company or the Company not nominating him for election to the Board or removing him from the Board, in each case which would otherwise entitle him to severance payments under his Employment Agreement and accelerated vesting of his outstanding Restricted Stock Units and Performance Restricted Stock Units. The parties have also agreed to certain other changes to the definitions of termination for “good reason” and termination for cause for such purposes.
The Letter Agreement provides that Mr. Read’s Restricted Stock Units that are scheduled to vest in 2022 (506,666 units, a portion of which have been settled in restricted shares of Vonage Common Stock), which would otherwise be converted to a cash-based award as provided in the Merger Agreement, will become vested and payable in cash upon the closing of the Merger. The amounts so paid will be subject to clawback in the event that Mr. Read voluntarily resigns his employment without “good reason” (as amended by the Letter Agreement) prior to the originally scheduled vesting dates. In addition, 50% of Mr. Read’s Performance Restricted Stock Units (390,000 units, assuming target performance and 780,000, assuming maximum performance) that would otherwise be converted to a cash- based award as provided in the Merger Agreement will instead become vested and payable in cash upon the closing of the Merger. The amounts so paid will be subject to clawback in the event that Mr. Read voluntarily resigns without “good reason” (as amended) prior to the originally scheduled vesting dates. The remainder of Mr. Read’s outstanding Restricted Stock Units and Performance Restricted Stock Units (506,668 units and 390,000 units, assuming target performance, or 780,000 units, assuming maximum performance, respectively), as converted into cash-based awards as provided in the Merger Agreement, will continue to become vested and payable in accordance with their original vesting schedule, subject to Mr. Read’s continued employment following the Merger (subject to acceleration upon termination without cause or resignation for “good reason”). Parent has agreed to establish a rabbi trust to hold such cash amounts.
The Letter Agreement provides Mr. Read the opportunity to receive a “performance retention incentive payment” from Parent following the closing of the Merger with a targeted value of $12 million. The amount payable (if any) will be determined based on performance metrics tied to the Company’s business, 50% with respect to 2022 performance and 50% with respect to 2023 performance. The performance retention incentive payment will be payable on the Company’s first normal payroll payment date following July 1, 2024, subject to Mr. Read’s continued employment through such date, subject to proration upon termination without cause or resignation for “good reason”, based on actual performance as of the date of termination. The Letter Agreement also provides for certain tax indemnification payments up to a maximum amount of $4 million.
Stephen Lasher
The Company and Mr. Lasher entered into a letter agreement dated February 25, 2021, at the commencement of his employment with the Company. Pursuant to the letter agreement, in the event that Mr. Lasher’s employment is terminated by the Company without cause or by him for “good reason”, he is entitled to (i) twelve months of base salary payable by the Company in a lump sum, (ii) an amount equal to his target annual bonus, (iii) one year of continued vesting on unvested equity awards and (iv) twelve months of medical coverage. Mr. Lasher has also executed the Company’s employment covenants agreement, which provides for a one-year post-termination non-compete and non-solicit.
Timothy Shaughnessy
We entered into fixed term employment contract, dated August 17, 2020, with Mr. Shaughnessy, which provided that Mr. Shaughnessy would serve as the Interim Chief Financial Officer from August 18, 2020 through December 31, 2020, unless mutually extended between the Company and Mr. Shaughnessy. Pursuant to the Employment Agreement, Mr. Shaughnessy was paid a salary of $300,000 per month for each of the first three months and $300,000 for the last half of November 2020 and the entire month of December 2020. On December 31, 2020, the Company entered into an amendment to Mr. Shaughnessy's employment contract, which provides that Mr. Shaughnessy would continue to serve as the Company's Interim Chief Financial Officer through February 28, 2021, with an option to further extend Mr. Shaughnessy's service through March 31, 2021, upon mutual agreement between the Company and Mr. Shaughnessy. In connection with his extended service, the Amendment provides that Mr. Shaughnessy would be paid a salary of $400,000 per month of service. In addition, Mr. Shaughnessy was eligible to receive a bonus, in such amount and form payable, subject to the discretion of the compensation committee .
38 VONAGE ANNUAL REPORT 2021
Mr. Shaughnessy did not participate in the Company’s employee benefit plans available to other senior executives. In addition, Mr. Shaughnessy was not awarded any equity grants in connection with his agreement. Mr. Shaughnessy also executed the Company’s employment covenants agreement.
Mr. Shaughnessy served as Interim CFO through February 28, 2021 and did not receive any payments in connection with his retirement, other than accrued but unpaid compensation.
Jay Bellissimo
The Company and Mr. Bellissimo entered into a letter agreement dated February 25, 2021, at the commencement of his employment with the Company. Pursuant to the letter agreement, in the event that Mr. Bellissimo’s employment is terminated by the Company without cause or by him for “good reason”, he is entitled to (i) twelve months of base salary payable by the Company in a lump sum, (ii) an amount equal to his target annual bonus and (iii) one year of continued vesting on unvested equity awards. Mr. Bellissimo has also executed the Company’s employment covenants agreement, which provides for a one-year post-termination non-compete and non-solicit.
Savinay Berry
The Company and Mr. Berry entered into a letter agreement dated February 25, 2021, at the commencement of his employment with the Company. Pursuant to the letter agreement, in the event that Mr. Berry’s employment is terminated by the Company without cause or by him for “good reason”, he is entitled to (i) twelve months of base salary payable by the Company in a lump sum, (ii) an amount equal to his target annual bonus, (iii) one year of continued vesting on unvested equity awards and (iv) six months of medical coverage. Mr. Berry has also executed the Company’s employment covenants agreement, which provides for a one-year post-termination non-compete and non-solicit.
Joy Corso
The Company and Ms. Corso entered into a letter agreement dated July 6, 2020, at the commencement of her employment with the Company. Pursuant to the letter agreement, in the event that Ms. Corso's employment is terminated by the Company without cause or by her for “good reason”, she is entitled to nine months' of base salary payable by the Company in a lump sum. Ms. Corso has also executed the Company’s employment covenants agreement, which provides for a one-year post-termination non-compete and non-solicit.
2021 Executive Severance Policy
The executive officers are covered by the Company’s Executive Severance Policy which provides that if an executive officer is terminated without cause, the executive shall receive (i) twelve months of base salary payable by us during our regular payroll cycle over the twelve month period following termination of employment, (ii) a pro-rated bonus paid in the following year based on actual Company performance, (iii) twelve months’ vesting for all equity awards, and (iv) an amount of up to twelve months of COBRA payments. If the executive officer is party to an employment agreement or offer letter that provides for greater severance, such agreement or letter will apply.
Acceleration of Vesting of Stock Options, Time-Based and Performance-Based Restricted Stock Units
Our option and time-based restricted stock unit agreements for grants to our NEOs other than Mr. Read (and other certain sign-on grants) provide for acceleration of vesting of 50% of unvested stock options and time-based restricted stock units covered by those agreements in the event of death or disability.
Upon a change in control, any performance-based restricted stock unit award granted to our NEOs will be converted to an amount equal to the amount payable if the performance period were deemed to end on the date of the consummation of the change in control and will vest the earlier of (i) as of the last day of the applicable performance period, subject to continued employment on the last day of the performance period, (ii) in the event employment terminates due to death or disability, or (iii) due to termination by without cause or for good reason.
In the event of a termination of employment for death or disability, a portion of any performance-based restricted stock unit award equal to a fraction based upon the percentage of the performance period elapsed at the time of termination of employment, but in any case no less than half, will vest. For termination of employment due to death, such vesting will occur upon termination. For termination of employment due to disability, such vesting will occur upon the end of the applicable performance period.
Treatment of Equity Awards in Connection with the Merger Agreement
The Merger Agreement provides that unless otherwise mutually agreed by the parties, or by Parent and the applicable holder, in consultation with the Company, at the Effective Time each outstanding equity award will be treated as follows:
39 VONAGE ANNUAL REPORT 2021
Company Options
Each Company Option that was granted under the Company Stock Plans and is outstanding as of immediately prior to the Effective Time (as defined in the Merger Agreement), whether vested or unvested, (i) if the per share of Vonage Common Stock exercise price of such Company Option is equal to or greater than the Merger Consideration, such Company Option will terminate and be cancelled, without any consideration being payable for such Company Option, and have no further force or effect and (ii) if the per share of Vonage Common Stock exercise price of such Company Option is less than the Merger Consideration, such Company Option will terminate and be cancelled in exchange for the right to receive a lump sum cash payment in the amount equal to (A) the number of shares of Vonage Common Stock underlying the Company Option immediately prior to the Effective Time, multiplied by (B) an amount equal to the Merger Consideration minus the applicable exercise price (the product of (A) and (B), the “Option Payment”). The Option Payment (if any) payable to each former holder of a Company Option that was outstanding immediately prior to the Effective Time will be paid through the Surviving Corporation’s payroll to such former holder without interest and net of any withholding taxes, as soon as practicable following the Effective Date, but in any event not later than the first (1st) regular payroll date of the Surviving Corporation following the Effective Time; provided that if such first (1st) payroll date occurs fewer than five (5) business days following the Effective Time, the Option Payment will be paid no later than the second (2nd) regular payroll date of the Surviving Corporation following the Effective Time.
Company Restricted Stock Units
Each Restricted Stock Unit that was granted under the Company Stock Plans and is outstanding as of immediately prior to the Effective Time, whether vested or unvested, will terminate and be cancelled in exchange for: (i) with respect to Restricted Stock Units that become vested in accordance with their terms on or prior to the Effective Time but have not yet been paid, the right to receive a lump sum cash payment in the amount equal to (A) the number of shares of Vonage Common Stock underlying such Restricted Stock Unit, multiplied by (B) the Merger Consideration (each such payment, a “RSU Payment”); and (ii) with respect to all other Restricted Stock Units, a new cash-based award representing the right to receive an unvested amount in cash equal to (A) the number of shares of Vonage Common Stock underlying such Restricted Stock Unit, multiplied by (B) the Merger Consideration, which vesting will be subject to the continued employment of the former holder of such Restricted Stock Unit with Parent and its Affiliates (including the Surviving Corporation), on the same vesting schedule (including with respect to any terms providing for acceleration of vesting) and otherwise on substantially the same terms as the corresponding Restricted Stock Unit, except as otherwise provided for in the Merger Agreement (each such award, a “Parent RSU Cash Award”).
Following the Effective Time, no Restricted Stock Unit that was outstanding immediately prior to the Effective Time will remain outstanding and each former holder of any such Restricted Stock Unit will cease to have any rights with respect thereto, except the right to receive an RSU Payment or a Parent RSU Cash Award in exchange for such Restricted Stock Unit. The vested cash amounts payable with respect to each portion of any RSU Payment or Parent RSU Cash Award will be paid through the Surviving Corporation’s payroll to the former holder of the corresponding Restricted Stock Unit without interest and net of any withholding taxes, as soon as practicable following the applicable vesting date, but in any event not later than the first (1st) regular payroll date of the Surviving Corporation following the applicable vesting date; provided that if such first (1st) payroll date occurs fewer than five (5) business days following the applicable vesting date for any portion of an RSU Payment or a Parent RSU Cash Award, the vested cash amounts with respect to such portion will be paid no later than the second (2nd) regular payroll date of the Surviving Corporation following the applicable vesting date. For purposes of the immediately preceding sentence, with respect to any RSU Payments, the Closing Date will be treated as the vesting date.
Company Performance Restricted Stock Units
Each Performance Restricted Stock Unit that was granted under the Company Stock Plans and is outstanding as of immediately prior to the Effective Time, whether vested or unvested, will terminate and be cancelled in exchange for: (i) with respect to Performance Restricted Stock Units with a performance period that ends on or prior to the Effective Time, the right to receive a lump sum cash payment in the amount equal to (A) the number of shares of Vonage Common Stock subject to such Performance Restricted Stock Unit that vested based on the actual level of achievement under the awards, multiplied by (B) the Merger Consideration (a “PRSU Payment”); and (ii) with respect to all other Performance Restricted Stock Units, a new cash-based award representing the right to receive an unvested amount in cash equal to (A) the number of shares of Vonage Common Stock subject to such Performance Restricted Stock Unit that would vest based on the actual level of achievement as of the Effective Time compared against pro-rated performance measures as of the Effective Time, multiplied by (B) the Merger Consideration, which vesting will be subject to the continued employment of the former holder of such Performance Restricted Stock Unit with Parent and its Affiliates (including the Surviving Corporation), on the same time-based vesting schedule (including with respect to any terms providing for acceleration of vesting) and otherwise on substantially the same terms as the corresponding Performance Restricted Stock Unit, except as otherwise provided for in the Merger Agreement (each such award, a “Parent PRSU Cash Award”).
40 VONAGE ANNUAL REPORT 2021
Following the Effective Time, no such Performance Restricted Stock Unit that was outstanding immediately prior to the Effective Time will remain outstanding and each former holder of any such Performance Restricted Stock Unit will cease to have any rights with respect to such Company Performance Restricted Stock Unit, except the right to receive a PRSU Payment or a Parent PRSU Cash Award in exchange for such Performance Restricted Stock Unit. The vested cash amounts payable with respect to each portion of any PRSU Payment or Parent PRSU Cash Award will be paid through the Surviving Corporation’s payroll to the former holder of the corresponding Performance Restricted Stock Unit without interest and net of any withholding taxes, as soon as practicable following the applicable vesting date, but in any event not later than the first (1st) regular payroll date of the Surviving Corporation following the applicable vesting date; provided that if such first (1st) payroll date occurs fewer than five (5) business days following the applicable vesting date for any portion of a PRSU Payment or Parent PRSU Cash Award, the vested cash amounts with respect to such portion will be paid no later than the second (2nd) regular payroll date of the Surviving Corporation following the applicable vesting date. For purposes of the immediately preceding sentence, with respect to any PRSU Payment, the Closing Date will be treated as the vesting date.
Potential Payments Upon Termination of Employment or Change-in-Control
The following table quantifies potential payments to our named executive officers upon termination of employment assuming the triggering event took place on December 31, 2021, the last business day of our last completed fiscal year.
As noted above, Mr. Shaughnessy retired from his position with the Company and did not receive any cash severance payments in connection with their respective retirement events.
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name | Cash
Severance
Payment | | Bonus (1) | | | | Acceleration of Restricted Stock Units (Unvested)(2) | | | | Total
Termination
Benefits |
| Rory Read | | | | | | | | | | | |
| Termination without cause or resignation for good reason | $ | 850,000 | | | $ | 1,062,500 | | | | | $ | 31,086,830 | | | | | $ | 32,999,330 | |
| Termination upon death or disability | | | $ | 1,062,500 | | | | | $ | 31,086,830 | | | | | $ | 32,149,330 | |
| Termination without cause or resignation for good reason following a change in control | $ | 850,000 | | | $ | 1,062,500 | | | | | $ | 31,086,830 | | | | | $ | 32,999,330 | |
| Stephen Lasher | | | | | | | | | | | |
| Termination without cause or resignation for good reason | $ | 650,000 | | | $ | 650,000 | | | | | $ | 3,174,758 | | | | $ | 4,474,758 | |
| Termination upon death or disability | | | | | | | $ | 5,155,192 | | | | | $ | 5,155,192 | |
| Termination without cause or resignation for good reason following a change in control | $ | 650,000 | | | $ | 650,000 | | | | | $ | 10,310,384 | | | | | $ | 11,610,384 | |
| Jay Bellissimo | | | | | | | | | | | |
| Termination without cause | $ | 600,000 | | | $ | 600,000 | | | | | $ | 2,358,023 | | | | | $ | 3,558,023 | |
| Resignation for good reason | $ | 600,000 | | | $ | 600,000 | | | | | | | | | $ | 1,200,000 | |
| Termination upon death or disability | | | | | | | $ | 4,716,056 | | | | | $ | 4,716,056 | |
| Termination without cause or resignation for good reason following a change in control | $ | 600,000 | | | $ | 600,000 | | | | | $ | 9,432,111 | | | | | $ | 10,632,111 | |
| Savinay Berry | | | | | | | | | | | |
| Termination without cause | $ | 500,000 | | | $ | 500,000 | | | | | $ | 1,827,129 | | | | | $ | 2,827,129 | |
| Resignation for good reason | $ | 500,000 | | | $ | 500,000 | | | | | | | | | $ | 1,000,000 | |
| Termination upon death or disability | | | | | | | $ | 5,820,098 | | | | | $ | 5,820,098 | |
| Termination without cause or resignation for good reason following a change in control | $ | 500,000 | | | $ | 500,000 | | | | | $ | 11,640,196 | | | | | $ | 12,640,196 | |
| Joy Corso | | | | | | | | | | | |
| Termination without cause | $ | 400,000 | | | $ | 240,000 | | | | | | | | | $ | 640,000 | |
| Resignation for good reason | $ | 300,000 | | | | | | | | | | | $ | 300,000 | |
| Termination upon death or disability | | | | | | | $ | 2,206,433 | | | | | $ | 2,206,433 | |
| Termination without cause or resignation for good reason following a change in control | $ | 400,000 | | | $ | 240,000 | | | | | $ | 4,412,865 | | | | | $ | 5,052,865 | |
(1)Pursuant to the 2021 executive severance policy, executives are also entitled to an annual bonus for the year of termination, based on actual performance for such year and pro-rated for the period in which they are employed during such year in cases of termination without cause.
41 VONAGE ANNUAL REPORT 2021
(2)The payments relating to restricted stock units represent the value of unvested and accelerated restricted stock units as of December 31, 2021 calculated by multiplying the number of unvested shares that would be accelerated by the various termination events by the closing price of our common stock on December 31, 2021 $20.79.
CEO Pay Ratio
Below is (i) the 2021 annual total compensation of our CEO; (ii) the 2021 annual total compensation of our median employee; (iii) the ratio of the annual total compensation of our CEO to that of our median employee, and (iv) the methodology we used to calculate our CEO pay ratio:
| | | | | |
| CEO Annual Total Compensation* | $ | 2,215,292 | |
| Median Employee Annual Total Compensation | $ | 144,320 | |
| CEO to Median Employee Pay Ratio | 15.34:1 |
This annual total compensation is the Summary Compensation Table amount.
Methodology
Our CEO pay ratio is a reasonable estimate calculated in a manner consistent with SEC rules. Our methodology and process is explained below:
•Determined Employee Population. We began with our global employee population as of December 31, 2021, including full-time, part-time, and seasonal or temporary workers, employed by our Company or consolidated subsidiaries, but excluding our CEO. It also excludes the following: third-party contractors, consultants, fixed-term employees, interns and employees on leave of absence.
•Identified the Median Employee. We calculated compensation for each employee using annual base salary as of December 31, 2021, plus performance year 2021 cash incentives (paid in March 2022), 2021 sales commissions and equity awards granted in 2021. We estimated total compensation using a method similar to the Summary Compensation Table rules, but excluded employer health insurance contributions and the value of other benefits, and then identified the median employee.
•Calculated CEO Pay Ratio. We calculated our median employee’s annual total compensation for 2021 according to the SEC’s instructions for preparing the Summary Compensation Table. We then calculated our CEO’s annual total compensation using the same approach to determine the pay ratio shown above.
2021 Director Compensation
The following table summarizes the compensation paid by us to non-employee Directors for the year ended December 31, 2021. | | | | | | | | | | | | | | | | | |
| Name | Fees Earned or Paid in Cash | | Stock Awards (1) | | Total |
| Jeffrey A. Citron | $ | 125,000 | | | $ | 172,443 | | | $ | 297,443 | |
Stephen Fisher (2) | $ | 90,000 | | | $ | 114,972 | | | $ | 204,972 | |
| Carolyn Katz | $ | 95,000 | | | $ | 114,972 | | | $ | 209,972 | |
| John J. Roberts | $ | 110,000 | | | $ | 114,972 | | | $ | 224,972 | |
Gary Steele (3) | $ | — | | | $ | 57,487 | | | $ | 57,487 | |
| Hamid Akhavan | $ | 80,000 | | | $ | 114,972 | | | $ | 194,972 | |
| Michael McConnell | $ | 85,000 | | | $ | 114,972 | | | $ | 199,972 | |
| Priscilla Hung | $ | 90,000 | | | $ | 114,972 | | | $ | 204,972 | |
| Jan Hauser | $ | 105,000 | | | $ | 114,972 | | | $ | 219,972 | |
| Tien Tzuo | $ | 80,000 | | | $ | 114,972 | | | $ | 194,972 | |
Steve Ward (4) | $ | 80,000 | | | $ | 28,749 | | | $ | 108,749 | |
__________ (1)The amounts shown are the grant date fair value, calculated in accordance with FASB ASC 718 by multiplying the number of shares awarded by the closing price of our common stock on the date of grant. Stock awards were granted to directors on the first date of each quarter. The closing prices for our common stock were $12.88 on January 1 2021, $12.07 on April 1, 2021, $14.44 on July 1, 2021, and $16.40 on October 1, 2020, respectively. Mr. Citron was granted 3,348, 3,571, 2,985, and 2,629 shares on January 1, 2021, April 1, 2021, July 1, 2021, and October 1, 2021, respectively. Mr. Fisher, Ms. Katz, Mr. Roberts, Mr. Akhavan, Mr. McConnell, Ms. Hung, Ms. Hauser, and Mr. Tzuo were granted 2,232, 2,381, 1,990, and 1,753 shares on January 1, 2021, April 1, 2021, July 1, 2021, and
42 VONAGE ANNUAL REPORT 2021
October 1,2021, respectively. Mr. Steele was granted 2,232 and 2,381 shares on January 1, 2021 and April 1, 2021, respectively. Mr. Ward was granted 1,753 on October 1, 2021.
(2)Mr. Fisher resigned in October 2021.
(3)Mr. Steele resigned in April 2021.
(4)Mr. Ward was appointed in July 2021.
As of December 31, 2021, Directors held options for the following aggregate number of shares:
| | | | | |
| Name | Number of Shares
Underlying Outstanding
Stock Options |
| Carolyn Katz | 150,000 | |
| John J. Roberts | 30,000 | |
Represents options granted under our director compensation programs only. See Item 12 "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters" for more information regarding the equity ownership of our officers and Directors.
Compensation Committee Interlocks and Insider Participation
During 2021, the members of our compensation committee were Mr. Fisher, Ms. Hung, Ms. Katz, Mr. Tzuo, and Mr. Ward. None of the members of our compensation committee was at any time in 2021, or formerly, an officer or employee of Vonage, and none of the members of our compensation committee had any relationship with Vonage requiring disclosure as a related person transaction under Item 404 of Regulation S-K. See “Transactions with Related Persons.” During 2021, none of our executive officers served as a member of the compensation committee or Board of Directors of any entity that had one or more executive officers that served on our compensation committee or Board of Directors.
COMPENSATION COMMITTEE REPORT
The compensation committee has reviewed and discussed with management the Compensation Discussion and Analysis set forth below. Based on the foregoing review and discussion, the compensation committee has recommended to our Board of Directors that the Compensation Discussion and Analysis be included in this Annual Report on Form 10-K for filing with the SEC.
By the Compensation Committee of the Board of Directors of Vonage Holdings Corp.
Carolyn Katz, Chair
Tien Tzuo
Steve Ward