2018 Guide to Effective Proxies

6 TH EDITION | GUIDE TO EFFECTIVE PROXIES 442 Achievementof2017CorporatePerformanceObjectives InMarch2018,theCommitteedeterminedouractualperformancewithrespecttothecorporate performancemeasuresforthe2017annualcashincentiveplanresultedinacorporate performancepercentageof116%basedonthefollowingachievements: FinancialPerformance Measure Revised2017Target PerformanceLevel 2017ActualPerformance ResultingPayout Revenue $437,051,000 $441,230,748 119% AdjustedEBITDAMargin 18.6% 18.1% 85% GMS $3,217,387,000 $3,253,609,178 129% For2018,wewillcontinuetouseGMS,RevenueandAdjustedEBITDAMarginforourannualcash incentiveprogram,aswebelievethesearetheperformancemetricsthatbestreflectthesuccessof ourbusiness. 2017IndividualPerformance InMarch2018,theCommitteereviewedeachNEO’sindividualperformance,consideredourCEO’s recommendationswithrespecttotheindividualperformanceofourotherNEOs,anddetermined anachievementpercentageforeachNEO.InthecaseofourCEO,theCommitteeassessedthe achievementwithrespecttohisindividualperformance.Actual2017annualcashincentiveawards forourNEOswerebased,inpart,onanevaluationeachNEO’sindividualperformance,as describedbelow. AnnualCashIncentiveAwardPayments Basedontheforegoingdeterminations,theactualcashincentiveawardpaymentsearnedbyour NEOsunderthe2017annualcashincentiveprogramrangedfrom120%to160%ofeach individual’stargetannualcashincentiveawardopportunity,asfurtherdescribedbelowunder “IndividualNEODecisions.” Long-TermIncentiveAwards Weviewlong-termincentivecompensationintheformofequityawardsasacriticalelementofour executivecompensationprogram.Weprovidelong-termequityincentivecompensation opportunitiestohelpaligntheinterestsofourexecutiveofficers,includingourNEOs,withthelong- terminterestsofourstockholders.Webelievethatequityawardsintheformofstockoptionsand RSUawardsencouragealong-termfocusanddecision-makingthatisconsistentwithourmission andstrategicgoals.Wealsograntequityawardstoattract,motivateandretainexecutivetalent. Typically,theCommitteegrantsstockoptionsand/orRSUawardstonewly-hiredexecutiveofficers, inconnectionwithpromotions,asarewardforsuperiorperformanceand/orforretention purposes.Inaddition,ourNEOstypicallyreceiveannualequityawards. Individual NEO Decisions Belowaresummaries,foreachNEOindividually,oftheCommittee’sdecisionsabout2017 compensation.Asdescribedabove,whenmakingthe2017compensationdecisions,the 36 2018ProxyStatement Etsy Total of 03 pages in section Adjustmentsto2017CorporatePerformanceObjectives Followingoursecondquarterof2017earningsresults,theCommitteereviewedouractualresults forthefirsthalfoftheyearagainstthe2017annualcashincentiveplantargetlevelsestablishedfor revenue,adjustedEBITDAmarginanddiscussedwithourCEOourprospectsfortheremainderof theyearinlightofEtsy’supdatedfinancialguidanceforfiscalyear2017,theresetofourbusiness prioritiesandthesignificantchangesinourseniorleadership.Thesediscussionsfocusedonour recenteffortstore-orientourbusiness,ourcost-reduction/efficiencyinitiatives,increased voluntaryattrition,andourfocusonconcentratingonourstrongestgrowthopportunitiesand executingournewbusinessstrategy. Asaresultofthesediscussions,anditsreviewofourprojectedperformancefortheremainderofthe year,theCommitteedeterminedthattheperformancelevelsthathadbeenestablishedatthe beginningoftheyearwithinputfromthepriormanagementteambasedonthethen-currentbusiness environmentandourinternalprojectionswerenolongerreasonablyattainableforGMSandrevenue andthatthefinancialperformancecomponentoftheplanwouldlikelyresultinnopaymenttoplan participants.Asaresult,theCommitteedeterminedthatthe2017annualcashincentiveplanwould noteffectivelyserveitsgoalofincentivizingtheperformanceandretentionofourexecutiveofficers andotherplanparticipants.Theongoingsuccessfulexecutionofournewbusinessstrategyiscritical toEtsy’soverallsuccessanddependsuponourexecutiveofficers,includingtheNEO’s,delivering strongperformances. Inviewofthesefindings,andafterreviewingourrevisedforecastfortheyear,inSeptember2017 theCommitteedecidedtoadjusttheperformancelevelsforeachofthethreecorporate performancemeasuresandreducetheMaximumPaymentto175%asfollows: FinancialPerformance Measure Weighting Revised2017Threshold PerformanceLevel (75%PaymentofFinancial PerformanceComponent) Revised2017 TargetPerformance Level (90%Paymentof Financial Performance Component) Revised2017 Maximum (“Stretch”) PerformanceLevel (175%Payme tof Financial Performance Component) Revenue 40% $434,310,730 $437,051,000 $449,351,000 AdjustedEBITDAMargin 20% 17.0% 18.6% 19.7% GMS 40% $3,211,441,920 $3,217,387,000 $3,297,000,000 Inmakingtheseadjustments,theCommitteewantedtoensurethe2017annualcashincentiveplan continuedtoincentivizeourexecutiveofficersandotherparticipatingemployees.TheCommittee believedthattheadjustedtargetlevelsremaineddifficulttoachieve(and,notablyincreasedthe performancelevelsforAdjustedEBITDAmargin)andwouldcontinuetoencouragededicated corporateandindividualperformance,butcouldbeachievablewithfocusedandconsistenteffort byourexecutiveofficersthroughouttheremainderof2017.IfbothrevenueandGMSthresholds werenotmet,thefinancialportionoftheplanwouldnotpayout. Etsy 2018ProxyStatement 35 CHURCH & DWIGHT CO. ENDO INTERNATIONAL ETSY COMPENSATIONDISCUSSIONANDANALYSIS NamedExecutiveOfficers AnnualIncentive Plan Target Payouts Name PercentageofSalary Payableat1.0 PerformanceRating Award Opportunity (Basedona1.0 PerformanceRating) Matthew T. Farrell 115% $1,150,000 RichardA. Dierker 70% $ 396,900 LouisH. Tursi, Jr. 50% $ 219,000 CarlosLinares 50% $ 207,500 Judy A. Zagorski 50% $ 207,500 As described above, in 2017 the Committee referenced competitive compensation data providedby Steven Hall in setting the percentage levels. Messrs. Farrell’s and Dierker’s percentages reflect their respective responsibilities during 2017 as CEO and CFO. For the other named executive officers, the Committee set the percentage at 50 percent, which the Committee believes is a competitive rate and unifies the commitment of the named executiveofficers towards achievementof our annualperformance goals. The 2017 corporate performance metrics, their weightings and a description of the rationale for each measure are as follows: NetSales (25%) GrossMargin (25%) DilutedEPS (25%) Cash from Operations (25%) Payouts foreach metric range froma 0.0 to2.0 rating (equivalent toa0% to200%payout) TheCommittee selectednet salesasameasureof corporateperformance because it isa keygrowthmetricused inour industry.TheCommittee believes that inamature industry subject to intense competition,net sales is a fundamentalmeasureofourability to competeeffectivelyandgrow. TheCommittee selectedgrossmarginasameasureof corporateperformance because theCommitteebelieves thatourability to control costof salesand trade spendingare critical componentsofouroperations.Theeffectof raw materialandenergy costsonourmarginshasunderscored theneed for effectivemanagementofbothourproductpricingand costof sales. TheCommittee selecteddilutedearningsper shareasameasureof corporate performancebecause it isa keymetricusedby investorsand is indicativeof profitabilityaffectingour shareprice.Thismetric is closely followedby analysts, investors,andouremployees. Italso is commonlyusedbyother consumerpackagedgoods companies. TheCommittee selected cash fromoperationsasameasureof corporate performance, includingourworking capitalutilization,because the Committeebelieves cash fromoperations isa standardperformancemetric usedby investorsandagood indicatorofprocessdisciplineandexecution capabilities. Italso isa toolusedbyourmanagement.TheCommittee believes that cash fromoperationsprovidesauseful indicationofourability topursueacquisitions,drivenewproductdevelopment,make capital expenditures to supportorganicgrowthandgrossmargin improvements, return cash to stockholders throughdividendsand share repurchases,and/or reduceoutstandingdebt.Moreover, cash fromoperations isaffectedbynet incomeandworking capital factors relevant toassessing themanagementof ourbusiness. Measure (Weighting) Rationale Church&DwightCo. | 2018ProxyStatement 39 Details behind the Company performance objectives, relative weighting and actual results are summarized below from the 2017 Company Performance Scorecard (certain amounts may not recalculate due to rounding and select results have been generalizedduetocompetitiveconsiderations): Objective 2017Results Weighting Achievement Level Contribution (Weightingx Achievement) FINANCIALOBJECTIVES 70.0% 126.9% 88.8% AdjustedRevenue Goal(1) MeetorExceedCompanyAdjusted Revenueof$3.43billion AdjustedRevenueat98.2%oftarget 25.0% 85.4% 21.3% AdjustedEBITDA MarginGoal(1) MeetorExceedEBITDAMarginof43.1% EBITDAMarginat105.2%oftarget 25.0% 150.0% 37.5% AdjustedDiluted EPSfrom Continuing OperationsGoal(1) MeetorExceedAdjustedDilutedEPS fromContinuingOperationsof$3.34 AdjustedDilutedEPSfromContinuing Operationsat110.2%oftarget 20.0% 150.0% 30.0% STRATEGIC,OPERATINGANDCOMPLIANCEPRIORITIES 30.0% 112.3% 33.7% Driverevenue achievement throughcore businesses ExecuteXIAFLEX ® investmentplanto meetannualdemandvialgrowthtargets Investmentscontributedtosignificant productgrowth,generatinghighsingle- digitdemandgrowthfor2017,with combinedlowdouble-digitQ4growthrun ratesforPeyronie’sDiseaseand Dupuytren’sContracture 3.0% 125.0% 3.8% MeetGenericsrevenuetargetsfrom2017 launchproducts Realized91%oftargetedrevenue contributions,andmeaningfulprofitability contributions,fromnewU.S.generics productlaunches,whileenhancingthe Company’sproductselectionprocess 2.0% 90.0% 1.8% Successfullynavigatedthebusiness challengeswithintheconsolidatingU.S. genericsindustry Achieved90-100%oftargetedobjective 2.0% 95.0% 1.9% IdentifykeyParproductopportunities andfile4-6productsforCanadaand/or UKmarkets,whileclosing2-4in-licensing oracquisitiondeals SignificantlyexpandedtheCompany’s non-U.S.productportfolioandpipeline, filingseveralproductsfortheCanadian market,whileclosingseveralin-licensing deals 2.0% 125.0% 2.5% AdvancekeyR&D pipelineproducts Advancecellulitetreatmentdevelopment programforcollagenaseclostridium histolyticum(CCH),achievingPhaseIII FirstPatientIn(FPI) Significantlyprogressedcellulite treatmentdevelopmentprogramwith agreeduponplanwithFDAincluding primaryendpoint,safetymeasuresand analysismethod 3.0% 95.0% 2.9% DevelopandexecuteOPANA ® ER AdvisoryCommitteepreparationand responseplan Aftercarefulconsiderationand consultationwiththeFDA,voluntarily ceasedshipmentsofOPANA ® ERaspart oftheremovaloftheproductfromthe market 2.0% 100.0% 2.0% Executepatentprotectionplanfor VASOSTRICT ® andADRENALIN ® ExpandedVASOSTRICT ® patentestate andlistedadditionalpatentinOrange Book;aggressivelypursuedpatentand tradesecretlawsuitsagainstchallengers forVASOSTRICT ® andADRENALIN ® 2.0% 150.0% 3.0% Achieve25regulatorysubmissionsand 20-25newproductlauncheswithin Generics Achieved17high-valueproductlaunches whileprogressinggenericregulatory filingsbasedoncommercialviability determinations 2.0% 95.0% 1.9% Enhancefocuson operational execution AchieveoverallEnterpriseSG&A percentageofAdjustedRevenuetarget andimprovementversus2016,while investingincoreassetsdrivenby executionofrestructuringinitiatives ExceededfinalSG&Apercentageof AdjustedRevenuetargets,whilebuilding capabilitiestosupportoverallstrategy andcoreassets 2.0% 125.0% 2.5% MeetFDA,DEAandCIAcompliance requirementsincludingnowarningletters receivedandnoqualitysystemfailures thatresultinmarketaction Metallcomplianceobjectives,including nowarninglettersreceivedand reductionsinfiledalertsandrecalls,with noneduetointernalsystemsquality failures 2.5% 125.0% 3.1% Developandexecutestrategicoptionsfor SomarandLitha Divestednon-coreassets,finalizingthe Lithasale(July)andSomarsale(October) withrespectiveproceedsof approximately$100millionand$124 million 2.5% 100.0% 2.5% Achievekey financialmetrics Deliveronyear-end2017NetDebt LeverageRatioguidance Achievedyear-endNetDebtLeverage Ratioobjective,whilerefinancingdebtto allowforgreateroperatingflexibility 2.5% 125.0% 3.1% Executecapitalexpendituresplan achievingallkeyinvestmentmilestones anddeliveringbelowortobudget OptimizedannualCapitalExpenditure budget,appropriatelyinvestingingrowth drivers 2.5% 110.0% 2.8% (1) Refer to the section above entitled “2017 Consolidated Financial Results” for discussion of Adjusted Revenue, Adjusted EBITDAMarginandAdjustedDilutedEPSfromContinuingOperations. 41 AnnualCashIncentiveProgram Overview Ourannualcashincentiveplanisintendedtorewardparticipantsfortheachievementofourshort- termfinancialandoperationalobjectivesandtheirindividualperformance.For2017,annualcash incentiveawardpaymentsunderthisplanwerebased70%ontheachievementofcorporate performanceobjectivesand30%ontheachievementofindividualperformanceobjectives,except inthecaseofourCEO,whoseannualcashincentiveawardpaymentwasbased80%onthe achievementofcorporateperformanceobjectivesand20%ontheachievementofindividual performanceobjectives,reflectinghisgreaterresponsibilityforouroverallperformance. TargetAnnualCashIncentiveOpportunities TheCommitteereviewsthetargetannualcashincentiveawardopportunities(whichareexpressed asapercentageofannualbasesalary)ofourexecutiveofficerseachyearaspartofitsannual executivecompensationreviewandmakesadjustmentsafterconsideringthefactorsdescribed above.Generally,theCommitteeseekstosetthetargetannualcashincentiveawardopportunities ofourexecutiveofficerssothattargettotalcashcompensation(thesumofannualbasesalaryand theannualcashincentiveawardopportunity)isatcompetitivelevels. 2017CorporatePerformanceObjectives InMarch2017,theCommitteeselectedrevenue,adjustedEBITDAmargin,andgrossmerchandise sales(“GMS”)asthecorporateperformancemeasuresforour2017annualcashincentiveplan.The CommitteeselectedrevenueandadjustedEBITDAmarginbecauseitbelievesthatthesemeasures provideabalancebetweengeneratingrevenue,managingourexpensesandgrowingourbusiness, therebydirectlyinfluencingthecreationoflong-termvalueforourstockholders.TheCommittee selectedGMSbecauseitbelievesthatitisanindicatorofthesuccessofEtsysellers,the satisfactionofEtsybuyers,thehealthofourecosystem,andthescaleandgrowthofourbusiness, and,therefore,itisoneofourkeyperformancemeasures. InMarch2017,theCommitteeestablishedthetargetlevelsforeachofthecorporateperformance measuresatlevelsthatitbelievedtobechallenging,butattainablewithexceptionalperformanceif bothrevenueandGMSthresholdswerenotmet,thefinancialportionoftheplanwouldnotpay out.Thetargetlevelsforthemeasuresusedinthefinancialportionoftheannualcashincentive plan,andtheirrespectiveweighting,wereasfollows: FinancialPerformanceMeasure Weighting 2017Threshold PerformanceLevel (75%PaymentofFinancial PerformanceComponent) 2017 TargetPerformance Level (90%Paymentof Financial Performance Component) 2017 Stretch PerformanceLevel (200%Paymentof Financial Performance Component) Revenue 40% $441,610,070 $459,417,000 $474,511,000 AdjustedEBITDAMargin 20% 13.0% 14.1% 16.2% GMS 40% $3,296,701,440 $3,439,835,000 $3,552,480 34 2018ProxyStatement Etsy