COMPENSATION OF EXECUTIVE OFFICERS
Compensation
Discussion & Analysis
Overview
The
Companys primary objective is to maximize stockholder value. As a result, the
Compensation Committee (the Committee), the members of which are Ms. Cohane and Mr.
Martin, strives to ensure that the Companys executive compensation programs will
enable the Company to attract, retain and motivate key people required to execute the
Companys business strategy and lead the Company to achieve its short and long-term
growth and earnings goals. Individual compensation is directly dependent on the Company
attaining certain financial goals, such as achieving certain operating plan levels and
asset management, and individuals are further rewarded for exceeding those goals. The
Committee believes that the total compensation of executive officers should reflect their
leadership abilities, initiative, the scope of their responsibilities, the success of the
Company, and the past and expected future contribution of each executive to that success.
The Committee seeks to foster a performance-oriented environment by tying a significant
portion of each executives cash compensation to that executives performance as
determined in the sole discretion of the Committee.
The
Committee considers the elements and levels of executive compensation and advises the
Board in such matters. In recent years, the Companys executive compensation program
has had three elements: base salary, an annual cash incentive plan, and stock-based
incentives. In general, the Committee has recommended and the Board has established a
non-equity (cash) incentive plan with respect to each succeeding fiscal year. However, the
Committee and the Board are under no obligation to do this, and they have the power to
consider other approaches to compensation. In February 2008 and March 2009, the Committee
recommended and the Board adopted non-equity incentive plans for fiscal 2008 and 2009, the
2008 Incentive Compensation Program Executive Level and the 2009 Incentive
Compensation Program Executive Level, respectively. Cash incentive payments depend
upon the Companys actual annual performance meeting or exceeding thresholds set in
an operating plan developed by management and approved by the Board at the beginning of
the fiscal year and each executive officers contribution, as determined in the sole
discretion of the Committee, toward achieving that plan.
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Louis
P. Valente, our executive chairman of the Board, Joseph P. Caruso, our chief executive
officer, and Paul S. Weiner, our chief financial officer, are actively involved in the
executive compensation process. Mr. Valente and Mr. Caruso review the performance of
each of the executive officers (other than their own performance) and recommend to the
Committee base salary increases, an annual cash incentive plan, and stock-based incentives
for such executive officers. They provide the Committee with both short and long-term
recommended financial and non-financial performance goals for the Company that are used in
the non-equity incentive plans to link pay with performance. They also provide their views
to the Committee with respect to the total executive compensations ability to
attract, retain and motivate the level of executive talent necessary to achieve our goals.
Mr. Weiner works with Mr. Valente and Mr. Caruso to develop the recommended base
salary increases, annual cash incentive plan, and stock-based incentives, and provides
analysis on the ability of the executive compensation to attract, retain, and motivate the
executive team. All three individuals report their findings to the Committee, but do not
participate in the Committees executive sessions.
At
the 2007 Annual Shareholders Meeting, the 2007 Stock Incentive Plan was approved,
increasing the number of shares available for grant. In 2008, new equity incentives were
granted as part of the executive compensation program. The Committee considers equity
awards to be an extremely important element of compensation.
Tax
and Accounting Considerations
The
Committee is mindful of the potential impact upon the Company of Section 162(m) of the
Internal Revenue Code, which prohibits publicly-held companies from deducting certain
executive compensation remuneration in excess of $1 million per individual employee per
year. However, this limitation generally does not apply to performance-based compensation
under a plan that is approved by the shareholders of a company that also meets certain
other technical requirements. During the 2007 Annual Meeting of Stockholders, the
shareholders approved the 2007 Stock Incentive Plan that qualifies under Section 162(m).
While reserving the right to offer such compensation arrangements, the Committee intends
generally to structure such arrangements, where feasible, so as to minimize or eliminate
the limitations of Section 162(m). For 2008, compensation over $1 million was deductible.
Additionally,
the Companys compensation arrangements have been reviewed to ensure that either they
are not considered deferred compensation as defined in Section 409A of the Internal
Revenue Code, or they comply with the deferred compensation rules set forth in Section
409A. As a result, we do not anticipate executives to be subject to any tax penalties
under Section 409A.
On
January 1, 2006, the Company adopted Statement of Financial Accounting Standard No. 123R
(revised 2004),
Share-Based Payment
(SFAS 123R), using the modified prospective
method of adoption. SFAS 123R requires share-based payments to employees, including grants
of employee stock options and stock-settled stock appreciation rights, to be recognized in
the income statement based on their fair values at the date of grant.
Total
Compensation
Total
compensation consists of base salary, a non-equity (cash) incentive and an equity-based
incentive. The Committee considers the total compensation of each executive officer when
making decisions about compensation and seeks an appropriate mix between cash payments and
equity incentive awards to meet short and long-term goals. The Committee does not have any
formal or informal policy or target for allocating compensation by type of compensation.
Instead, the Committee determines subjectively on an individual basis the appropriate
level and mix of the various compensation components designed to reward recent results and
drive long-term company performance. Through this process, the Committee reviews publicly
available executive compensation information for U.S.-based publicly traded, direct
competitors in the aesthetic energy-based device market (which includes Candela
Corporation, Cynosure, Inc., Cutera, Inc., and Thermage, Inc.) (Direct
Competitors). Although the Committee analyzes competitor executive compensation, it
does not use such information as a target or metric off which to set the Companys
executive officers compensation package. When the Companys chief executive
officer and chief financial officers compensation for 2008 was compared to the
comparable positions at the Companys Direct Competitors, such officers
compensation was found to be in the lowest quartile. With respect to the Companys
executive chairman of the Board, the Committee was not able to identify a comparable
position at the Companys Direct Competitors.
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Total
Cash Compensation
Total
cash compensation consists of base salary and a non-equity (cash) incentive. Many factors
are considered in determining the base salaries for executive officers, including the
value that each individual brings to the Company through experience, education and
training, the specific needs of the Company, the individuals past and expected
future contributions to the Companys success, Company performance and market
conditions. The cash compensation paid to the executive officers is determined in the sole
discretion of the Committee. Often, the Committee compares executive compensation to
comparable positions and comparable responsibilities at the Companys Direct
Competitors to ensure that such compensation is reasonable in the Companys market.
In comparing the 2008 base salaries and non-equity (cash) incentives of the Companys
chief executive officer and chief financial officer to the same positions at the
Companys Director Competitors, it was found that the Companys chief executive
officer and chief financial officers cash compensation was in the lowest quartile.
For 2009, base salaries for executive officers were frozen at the level set in 2008.
In
2008, the principal target in the Companys non-equity incentive plan was results
from operations, excluding outside legal patent litigation, and in 2009, the principal
target in the Companys non-equity incentive plan is results from operations,
excluding (i) FAS123R non-cash compensation expense, (ii) outside legal patent litigation
costs and (iii) non-capitalized costs related to the new building. The Company does not
disclose publicly the targets of the non-equity incentive plans as the Company considers
this to be confidential commercial information the public disclosure of which would
substantially damage the competitive position of the Company by providing competitors with
information not otherwise available.
Each
year, the Company budgets for what it believes to be reasonably aggressive financial
results. Attainment of a base level results from operations target was set within a
certain amount below our budgeted results from operations for 2008 and is at our budgeted
results from operations for 2009. Executives are further rewarded for exceeding a base
level results from operations target. Setting the base level results from operations
target below our budgeted results from operations for 2008 was done so that it would be
likely, given the past Company performance, that the Company would achieve the base level
results from operations target and the executives would receive non-equity incentive
compensation. However, actual results may be higher or lower than the base level results
from operations target. In 2008, actual results were lower than the base level results
from operations target and no compensation was paid to executives under the 2008 Incentive
Compensation Program.
In
2008, if the Company met a certain base level results from operations target, the
executive officers were eligible to receive a cash bonus of up to 80% of such
officers annual base salary for meeting corporate objectives. In addition,
these officers were eligible to receive an additional cash bonus of up to 4% of such
officers annual base salary for each $250,000 that the Company exceeded the base
level results from operations target up to a maximum of 200% of each officers annual
base salary.
In
2009, if the Company meets a certain base level results from operations target, the
executive officers are eligible to receive a cash bonus of up to 36.29% of such
officers annual base salary for meeting corporate objectives. In addition, these
officers are eligible to receive an additional cash bonus of up to 1.82% of such
officers annual base salary or fraction thereof for each $100,000 that the Company
exceeds the base level results from operations target up to a maximum of 200% of each
officers annual base salary. While the plans operate on a formula basis, the
Committee has discretion to vary the cash payments under the non-equity incentive plan.
Factors that the Committee may consider in exercising its discretion include return on
assets, growth in income and return on revenue as well as a subjective assessment, in the
Committees discretion, of the contributions of each executive that are not captured
by operating measures, but are considered important to the creation of long-term value for
stockholders. The relative weighting of the operating measures and subjective evaluation
may vary depending on the executives role and responsibilities within the Company.
Under the 2008 Incentive Compensation Program, the Committee stayed with the formula and
no compensation payments were made.
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Equity
Incentive
The
Companys executive officers are eligible to receive equity incentive awards under
the Companys equity incentive plans. The Company granted equity incentive awards to
executive officers in its fiscal year ended December 31, 2008.
The
primary goal of the Company is to create long-term value for stockholders, and accordingly
the Committee believes that equity incentive awards provide an additional incentive to
executive officers to work towards maximizing stockholder value. The Committee views
equity incentive awards as one of the more important components of the Companys
long-term, performance-based compensation philosophy. The grant of equity incentive awards
to executive officers encourages equity ownership in the Company, and closely aligns
executive officers interests to the interests of stockholders. These awards are
provided through initial grants at or near the date of hire and through subsequent
periodic grants. Stock options granted by the Company to its executive officers and other
employees have exercise prices not less than the fair market value of the stock on the
date of the grant. Stock appreciation rights granted by the Company to its executive
officers and other employees have exercise prices less than the fair market value of the
stock on the date of the grant. Exercise prices for these stock appreciation rights
granted to the executive officers were 50% of the fair market value of the stock on the
date of grant. Equity incentive awards vest and become exercisable at such time as
determined by the Board or the Committee. Grants are designed for the level of the job
that the executive holds and are designed to motivate the officer to make the kind of
decisions and implement strategies and programs that will contribute to an increase in the
Companys stock price over time. Periodic additional equity incentive awards within
the comparable range for the job are granted to reflect the executives ongoing
contributions to the Company, to create an incentive to remain at the Company and to
provide a long-term incentive to achieve or exceed the Companys financial goals. In
determining the size of equity incentive awards to our executive officers, the Committee
considers Company performance, the applicable executive officers performance, the
amount of equity previously awarded to the executive officer, the vesting of such awards
and the recommendations of management.
Timing
of Long-Term Incentives
The
Company does not currently have any program, plan or practice in place to time option
grants to its executives or its other employees in coordination with the release of
material non-public information.
Other
Compensation and Perquisites
The
amounts shown in the Summary Compensation Table under the heading Other
Compensation represent the value of Companys matching contributions to the
executive officers 401(k) accounts and auto allowances. Mr. Valentes, Mr.
Carusos, and Mr. Weiners auto allowance was $13,200, $12,900, and $8,400,
respectively. These amounts constitute perquisites in that automobiles are also utilized
for personal use. Executive officers did not receive any other perquisites or other
personal benefits or property from the Company or any other source.
Pay
Mix
The
Committee and Board believes that a compensation mix of base salary, annual cash
incentives, and equity awards provides a balanced mix of fixed compensation and variable
compensation which motivates executives to focus on both the short-term performance needs
of building the Company and the long-term performance which looks to maximize shareholder
value.
Equity
Ownership by Executives
The
Company does not currently have a formal stock ownership requirement for executives.
However, stock ownership by executives is encouraged on a voluntary basis. Each of our
executive officers holds common stock and both vested and unvested stock options as shown
in our Outstanding Equity Awards at 2008 Fiscal Year-End table. The Committee reviews the
vested and unvested stock options held by the executives and evaluates whether there is
sufficient ownership or potential ownership to appropriately align the executives
interests with those of the Companys shareholders.
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Compensation
of Executive Chairman, the Chief Executive Officer and the Chief Financial Officer
The
factors considered by the Committee in determining the compensation of the executive
chairman of the Board, chief executive officer, and the chief financial officer, in
addition to the criteria discussed above, include the Companys operating and
financial performance, as well as the individuals leadership and establishment and
implementation of the strategic direction for the Company. The Committee considered as
part of its subjective evaluation, among other factors, each executives outstanding
reputation and contacts in the business community (including Mr. Carusos contacts in
the cosmetic laser industry), and his extensive knowledge of finance and accounting.
SUMMARY COMPENSATION
TABLE
FISCAL 2008
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