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Compensation Discussion and Analysis
Overview and General Philosophy
At Wizzard, our focus is to create value through advancements in the use of speech recognition software within our diverse businesses. Our executive compensation program supports this goal of value creation by:
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rewarding executives for obtaining performance milestones; |
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aligning the interests of executives with the interests of stockholders; and |
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attracting and retaining highly motivated and talented executives. |
Our compensation elements simultaneously fulfill one or more of these three objectives. The elements include:
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discretionary bonuses (in the form of cash, restricted stock, and stock options); |
The type and amount of compensation is determined considering current pay, competitive pay data from the external talent market and the opportunity for future pay. We combine compensation elements for each executive in a manner that will meet the performance, alignment and retention goals listed above as well as eliciting the best possible contribution from the executive.
Compensation Objectives
Our executive compensation philosophy is built around two objectives: supporting stockholder value creation through aligning the interests of executives with the interests of stockholders, and attracting and retaining highly motivated and talented executives.
Due to our diverse businesses, we have determined that no specific peer group is appropriate to use in defining market pay levels for our named executives. We therefore use general industry data of companies which are a similar size to us based on market capitalization to establish market pay levels.
Obtained Performance Milestones:
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We construct our annual bonus opportunities to have appropriately aggressive targets that require significant achievement against performance milestones. |
Aligned Interests:
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Our base pay practices reduce fixed costs and emphasize performance-based incentive programs, which we believe are in the best interests of stockholders. |
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We base our annual bonus opportunities on performance milestones and value to the shareholder that focus executives on performance results that are of common interest to stockholders. |
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We award long-term equity incentive opportunities using stock options and restricted stock so that appreciating stock value is a significant factor in executive compensation. |
Executive Retention:
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We believe our use of lower base salary levels accompanied by an emphasis on incentive programs attracts executives that are appropriately aggressive, innovative, and willing to risk a larger share of their compensation on their own performance and the performance of the Company. |
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Discretionary bonuses allow us to adjust to unique market conditions in a timely fashion in order to retain key executives. |
Compensation Administration
General Process.
Executive compensation decisions at Wizzard are the product of several factors, modified by judgment and discretion as necessary. The predominant factors include:
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key performance measurements such as revenue, monthly download of content, and key business developments; |
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strategic initiatives such as acquisitions, and implementation of process improvements; |
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achievement of specific operational goals relating to the sphere of influence led by the executive; |
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compensation of other executives within the Company (to ensure internal equity); and |
For the CEO, these factors are judged and compensation is recommended by the Compensation Committee of the Board of Directors and approved by the Board. For the other executive officers (including all of the named executives in the Summary Compensation Table), the factors are considered by the CEO, who recommends compensation levels. These judgments and recommendations are then reviewed and approved or revised by the Compensation Committee.
Generally, the Compensation Committee reviews and makes adjustments to base compensation once per year, effective at the beginning of each fiscal year (January 1). Annual incentives are typically paid within two months of the fiscal year end, usually in mid-February. Equity grants are typically awarded in the spring of each year, in March or early April.
Role of Compensation Committee.
The Compensation Committee oversees the design, development and implementation of our compensation program. The Committee evaluates the performance of the CEO and determines CEO compensation consistent with the objectives of the compensation program. The
Committee also approves all incentive compensation plans and approves or revises recommendations made by the CEO for compensation decisions affecting other executives. The Committee also approves all bonuses, awards and grants under all incentive plans.
Role of CEO.
Our CEO is responsible for the implementation and administration of our compensation program throughout the organization. The CEO evaluates the performance of executives and, consistent with the objectives of the compensation program, meets with the Compensation Committee to consider and recommend compensation programs, set and evaluate performance milestone, and make specific recommendations on the form and amount of compensation for named executives.
Compensation Components
Short-Term Compensation.
Consistent with our stated compensation philosophy, our key metric for executive short-term compensation is annual total cash compensation. Discretionary bonuses provide significant upside potential which results in targeted annual total cash compensation.
Our performance for fiscal 2010 was above targeted levels, for to a year that was an economic challenge. Company-wide, total revenue for the year was $5.6 million, an increase of 7% from the previous year.
During 2010, the Company closed one subscription agreement whereby five institutional investors invested a total of $1.8 million in cash in exchange for 5 million shares of common stock.
Base Salary.
We consider base salary a tool to provide executives with a reasonable base level of income relative to the scope of the positions they hold. Base salaries are established based on the level of responsibility for the position. With the exception of the CEO and named executives all base salaries are reviewed annually, and are adjusted from time to time to reflect changes in responsibility level.
In 2010, our named executives’ salaries ranged from $133,000 to $145,200. Changes in senior executive base pay during fiscal year 2008 included an increase in Mr. Spencer’s annual base pay on February 1, 2008 from $132,000 to $145,000; and an increase in Mr. Busshaus’ annual base pay from $121,000 to $133,100 on February 1, 2008. There were not changes in the base salary of any named executives during 2010.
Annual Bonus.
Currently, there is not an established annual incentive bonus plan.
Discretionary Bonuses.
Because there is not an annual incentive plan, the Compensation Committee may determine a discretionary bonus is to be awarded to appropriately reward senior executives. In these cases, discretionary bonuses are used to assure that executives are appropriately rewarded. The Committee determines discretionary bonuses for the CEO. The CEO recommends discretionary bonuses for all other named executives, which are then approved or adjusted by the Committee.
In fiscal year 2010, there were no discretionary bonuses awarded to any executive officer.
Our Compensation Committee believes that we have executed on our compensation philosophy given the level of Company performance in fiscal 2010.
Long-Term Incentive Compensation.
In 2010, we offered a limited group of employees, including all named executives, stock options.
In fiscal 2011, we plan to execute a long-term incentive design that will utilize stock options. For senior management, including named executives, the primary emphasis will be on stock option awards. This results primarily in senior management focus on stock price performance, directly aligning the interests of executives with the interests of stockholders. It also puts a higher percentage of long-term compensation at risk as the design delivers less immediate value to executives.
All stock-options granted to the named executives by the Company must have prior Compensation Committee approval. The exercise price for all stock-based awards coincides with the date the Committee approves the award grant. It is against Company policy to back-date stock-based awards or to try to time stock-based awards for any reason and we have never engaged in these practices.
Award Adjustment or Recovery.
We do not have a policy to recover or otherwise adjust payments made or awards earned as a result of changes in subsequent periods relating to performance measures upon which such payments or awards are based, sometimes referred to as a “clawback” policy. We have not required any named executive to return any award or repay any payment received in any fiscal year.
Tax Deductibility of Compensation.
Section 162(m) of the Internal Revenue Code of 1986, as amended, imposes a $1,000,000 limit on the amount that a public company may deduct for compensation paid to named executives unless compensation is based on an individual’s meeting pre-established performance goals determined by a compensation committee and approved by stockholders.
Retirement and Other Benefits
Generally, we view retirement savings as a personal matter. We currently do not offer any pre-tax retirement savings through the use of a traditional 401(k) plan; a deferred compensation plan or other retirement programs.
Perquisites.
Eligible employees, including named executives, participate in various other employee benefit plans, including medical and dental care plans; flexible spending accounts for health care; life, accidental death and dismemberment and disability insurance; and vacation plans. The primary purpose of providing these plans and limited perquisites to senior executives is to attract and retain talented executives to manage the Company. With respect to non-insurance perquisites, we prefer to take a minimalist approach. For fiscal 2010, the Company did not have executive non-insurance perquisites.
Compensation Committee Report
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis set forth in this proxy statement with our management. Based on such review and discussions, the Compensation Committee recommended to our Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference into our 2010 Annual Report on Form 10-K.
Compensation Committee
Douglas Polinsky, Chairman
J. Gregory Smith
Denis Yevstifeyev
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