PayPal Holdings
PayPal Holdings, Inc. (Form: DEF 14A, Received: 04/14/2016 16:32:49)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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Exchange Act of 1934 (Amendment No.      )

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Notice of 2016
Annual Meeting
of Stockholders and
Proxy Statement

 

 

Date: May 25, 2016 at 8:00 a.m. Pacific Time

Virtual Meeting by webcast at pypl.onlineshareholdermeeting.com

 

 
    1

 

MESSAGE FROM OUR CHAIRMAN OF THE BOARD AND LEAD INDEPENDENT DIRECTOR

 

Dear PayPal Stockholder:

 

We are pleased to invite you to attend the first annual meeting of stockholders of PayPal Holdings, Inc. on Wednesday, May 25, 2016 at 8:00 a.m. Pacific Time. Our annual meeting will be a “virtual meeting” of stockholders, which will be conducted exclusively online via live webcast. You will be able to attend the virtual annual meeting of stockholders online and submit your questions during the meeting by visiting pypl.onlineshareholdermeeting.com . You also will be able to vote your shares electronically at the virtual annual meeting.

 

We are excited to embrace the latest technology to provide expanded access, improved communication and cost savings for our stockholders and the company. We believe that hosting a virtual meeting will enable greater stockholder attendance and participation from any location around the world.

 

Details regarding how to attend the meeting online and the business to be conducted at the annual meeting are more fully described in the accompanying proxy statement.

 

We will be providing access to our proxy materials over the Internet under the U.S. Securities and Exchange Commission’s “notice and access” rules. As a result, we are mailing to many of our stockholders a notice instead of a paper copy of this proxy statement and our 2015 Annual Report beginning on or about April 14, 2016. This approach conserves natural resources and reduces our printing and distribution costs, while providing a timely and convenient method of accessing the materials and voting. The notice contains instructions on how to access those documents over the Internet. The notice also contains instructions on how to receive a paper copy of our proxy materials, including this proxy statement, our 2015 Annual Report, and a form of proxy card or voting instruction card. All stockholders who do not receive a notice, including stockholders who have previously requested to receive paper copies of proxy materials, will receive a paper copy of the proxy materials by mail.

 

Your vote is important. Regardless of whether you plan to participate in the annual meeting, we hope you will vote as soon as possible. You may vote by proxy over the Internet, by telephone, or by mail (if you received paper copies of the proxy materials) by following the instructions on the proxy card or voting instruction card. Voting over the Internet or by telephone, written proxy or voting instruction card will ensure your representation at the virtual annual meeting regardless of whether you attend the meeting online. You may also vote your shares electronically during the virtual annual meeting.

 

Sincerely yours,    
     
 
John J. Donahoe
Chairman of the Board
  David M. Moffett
Lead Independent Director
     
www.paypal.com
 
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2016 ANNUAL MEETING OF STOCKHOLDERS

Proxy Statement

 

 

Table of Contents

 

NOTICE OF 2016 ANNUAL MEETING OF STOCKHOLDERS 4
PROXY STATEMENT SUMMARY 5
Proposals Requiring Your Vote 5
2016 Director Nominees 5
Corporate Governance 6
Executive Compensation 8
PROPOSAL 1 — ELECTION OF DIRECTORS 11
Director Compensation 22
CORPORATE GOVERNANCE 26
Board Leadership and Lead Independent Director 29
Board Committees 29
Meetings and Attendance 32
Certain Transactions with Directors and Officers 33
Transactions with Related Persons 34
OUR EXECUTIVE OFFICERS 35
STOCK OWNERSHIP INFORMATION 36
Security Ownership of Certain Beneficial Owners and Management 36
Section 16(a) Beneficial Ownership Reporting Compliance 37
PROPOSAL 2 — ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION 38
PROPOSAL 3 — ADVISORY VOTE ON THE FREQUENCY OF THE STOCKHOLDER ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION 39
COMPENSATION DISCUSSION AND ANALYSIS 40
Introduction 41
Executive Summary - Overview of Executive Compensation Programs 42
Compensation Framework 52
Other Compensation Practices and Policies 69
COMPENSATION TABLES 75
2015 Summary Compensation Table 75
2015 Grants of Plan-Based Awards 77
2015 Outstanding Equity Awards at Fiscal Year-End 79
2015 Option Exercises and Stock Vested 81
2015 Non-Qualified Deferred Compensation 82
Potential Payments Upon Termination or Change in Control 83

 

  2016 Proxy Statement
 
    3

 

EQUITY COMPENSATION PLAN INFORMATION 88
PROPOSAL 4 — APPROVAL OF THE AMENDMENT AND RESTATEMENT OF OUR 2015 EQUITY INCENTIVE AWARD PLAN 89
Background and Purpose of the Amended Plan 90
Current Overview of Outstanding Equity Information 90
Summary of Plan Terms 91
PROPOSAL 5 — APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE PAYPAL EMPLOYEE INCENTIVE PLAN 99
PROPOSAL 6 — RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITOR 104
OTHER INFORMATION 108
Questions and Answers 108
Other Matters 115
APPENDIX A — PAYPAL HOLDINGS, INC. 2015 EQUITY INCENTIVE AWARD PLAN, AS AMENDED AND RESTATED A-1
APPENDIX B — PAYPAL EMPLOYEE INCENTIVE PLAN, AS AMENDED AND RESTATED B-1

 

www.paypal.com
 
4    

 

NOTICE OF 2016 ANNUAL MEETING OF STOCKHOLDERS

 

Date:   Wednesday, May 25, 2016
     
Time:   8:00 a.m. Pacific Time
     
Place:   The 2016 Annual Meeting of Stockholders will be held virtually and can be accessed online at pypl.onlineshareholdermeeting.com . There is no physical location for the 2016 Annual Meeting.
     
Items of Business:
 
1. Election of nine director nominees identified in the proxy statement.
2. Advisory vote to approve the compensation of our named executive officers.
3. Advisory vote to approve the frequency of our future advisory votes approving the compensation of our named executive officers.
4. Approval of the amendment and restatement of our 2015 Equity Incentive Award Plan.
5. Approval of the amendment and restatement of the PayPal Employee Incentive Plan.
6. Ratification of the appointment of PricewaterhouseCoopers LLP as our independent auditor for 2016.
7. To transact such other business as may properly come before the meeting or any adjournment or postponement of the meeting.

 

Record Date:

 

The Board of Directors set April 4, 2016 as the record date for the Annual Meeting. That means our stockholders of record at the close of business on that date are entitled to receive notice of the Annual Meeting and to vote at the Annual Meeting and at any adjournment or postponements of the Annual Meeting.

 

Voting Information:

 

It is important that your shares be represented and voted at the Annual Meeting. You may vote your shares electronically via the Internet, by telephone, by mail, or during the virtual Annual Meeting. Please carefully review the proxy materials and follow the instructions on Pages 111-112 to vote.

 

By Order of the Board of Directors

 

 

 

A. Louise Pentland

Senior Vice President, Chief Legal Officer and Secretary
April 14, 2016

How to Vote

 

YOUR VOTE IS IMPORTANT . You are eligible to vote if you were a stockholder at the close of business on April 4, 2016. Even if you plan to attend the meeting, please vote as soon as possible using any of the following methods. In all cases, you should have your proxy card or voting instruction form on hand and follow the instructions:

 

By Internet

 

 

Before the meeting, you can vote your shares online at www.proxyvote.com .

 

During the meeting, you can vote your shares online at pypl.onlineshareholdermeeting.com

 

By Telephone

 

 

You can vote your shares by calling (800) 690-6903

 

By Mailing Your Proxy Card

 

 

You can vote by mail by marking, dating and signing your proxy card or voting instruction form and returning it in the postage-paid envelope

 

Participation in Virtual Meeting:

 

We are pleased to invite you to participate in our first Annual Meeting, which will be presented exclusively online. The accompanying proxy materials include instructions on how to participate in the Annual Meeting and how to vote your shares of Company stock by attending the virtual Annual Meeting by webcast. To submit your questions during the Annual Meeting, please log on to pypl.onlineshareholdermeeting.com . You will need to enter the 16-digit control number received with your Proxy or Notice of Internet Availability of Proxy Materials to enter the meeting.

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY
OF PROXY MATERIALS FOR THE ANNUAL MEETING OF
STOCKHOLDERS TO BE HELD ON MAY 25, 2016

 

This Notice of Annual Meeting and Proxy Statement and our
2015 Annual Report are available at
https://investor.paypal-corp.com/annuals-proxies.cfm.

 
 
 


 

  2016 Proxy Statement
 
    5

 

PROXY STATEMENT SUMMARY

 

This summary highlights information contained elsewhere in this proxy statement. This summary does not contain all of the information that you should consider, and you should read the entire proxy statement carefully before voting.

 

Proposals Requiring Your Vote

 

Stockholders are being asked to vote on the following matters at the 2016 Annual Meeting of Stockholders (the “Annual Meeting”):

 

Proposal 1   Election of nine directors identified below (page 11)

 

The Board and the Corporate Governance and Nominating Committee believe that the nine director nominees identified in this proxy statement possess the necessary experience, skills and qualifications to provide advice and oversight of the strategic and operational direction of the Company and oversee its executive management to support the long-term interests of the Company and its stockholders.

 

Our Board’s Recommendation   FOR each director nominee  

 

2016 Director Nominees

 

 

                Other Public
        Director   Committee   Company
Name & Primary Occupation   Age   since   Memberships*   Boards
Wences Casares (Independent)   42   2016   Compensation  
CEO and Founder, Xapo Inc.                
Jonathan Christodoro (Independent)   40   2015   Compensation   5
Managing Director, Icahn Capital LP                
John J. Donahoe   55   2015       2
Former President and CEO, eBay Inc.                
David W. Dorman (Independent)   62   2015   Compensation (Chair);   1
Chairman and CEO, AT&T Corporation (retired)           Governance    
Gail J. McGovern (Independent)   64   2015   Audit;   1
President and CEO, American Red Cross           Governance (Chair)    
David M. Moffett (Independent)   64   2015   Audit (Chair)   2
CEO, Federal Home Loan Mortgage Corp. (retired)                
Pierre M. Omidyar (Independent)   48   2015       1
Founder, eBay Inc.                
Daniel H. Schulman   58   2015       2
President and CEO, PayPal Holdings, Inc.                
Frank D. Yeary (Independent)   52   2015   Audit   1
Executive Chairman, CamberView Partners, LLC                

 

* Audit = Audit Committee; Compensation = Compensation Committee; Governance = Corporate Governance and Nominating Committee

 

www.paypal.com
 
       
6   Proxy Statement Summary          

 

Corporate Governance

 

 

The Board of Directors (the “Board” or the “PayPal Board”) of PayPal Holdings, Inc. (the “Company”, “PayPal”, “we”, or “us”) is committed to good corporate governance. We believe that good corporate governance promotes the long-term interests of our stockholders, strengthens Board and management accountability, and engenders public trust. The Board is responsible for providing advice and oversight of the strategic and operational direction of the Company and overseeing its executive management to support the long-term interests of the Company and its stockholders.

 

The following is a list of key governance provisions that demonstrate PayPal’s commitment to transparency and accountability:

 

  Strong board independence (seven of nine director nominees are independent)     Separate Chairman and CEO roles
  Independent Chairman or Lead Independent Director with robust responsibilities     All directors stand for annual election
  Majority vote standard for uncontested director elections     Strong stockholder engagement practices
  Stockholder right to call a special meeting     Proxy access for qualifying stockholders
  Simple majority vote standard for bylaw/charter amendments and transactions     Stock ownership requirements for our executive officers and directors

 

 

 

 

 

 

 

  2016 Proxy Statement
 
       
          Proxy Statement Summary   7

 

Proposal 2   Advisory vote to approve the compensation of our named executive officers (page 38)
   

 

We are asking our stockholders to approve, on a non-binding, advisory basis, the compensation of our named executive officers (“say on pay”) as described in the Compensation Discussion and Analysis section beginning on page 40 and the Compensation Tables section beginning on page 75.

 

Our Board’s Recommendation   FOR  

 

 

Proposal 3   Advisory vote to approve the frequency of our future advisory votes approving the compensation of our named executive officers (page 39)
   

 

We are asking our stockholders to approve, on a non-binding, advisory basis, the frequency of our future stockholder “say on pay” advisory votes.

 

Our Board’s Recommendation   FOR “EVERY YEAR”  

 

 

 

 

 

 

 


 

www.paypal.com
 
       
8   Proxy Statement Summary          

 

Executive Compensation

 

 

Our Compensation Program

2015 was a year of transition for our executive compensation program, as we completed our separation from eBay Inc. (the “Separation”) and became a separate public company focused on payments and commerce. Prior to the Separation, the compensation decisions of the Compensation Committee of the Board of Directors of eBay Inc. (“eBay”) were guided by eBay’s compensation philosophy and practices, as follows:

  align compensation with our business objectives and performance,
  motivate named executive officers (“NEOs”) to enhance long-term stockholder value,
  position us competitively among the companies against which we recruit and compete for talent, and
  enable us to attract, retain, and reward NEOs and other key employees who contribute to our long-term success.

 

Following the Separation, in addition to the prior philosophy and practices, we prioritized the following:

  Simplicity, Transparency and Clarity of our programs – such that executives can directly link Company and individual performance to their pay, and further, such that stockholders can directly link returns on their investment to Company performance
  One Team – unified goals and objectives for the entire executive staff (and all employees Company-wide) to drive operational decisions and Company performance
  Winning the War for Talent – recognizing the unique financial technology (“FinTech”) space PayPal has entered post-Separation, prioritizing nimble and aggressive compensation strategies to attract and retain key talent
  Individual Performance – such that top performers are compensated commensurate with results, both on the upside and the downside, and holding leaders accountable for under-performance

 

Our 2015 NEO Pay

Our guiding principle for our executive compensation program continues to be aligning executive compensation with the interests of our stockholders by tying a significant portion of executive compensation to our performance. The following pie charts show the target total direct compensation mix for 2015 for Mr. Schulman as our Chief Executive Officer and the average for our other NEOs. Target Total Direct Compensation is the sum of (i) 2015 base salary, as shown in the “Salary” column of the Summary Compensation Table, (ii) target 2015 incentive cash award, as shown as the “Target Incentive Amount” in the table under the “Annual Incentive Award Program – Target Incentive Amounts” section below and (iii) target annual long-term incentive value, as shown as “2015 LTI Grant Value” in the tables under the “Long-Term Incentive Components – Long-Term Incentive Annual Target Value” section below.

 

 

  2016 Proxy Statement
 
       
          Proxy Statement Summary   9

 

Our Pay Practices

We are committed to having strong governance standards with respect to our compensation programs and practices. Consistent with this focus, we have the following programs and practices that we believe are mindful of the concerns of our stockholders and governance best practices.

 

What We Do Emphasize pay for performance alignment – the majority of our NEOs’ Target Total Direct Compensation in 2015 is performance-based compensation
  Maintain a clawback policy
  Set meaningful stock ownership guidelines, including certain stock  retention requirements until stock ownership guidelines are met for executive officers
  Prohibit hedging and pledging transactions
  Set multi-year vesting schedule requirements, with limited exceptions
  The Compensation Committee retains an independent compensation  consultant
  We perform an annual risk assessment and based on such assessment, we concluded that our compensation programs do not present any  risk that is reasonably likely to have a material adverse effect on the Company
  The Compensation Committee, with the assistance of its independent compensation consultant, reviews the makeup of our comparator peer  groups annually and makes adjustments to the composition of the groups as it deems appropriate
What We Don’t Do No tax gross-ups for change in control benefits and perquisites
  No “single trigger” payments and acceleration of equity awards to  executives upon a change in control
  No tax gross-ups on perquisites other than in limited circumstances for business-related relocations and assignment-related benefits that are  under our control, are at our direction and are deemed to benefit our business operations
  No continuation of fringe benefits following a termination of employment under our severance and change in control arrangements
  No discounting of stock options or repricing of underwater stock  options without stockholder approval

 

Supporting our Executive Compensation Program

The Compensation Committee believes that the goals of our executive compensation program are appropriate and that our executive compensation programs support PayPal’s growth strategy and are well aligned with creating long-term stockholder value.

 

 

 

 

 

 

www.paypal.com
 
       
10   Proxy Statement Summary          

 

Proposal 4   Approval of the amendment and restatement of our 2015 Equity Incentive Award Plan (page 89)
   

 

We are seeking stockholder approval of the amendment and restatement of our 2015 Equity Incentive Award Plan (the “Amended Plan”), and to approve the material terms, including the performance metrics, of the Amended Plan in connection with the requirements of Section 162(m) of the Internal Revenue Code. We are not requesting approval of any additional shares for issuance under the Amended Plan.

 

Our Board’s Recommendation   FOR  

 

 

Proposal 5   Approval of the amendment and restatement of the PayPal Employee Incentive Award Plan (page 99)
   

 

We are seeking stockholder approval of the amendment and restatement of the PayPal Employee Incentive Plan (the “Amended EIP”) and to approve the material terms, including the performance metrics, of the Amended EIP in connection with the requirements of Section 162(m) of the Internal Revenue Code.

 

Our Board’s Recommendation   FOR  

 

 

Proposal 6   Ratification of the appointment of PricewaterhouseCoopers LLP as our independent auditor for 2016 (page 104)
   

 

The Board and the Audit Committee believe that the continued retention of PricewaterhouseCoopers LLP (“PwC”) as our independent auditor for the fiscal year ending December 31, 2016 is in the best interests of the Company and its stockholders. As a matter of good corporate practice, we are asking stockholders to ratify the Audit Committee’s selection of PwC for 2016.

 

Our Board’s Recommendation   FOR  

 

 

 

 

 


  2016 Proxy Statement
 
    11

 

PROPOSAL 1 — ELECTION OF DIRECTORS

 

Nine directors have been nominated by our Board for election at the Annual Meeting to serve until our 2017 Annual Meeting of Stockholders and until their successors are elected and qualified. All of the nominees are currently members of the Board. All of the director nominees are independent under the listing standards of The NASDAQ Stock Market, except for Messrs. Schulman and Donahoe.

 

Each of our current directors (except for Mr. Casares) joined the Company in June or July 2015 in connection with the Separation. Messrs. Dorman, Donahoe, Moffett, Omidyar, Schulman and Yeary and Ms. McGovern were elected to the Board based on recommendations from the eBay Corporate Governance and Nominating Committee. Mr. Christodoro was initially elected to the eBay Board pursuant to the nomination and standstill agreement between eBay and the lcahn Group entered into on January 21, 2015 (the “Standstill Agreement”). At the time of the Separation in July 2015, the Company assumed certain obligations under the Standstill Agreement, which no longer applied to eBay. Pursuant to the Standstill Agreement, Mr. Christodoro resigned from the eBay Board and became a member of the PayPal Board, with such resignation and appointment effective as of the effective the time of the Separation. A full description of the Standstill Agreement is included in a Form 8-K filed with the SEC by eBay on January 23, 2015. Pursuant to the Standstill Agreement, the Company has agreed to use its reasonable best efforts to cause Mr. Christodoro to be elected, including recommending that the Company’s stockholders vote in favor of Mr. Christodoro. The Standstill Agreement also includes standstill and voting provisions applicable to the Icahn Group’s ownership of shares of the Company’s common stock, including an agreement to vote in favor of the Company’s director nominees so long as Mr. Christodoro is included in the Company’s slate of director nominees. Mr. Casares was elected to the Board in January 2016 based on recommendations from our Corporate Governance and Nominating Committee (the “Governance Committee”). None of our current directors has been elected by our public stockholders.

 

Each director will be elected by the affirmative vote of a majority of the votes cast, meaning that the numbers of votes cast “FOR” a director nominee exceeds the number of votes cast “AGAINST” that nominee.

 

We expect that each director nominee will be able to serve if elected. If any director nominee is not able to serve, proxies may be voted for substitute nominees, unless the Board chooses to reduce the number of directors serving on the Board.

 

Majority Vote Standard

Under our Bylaws, directors must be elected by a majority of the votes cast in uncontested elections, such as the election of directors at the Annual Meeting. This means that the number of votes cast “FOR” a director nominee must exceed the number of votes cast “AGAINST” that nominee. Abstentions and broker non-votes are not counted as votes “FOR” or “AGAINST” a director nominee. If a director nominee who currently serves as a director is not re-elected, Delaware law provides that the director would continue to serve on the Board as a “holdover director.” Under our Bylaws and the Governance Guidelines of the Board (the “Corporate Governance Guidelines”), each director submits an advance, contingent, irrevocable resignation that the Board may accept if stockholders do not re-elect that director. Within 90 days of the certification of the stockholder vote, the Governance Committee or another committee of the Board would make a recommendation to the Board about whether to accept the resignation, and the Board would be required to decide whether to accept the resignation and to publicly disclose its decision and the rationale behind it.

 

In a contested election, the required vote would be a plurality of votes cast.

 

Director Nominees

The Governance Committee and the Board have evaluated each of the director nominees against the factors and principles used to select director nominees. Based on this evaluation, the Governance Committee and the Board have concluded that it is in the best interests of the Company and its stockholders for each of the proposed

 

www.paypal.com
 
       
12   Proposal 1 — Election of Directors          

 

director nominees listed below to continue to serve as a director of the Company. The Board believes that each of the director nominees has a strong track record of being a responsible steward of stockholders’ interests and brings extraordinarily valuable insight, perspective and expertise to the Board. Additional reasons that the Board recommends supporting the election of each the director nominees include:

 

  All of the director nominees have high-level managerial experience in relatively complex organizations.
  Each director nominee has highly relevant professional experience in management, technology, innovation, finance and/or payments.
  Each director nominee is highly engaged and able to commit the time and resources needed to provide active oversight of PayPal and its management. Each of our directors attended at least 75% of all of our Board meetings and committee meetings for committees on which such director served during 2015.
  We believe each director nominee is an individual of high character and integrity and is able to contribute to strong board dynamics.
  Each director nominee has experience and expertise that complement the skill sets of the other director nominees.

 

Below is biographical information about the director nominees and their specific experience, skills and qualifications which led the Board and the Governance Committee to conclude that they should continue to serve as directors of PayPal.

 

The Board of Directors Recommends a Vote FOR each of the Following Director Nominees

 

                   
                   
    Wences Casares   Age 42   Director since January 2016    
    CEO and Founder, Xapo Inc.              
                   
    INDEPENDENT DIRECTOR

 

PayPal Board Committees
Compensation

      DIRECTOR QUALIFICATION HIGHLIGHTS    
          CEO Experience    
        Innovator    
          Technology Driven    
            Payments Experience    
                   
   

 

Biography

Mr. Casares has served as a director of PayPal since January 2016. He is the Founder of Xapo Inc., a bitcoin wallet and vault startup, and has served as its Chief Executive Officer since March 2014. From October 2011 to March 2014, Mr. Casares was Founder and Chief Executive Officer of Lemon Inc., a digital wallet platform. From March 2007 to October 2011, Mr. Casares was Co-Chief Executive Officer of Bling Nation Ltd., a mobile payments platform. He also serves on the Board of Directors of Kiva.org and Endeavor Global, Inc.

 

Experience, Skills and Qualifications of Particular Relevance to PayPal

Mr. Casares’s unique line of sight into the future of commerce and payment technologies is ideally aligned with PayPal’s vision of transforming the management and movement of money for people around the globe.

 

   
                   

 

  2016 Proxy Statement
 
       
          Proposal 1 — Election of Directors   13

 

                 
                 
    Jonathan Christodoro   Age 40   Director since July 2015    
    Managing Director,              
    Icahn Capital LP              
                   
    INDEPENDENT DIRECTOR

 

PayPal Board Committees
Compensation

      DIRECTOR QUALIFICATION HIGHLIGHTS    
          Senior Leadership Experience     
          Public Company Board Service    
          Finance    
          Mergers and Acquisitions    
                   
   

 

Biography

Mr. Christodoro has served as a director of PayPal since July 2015. He was previously a board member of eBay from March 2015 to July 2015. Mr. Christodoro has served as a Managing Director of Icahn Capital LP, the entity through which Carl C. Icahn manages investment funds, since July 2012. Prior to joining Icahn Capital, Mr. Christodoro served in various investment and research roles at P2 Capital Partners, LLC from March 2007 to July 2012. Mr. Christodoro began his career as an investment banking analyst at Morgan Stanley, where he focused on merger and acquisition transactions across a variety of industries. Mr. Christodoro also serves on the Board of Directors of American Railcar Industries, Inc., Cheniere Energy, Inc., Enzon Pharmaceuticals, Inc., Herbalife Ltd., and Lyft, Inc.

 

Mr. Christodoro received an M.B.A from the University of Pennsylvania’s Wharton School of Business. Mr. Christodoro received a B.S. in Applied Economics and Management Magna Cum Laude from Cornell University. Mr. Christodoro also served in the United States Marine Corps.

 

Experience, Skills and Qualifications of Particular Relevance to PayPal

Mr. Christodoro has over 15 years of extensive financial, strategic and investment experience advising and investing in public companies, including at the board level.

 

   
         

 

www.paypal.com
 
       
14   Proposal 1 — Election of Directors          

 

                   
                   
    John J. Donahoe   Age 55   Director since July 2015    
    Former CEO and President,              
    eBay Inc.              
                   
            DIRECTOR QUALIFICATION HIGHLIGHTS    
            CEO Experience    
    PayPal Board Committees       Public Company Board Service    
    None       Strategic Planning    
            International Experience    
                   
   

 

Biography

Mr. Donahoe has served as Chairman of the PayPal Board since July 2015. He served as the President and Chief Executive Officer of eBay from March 2008 to July 2015, and a director from January 2008 to July 2015. From January 2012 until April 2012, Mr. Donahoe served as Interim President of the PayPal business. From January 2008 to March 2008, Mr. Donahoe served as CEO-designate of eBay. From March 2005 to January 2008, Mr. Donahoe served as President, eBay Marketplaces. From January 2000 to February 2005, Mr. Donahoe served as the Worldwide Managing Director of Bain & Company. Mr. Donahoe also serves on the Board of Directors of Intel Corporation and Nike, Inc.

 

Mr. Donahoe received his B.A. in Economics from Dartmouth College and an M.B.A. from the Stanford Graduate School of Business.

 

Experience, Skills and Qualifications of Particular Relevance to PayPal

Mr. Donahoe brings extensive industry experience and deep knowledge of PayPal’s day-to-day operations based on his former role as director, President and Chief Executive Officer of eBay and previous managerial experience as Interim President of the PayPal business.

 

   
                   

 

  2016 Proxy Statement
 
       
          Proposal 1 — Election of Directors   15

 

                   
                   
    David W. Dorman   Age 62   Director since June 2015    
    Chairman and CEO, AT&T              
    Corporation (retired)              
                   
    INDEPENDENT DIRECTOR

 

PayPal Board Committees

Compensation (Chair)
Governance

      DIRECTOR QUALIFICATION HIGHLIGHTS    
          CEO Experience    
          Public Company Board Service    
          Strategic Planning    
          Finance    
                   
   

 

Biography

Mr. Dorman has served as a director of PayPal since June 2015. He previously served as a board member of eBay from June 2014 to July 2015. Mr. Dorman has been the Non-Executive Chairman of the Board of CVS Health Corporation, a pharmacy healthcare provider, since May 2011, and is the former Chairman and Chief Executive Officer of AT&T Corporation a telecommunications company (formerly known as SBC Communications Inc.). He is also Founding Partner of Centerview Capital, a private investment firm, since July 2013. He was formerly Non-Executive Chairman of the Board of Motorola Solutions, Inc. (formerly Motorola, Inc.), a leading provider of business and mission critical communication products and services for enterprise and government customers. He served as Non-Executive Chairman of the Board of Motorola, Inc. from May 2008 until the separation of its mobile devices and home businesses in January 2011. From October 2006 to May 2008, he was a Senior Advisor and Managing Director to Warburg Pincus LLC, a global private equity firm. From November 2005 until January 2006, Mr. Dorman served as President and a director of AT&T Corporation. From November 2002 until November 2005, Mr. Dorman was Chairman of the Board and Chief Executive Officer of AT&T Corporation. Prior to this, he was President of AT&T Corporation from 2000 to 2002 and the Chief Executive Officer of Concert Communications Services, a former global venture created by AT&T Corporation and British Telecommunications plc, from 1999 to 2000. Mr. Dorman also serves on the Board of Directors of Yum! Brands, Inc. and as a Trustee for Georgia Tech Foundation, Inc.

 

Mr. Dorman received his B.S. in industrial management from Georgia Institute of Technology.

 

Experience, Skills and Qualifications of Particular Relevance to PayPal

Mr. Dorman’s leadership as former Chairman and Chief Executive Officer of AT&T Corporation and his extensive experience in global telecommunications-related businesses as a former Chief Executive Officer, as well as expertise in finance, strategic planning and public company executive compensation adds to the strong leadership expertise of the board.

 

   
                   

 

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16   Proposal 1 — Election of Directors          

 

                   
                   
    Gail J. McGovern   Age 64   Director since June 2015    
    President and CEO,              
    American Red Cross              
                   
    INDEPENDENT DIRECTOR

 

PayPal Board Committees

Audit

Governance (Chair)

      DIRECTOR QUALIFICATION HIGHLIGHTS    
          CEO Experience    
          Public Company Board Service    
          Strategic Planning    
          Finance    
                   
   

 

Biography

Ms. McGovern has served as a director of PayPal since June 2015. She previously served as a board member of eBay from March 2015 to July 2015. Ms. McGovern is the President and Chief Executive Officer of the American Red Cross, a humanitarian organization, and has served in that position since June 2008. From 2002 to 2008, Ms. McGovern served as a Professor at Harvard Business School. Ms. McGovern also served as President of Fidelity Personal Investments, a unit of Fidelity Investments from 1998 to 2002 and Executive Vice President of the Consumer Markets Division at AT&T Corporation from 1997 to 1998. Ms. McGovern also serves as a trustee of John Hopkins Medicine, and a director of DTE Energy Company.

 

Ms. McGovern received her B.A. in quantitative sciences from Johns Hopkins University and her M.B.A. from Columbia University.

 

Skills and Qualifications of Particular Relevance to PayPal

Ms. McGovern’s leadership experience as President and Chief Executive Officer of the American Red Cross adds to the strong leadership expertise of the board and brings a strong perspective from the academic and nonprofit worlds and her extensive executive experience in marketing and sales, customer relations, corporate finance, strategic planning and government relations and knowledge of regulatory matters adds depth to the Board.

 

   
                   

 

  2016 Proxy Statement
 
       
          Proposal 1 — Election of Directors   17

 

                   
                   
    David M. Moffett   Age 64   Director since June 2015    
    CEO, Federal Home Loan              
    Mortgage Corp (retired)              
                   
    INDEPENDENT DIRECTOR

 

PayPal Board Committees

Audit (Chair)

      DIRECTOR QUALIFICATION HIGHLIGHTS    
          CEO Experience    
          Public Company Board Service    
          Payments Experience    
          Finance    
                   
   

 

Biography

Mr. Moffett has served as a director of PayPal since June 2015 and as Lead Independent Director since July 2015. He was previously a board member of eBay from July 2007 to July 2015. Mr. Moffett served as Chief Executive Officer of Federal Home Loan Mortgage Corp. (“Freddie Mac”) from September 2008 until his retirement in March 2009. He also served as a director of Freddie Mac from December 2008 to March 2009. In 1993, Mr. Moffett joined Star Banc Corporation, a bank holding company, as Chief Financial Officer and during his tenure played an integral role in the acquisition of Firstar Corporation in 1998 and later U.S. Bancorp in 2001. Mr. Moffett remained Chief Financial Officer of U.S. Bancorp until 2007. Mr. Moffett also serves on the Board of Directors of CIT Group Inc., Genworth Financial, Inc. and as a Trustee for Columbia Atlantic Mutual Funds and University of Oklahoma Foundation and as a consultant to various financial services companies.

 

Mr. Moffett received a B.A. from the University of Oklahoma and an M.B.A. from Southern Methodist University.

 

Experience, Skills and Qualifications of Particular Relevance to PayPal

Mr. Moffett has more than 30 years of strategic finance, risk management, and operational experience in banking and payment processing. He brings this strong financial expertise to his role on the Board and as the Chair of the Audit Committee. He also has extensive global financial management and regulatory expertise as a former Chief Executive Officer and Chief Financial Officer of financial services companies. Mr. Moffett has extensive experience in the payments business as a result of his involvement with the development of U.S. Bancorp’s global expansion of its merchant processing business, which is particularly relevant to PayPal’s business. Mr. Moffett’s leadership experience as Chief Executive Officer of Freddie Mac adds to the strong leadership expertise of the Board.

 

   
                   

 

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18   Proposal 1 — Election of Directors          

 

                   
                   
    Pierre M. Omidyar   Age 48   Director since July 2015    
    Founder, eBay Inc.              
                   
    INDEPENDENT DIRECTOR

 

PayPal Board Committees

None

      DIRECTOR QUALIFICATION HIGHLIGHTS    
          CEO Experience    
          Public Company Board Service    
          Social Impact    
          Technology Driven    
                   
   

 

Biography

Mr. Omidyar has served as a director of PayPal since July 2015. He founded eBay in September 1995 and has served as a board member of eBay since May 1996, and as Chairman of the eBay board from May 1996 to July 2015. He is the Founding Partner and Chairman of Omidyar Network, a philanthropic investment firm committed to creating opportunity for individuals to improve their lives, and Co-Founder, Chief Executive Officer, and Publisher of Civil Beat, an online news service formed in 2010. Mr. Omidyar is also the founder, Chief Executive Officer and publisher of First Look, a mass media news organization established in 2013. Mr. Omidyar serves on the Board of Trustees of Omidyar-Tufts Microfinance Fund, the Punahou School, Santa Fe Institute, and the Roshan Cultural Heritage Institute.

 

Mr. Omidyar received a B.S. from Tufts University.

 

Experience, Skills and Qualifications of Particular Relevance to PayPal

Mr. Omidyar has extensive experience as a technologist and innovator. His industry knowledge and long history of driving innovation provides important expertise to PayPal. As the founder of eBay Mr. Omidyar brings to the board of directors a deep understanding of the business and a long-standing history as a leader within the technology industry. In addition to eBay, Mr. Omidyar has also been a founder of several other innovative businesses, including the Omidyar Network and First Look. His extensive experiences as an entrepreneur are particularly relevant to our nimble, fast-changing business.

 

   
                   

 

  2016 Proxy Statement
 
       
          Proposal 1 — Election of Directors   19

 

                   
                   
    Daniel H. Schulman   Age 58   Director since July 2015    
    President and CEO,              
    PayPal Holdings, Inc.              
                   
            DIRECTOR QUALIFICATION HIGHLIGHTS    
            CEO Experience    
    PayPal Board Committees       Public Company Board Service    
    None       Payments Experience    
            Strategic Planning    
                   
   

 

Biography

Mr. Schulman has served as President and Chief Executive Officer of PayPal since July 2015. He had served as the President and CEO-Designee of PayPal from September 2014 until July 2015. From August 2010 to August 2014, Mr. Schulman served as Group President, Enterprise Group of American Express Company, a financial services company. Mr. Schulman was President, Prepaid Group of Sprint Nextel Corporation, a cellular phone service provider, from November 2009 until August 2010, when Sprint Nextel acquired Virgin Mobile, USA, a cellular phone service provider. Mr. Schulman also serves on the Board of Directors of Flextronics International Ltd. and Symantec Corporation.

 

Mr. Schulman received a B.A. from Middlebury College and a MBA from New York University’s Leonard N. Stern School of Business.

 

Experience, Skills and Qualifications of Particular Relevance to PayPal

Mr. Schulman’s extensive industry experience and knowledge of PayPal’s day-to-day operations, as well as his previous managerial experience in the payments and technology industries enables Mr. Schulman to provide valuable perspectives on many issues facing PayPal, particularly with respect to business management and strategy. Mr. Schulman’s service on the Board creates an important link between management and the Board and provides PayPal with decisive and effective leadership.

 

   
                   

 

www.paypal.com
 
       
20   Proposal 1 — Election of Directors          

 

                   
                   
    Frank D. Yeary   Age 52   Director since July 2015    
    Executive Chairman,              
    CamberView Partners, LLC              
                   
    INDEPENDENT DIRECTOR       DIRECTOR QUALIFICATION HIGHLIGHTS    
            Senior Leadership Experience    
    PayPal Board Committees       Public Company Board Service    
    Audit       Finance    
            Mergers and Acquisitions    
                   
   

 

Biography

Mr. Yeary has served as a director of PayPal since July 2015. He previously served as a board member of eBay from January 2015 to July 2015. Mr. Yeary has been Executive Chairman of CamberView Partners, LLC, a corporate advisory firm, since 2012. Mr. Yeary was Vice Chancellor of the University of California, Berkeley, a public university, from 2008 to 2012, where he led and implemented major strategic and financial changes to the university’s financial and operating strategy; from 2010 to 2011, he served as interim Chief Administrative Officer, managing a portfolio of financial and operational responsibilities and departments. Prior to 2008, Mr. Yeary spent 25 years in the finance industry, most recently as Managing Director, Global Head of Mergers and Acquisitions and a member of the Management Committee at Citigroup Investment Banking, a financial services company. Mr. Yeary also serves on the Board of Directors of Intel Corporation.

 

Mr. Yeary received his B.A. in History and Economics from the University of California, Berkeley.

 

Experience, Skills and Qualifications of Particular Relevance to PayPal

Mr. Yeary’s extensive career in investment banking and finance brings to the Board financial strategy and mergers and acquisitions expertise, including expertise in financial reporting and experience in assessing the efficacy of mergers and acquisitions. In addition, Mr. Yeary’s role as Vice Chancellor and as Chief Administrative Officer of a large public research university provides strategic and financial expertise.

 

   
                   

 

The Board of Directors Recommends a Vote FOR each of the Named Director Nominees.

 

  2016 Proxy Statement
 
       
Proposal 1 — Election of Directors   21

 

Consideration of Director Nominees

STOCKHOLDER RECOMMENDATIONS AND NOMINATIONS

The Governance Committee considers director candidates identified for consideration for nomination to the Board from stockholders. In evaluating such recommendations, the Governance Committee addresses the criteria described below under “Director Selection Process and Qualifications.” There are no differences in the manner in which the Governance Committee evaluates nominees for director based on whether the candidate is recommend by a stockholder or otherwise. Stockholders may recommend director candidates by writing to our Corporate Secretary at PayPal Holdings, Inc., 2211 North First Street, San Jose, California 95131, stating the candidate’s name and qualifications for Board membership.

 

In addition, our Certificate of Incorporation and Bylaws provide proxy access rights that permit eligible stockholders to nominate candidates for election to the Board in the Company’s proxy statement (“proxy access candidates”). Stockholders who wish to nominate a proxy access candidate must follow the procedures described in our Bylaws. Proxy access candidates meeting the qualifications and requirements set forth in our Bylaws will be included the Company’s proxy statement and ballot.

 

DIRECTOR SELECTION PROCESS AND QUALIFICATIONS

The Governance Committee is responsible for recommending to the Board the qualifications for Board membership and for identifying, assessing and recommending qualified director candidates for the Board’s consideration. The Board’s membership qualifications and nomination procedures are set forth in the Corporate Governance Guidelines.

 

The Board and Governance Committee evaluate directors based on the following attributes:

 

  Character
  Integrity
  Judgment
  Skills
  Background
  Experience of particular relevance to the Company
  Ability and willingness to devote sufficient time to the Board

 

The Board and Governance Committee consider the following factors and principles in evaluating and selecting director nominees:

 

  Directors should have high-level managerial experience in a relatively complex organization or be accustomed to dealing with complex problems.
  Directors should represent the balanced, best interests of the stockholders as a whole rather than special interest groups or constituencies.
  Directors should be individuals of the highest character and integrity, with the ability to work well with others and with sufficient time available to devote to the affairs of the Company in order to carry out their responsibilities.
  In addressing the overall composition of the Board, diversity (including gender and race), age, international background, and expertise should be considered in evaluating potential board members.

 

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22   Director Compensation

 

  The interplay of a candidate’s background and expertise with that of other Board members, and the extent to which a candidate may be a desirable addition to any Board committee should be considered.
  The Board should be composed of directors who are highly engaged with our business.
  The Board should include individuals with highly relevant professional experience.

 

In particular, the Governance Committee values diversity as a factor in selecting nominees. When searching for new directors, the Governance Committee actively seeks out qualified women and individuals from minority groups to include in the pool from which Board nominees are chosen.

 

From time to time, the Governance Committee may retain an executive search firm to assist in identifying, screening and evaluating potential candidates.

 

Director Compensation

 

 

The Compensation Committee is responsible for reviewing and making recommendations to the Board regarding compensation paid to all directors who are not employees of PayPal, or any parent, subsidiary or affiliate of PayPal, for their Board and committee services.

 

2015 Director Compensation

The policy in effect for 2015 provides for each non-employee director of the Company to be eligible to receive the following annual retainers, paid in cash in quarterly installments (or, at the non-employee director’s election, paid in part or in whole in deferred stock units (“DSUs”) of an equivalent value), which annual retainer was pro-rated in the event that a director serves for a portion of a year.

 

2015 Annual Retainers:    
All Non-Employee Directors $80,000/year  
Non-Executive Board Chair $100,000/year  
Lead Independent Director $25,000/year  
Audit Committee Chair $20,000/year  
Compensation Committee Chair and Governance Committee Chair $15,000/year  
Audit Committee Member $18,000/year  
Compensation Committee Member $12,000/year  
Governance Committee Member $10,000/year  

 

Generally, the policy in effect for 2015 provides that immediately following the annual meeting of stockholders, non-employee directors also receive equity awards in the form of DSUs. DSUs represent a right to receive shares of PayPal common stock on a future date. DSU awards become fully vested on the first anniversary of the date of grant (or, if earlier, at the next annual meeting); provided, the director continues to serve as a

 

  2016 Proxy Statement
 
       
Director Compensation   23

 

director or consultant of PayPal. In the event of a change in control of PayPal, any equity awards granted to our non-employee directors will become fully vested.

 

Because PayPal did not hold an annual meeting of stockholders in fiscal year 2015, the non-employee directors did not receive the equity award component of their compensation for 2015 services from PayPal.

 

Mr. Omidyar did not receive any compensation for his services as a Board member.

 

2016 Director Compensation

Effective January 1, 2016, each non-employee director of the Company will receive the following annual retainer on the first trading day after January 1 of each year in which the director serves as a non-employee director of the Company, other than Mr. Omidyar, who will not receive any compensation for his services a Board member:

 

2016 Annual Retainers:    
All Non-Employee Directors $80,000/year  
Non-Executive Board Chair $100,000/year  
Lead Independent Director $75,000/year  
Audit Committee Chair and Compensation Committee Chair $20,000/year  
Governance Committee Chair $15,000/year  
Audit Committee Member $18,000/year  
Compensation Committee Member $18,000/year  
Governance Committee Member $10,000/year  

 

A non-employee director who serves as a Board Chair or as the chair of a committee will be entitled to the Board Chair annual retainer and/or committee chair annual retainer in addition to the non-employee director annual retainer, but will not be entitled to the committee member annual retainer for serving as a member of that specific committee.

 

A non-employee director may elect to receive 100% of his/her annual retainer(s) in fully vested stock awards of PayPal common stock (i.e., shares of PayPal common stock) under our 2015 Equity Incentive Award Plan having a value equal to the annual retainer(s) in lieu of cash.

 

If a non-employee director is elected or appointed to serve as a member of the Board, or appointed to serve as a member of a committee or as a chair of a committee in which he/she was not a member prior to such appointment, following the annual retainer payment date for such calendar year (i.e., the first trading day after January 1 of such year), such non-employee director will receive a prorated annual retainer, based on the number of days from the appointment/election date to December 31 of such year.

 

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24   Director Compensation

 

2016 Equity Awards:

In addition to the annual retainers, all non-employee directors of PayPal will receive the following fully vested stock awards of PayPal common stock under our 2015 Equity Incentive Award Plan (i.e., shares of PayPal common stock) promptly following PayPal’s annual meeting of stockholders:

 

All Independent Directors $220,000 in PayPal common stock
Board Chair 1 $100,000 in PayPal common stock

 

1 The Board Chair receives $100,000 in PayPal common stock in addition to the $220,000 in PayPal common stock that he/she receives for services as a non-employee director.

 

The number of shares of PayPal common stock subject to the stock award is determined by dividing the amount of the annual equity award by the per share fair market value of the common stock (i.e., the closing price of a share of stock) on the date of the annual stockholder meeting, rounded up to the nearest whole share.

 

If a non-employee director is appointed or elected at any time other than at an annual stockholder meeting, such director will not be eligible to receive an annual equity award for any period prior to the first annual stockholder meeting following his/her appointment or election.

 

2015 Director Compensation Table

The following table summarizes the total compensation paid by the Company to non-employee directors for the fiscal year ended December 31, 2015. Mr. Casares joined the Board after December 31, 2015; therefore, he did not receive any compensation during 2015.

 

  Fees Earned or Stock Option All Other  
Name 1 Paid in Cash 2 Awards 3 Awards 3 Compensation Total
(a) ($)(b) ($)(c) ($)(d) ($)(e) ($)(f)
Jonathan Christodoro 46,000 46,000
John J. Donahoe 90,000 90,000
David W. Dorman 52,500 52,500
Gail J. McGovern 56,500 56,500
David M. Moffett 68,500 68,500
Pierre M. Omidyar
Frank D. Yeary 49,000 49,000

 

1 Prior to the Separation, each of the non-employee directors presented in this table served as a director of eBay and received compensation and stock awards from eBay for their service as eBay directors. This table only presents information regarding the compensation and stock awards that the Company has paid or granted to our non-employee directors for their service to the PayPal Board. For information related to the compensation and stock awards that eBay has paid or granted to these individuals for their service to the eBay board, please refer to eBay’s 2016 proxy statement. Michael Jacobson and Robert Swan were directors of PayPal Holdings, Inc. and resigned effective July 17, 2015, immediately prior to the Separation. Neither Mr. Jacobson or Mr. Swan earned any compensation for their service as directors of the Company. As of December 31, 2015, Mr. Jacobson held 69,604 shares of our common stock subject to stock options and Mr. Swan held 167,052 shares of our common stock subject to stock options.

 

  2016 Proxy Statement
 
       
Director Compensation   25

 

2 The amounts reported in the Fees Earned or Paid in Cash column reflect the cash fees earned by each non-employee director in 2015, which includes fees with respect to which the following directors elected to receive DSUs in lieu of cash (such DSUs were granted on November 1, 2015 and February 1, 2016 for third quarter and fourth quarter 2015 fees earned, respectively):

 

    Fees   DSUs
    Forgone   Received
Name   ($)   (#)
Jonathan Christodoro   46,000   1,260
John J. Donahoe   90,000   2,464
David W. Dorman   52,500   1,437
David M. Moffett   68,500   1,876
Frank D. Yeary   49,000   1,342

 

3 As of December 31, 2015, our non-employee directors held the following equity awards.

 

    Total DSUs   Total Options
    Held as of   Held as of
    12/31/15   12/31/15
Name   (#)   (#)
Jonathan Christodoro   4,732  
John J. Donahoe   1,250   368,513
David W. Dorman   8,780  
Gail J. McGovern   3,711  
David M. Moffett   48,077   29,985
Pierre M. Omidyar    
Frank D. Yeary   4,799  

 

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26    

 

Corporate Governance

 

The Board is committed to good corporate governance. We believe that good corporate governance promotes the long-term interests of our stockholders, strengthens Board and management accountability, and engenders public trust. The Board is responsible for providing advice and oversight of the strategic and operational direction of the Company and overseeing its executive management to support the long-term interests of the Company and its stockholders.

 

We believe that strong corporate governance practices that provide meaningful rights to our stockholders and ensure Board and management accountability are key to our relationship with our stockholders. We strive to have regular, constructive conversations with our stockholders to better understand our stockholders’ priorities and perspectives, and to provide us with useful input concerning our corporate governance and compensation practices.

 

To help our stockholders understand our commitment to this relationship and our governance practices, the Board has adopted the Corporate Governance Guidelines to serve as a framework within which the Board conducts its business. Our Corporate Governance Guidelines, charters of our principal Board committees, our Code of Business Conduct and Ethics (“Code of Business Conduct”), and other governance materials are available on our investor relations website at https://investor.paypal-corp.com/corporate-governance.cfm .

 

The following sections provide an overview of PayPal’s corporate governance practices.

 

The Board’s Role and Responsibilities

 

RISK OVERSIGHT

Management is responsible for assessing and managing risk, subject to oversight by the Board. The Board executes its oversight responsibility for risk assessment and risk management directly and through its committees.

 

The Board has delegated to the Audit Committee primary responsibility for the oversight of risk management at PayPal. In accordance with its charter, the Audit Committee discusses and reviews with management our major risk exposures, including financial, operational, privacy, security, competition, business continuity, legal, and regulatory risks, and the steps we have taken to monitor and actively manage and control such exposures and the Company’s risk assessment and risk management policies. The Audit Committee reviews with our Senior Vice President, Chief Legal Officer significant legal, compliance, and regulatory matters that could have a material impact on our financial statements, compliance policies or our business, including material notices to or inquiries received from governmental agencies.

 

To oversee and manage risk, we have embedded a global, Company-wide enterprise risk management (“ERM”) program involving the Audit Committee, management, and other personnel. The ERM program is designed to identify, assess, prioritize, monitor, manage and mitigate our major risk exposures which could affect our ability to execute on our corporate strategy and fulfill our business objectives. The ERM program is designed to enable the Audit Committee to establish a mutual understanding with management of the effectiveness of the Company’s risk management practices and capabilities, to review and discuss the Company’s risk exposure and risk tolerance, and to elevate certain key risks for oversight at the Board level. In connection with the ERM program, the Audit Committee discusses individual risk areas with management throughout the year.

 

  2016 Proxy Statement
 
       
Corporate Governance   27

 

The other principal Board committees oversee risks associated with their respective areas of responsibility. For example, the Compensation Committee reviews the risks associated with our compensation policies and practices. Management has assessed the Company’s compensation policies and practices and concluded that they do not create risks that are reasonably likely to have a material adverse effect on the Company, and the Compensation Committee agreed with this conclusion. The Governance Committee reviews the risks associated with our overall corporate governance.

 

COMMUNICATION WITH THE BOARD

Stockholders are invited to contact the Board or any individual director by writing to the Corporate Secretary at our principal executive offices: PayPal Holdings, Inc., 2211 North First Avenue, San Jose, California 95131, with a request to forward the communication to the intended recipient or recipients. In general, any stockholder communication delivered to the Company for forwarding to the Board or specified Board member(s) will be forwarded in accordance with the stockholder’s instructions. However, the Company reserves the right not to forward to Board members any abusive, threatening or otherwise inappropriate materials.

 

BOARD AND COMMITTEE EVALUATIONS

The Board and its principal committees perform an annual self-assessment to assess their performance and effectiveness and to identify opportunities to improve Board and committee performance. As part of this annual self-assessment, directors are able to provide feedback on the performance of other directors. The Lead Independent Director then follows up on this feedback and takes such further action with directors receiving comments and other directors as needed.

 

DIRECTOR ORIENTATION AND CONTINUING EDUCATION

Our director orientation programs familiarize new directors with the Company’s businesses, strategies, and policies, and assist new directors in developing the skills and knowledge required for their service on the Board. All other directors are also invited to attend the orientation programs. From time to time, management advises, or invites outside experts to attend Board meetings to advise, the Board on its responsibilities, management’s responsibilities, developments relevant to corporate governance and best corporate practices. Board members may attend, at the Company’s expense, accredited director education programs.

 

SUCCESSION PLANNING

The Board recognizes the importance of effective executive leadership to PayPal’s success. A formal CEO succession plan is reviewed and updated annually by the Board. This includes addressing the possibility of an emergency situation. The Board may also choose to review succession for other key leadership positions. In conducting these reviews, the Board considers, among other factors, organizational and operational needs, competitive challenges, leadership/management potential and development, and emergency situations.

 

CODE OF BUSINESS CONDUCT

We expect our directors, officers, and employees to conduct themselves with the highest degree of integrity, ethics, and honesty. Our credibility and reputation depend upon the good judgment, ethical standards, and personal integrity of each director, officer, and employee. PayPal’s Code of Business Conduct requires that directors, executive officers, and other employees disclose actual or potential conflicts of interest and recuse themselves from related decisions. We regularly review the Code of Business Conduct and related policies to ensure that they provide clear guidance to our directors, executive officers, and employees. The Code of Business Conduct is available at https://investor.paypal-corp.com/corporate-governance.cfm. Concerns about accounting or auditing matters or possible violations of our Code of Business Conduct should be reported under the procedures outlined in the Code of Business Conduct.

 

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28   Corporate Governance

 

OUTSIDE ADVISORS

The Board may retain outside advisors, legal counsel, and consultants of its choosing at the Company’s expense and without obtaining management’s consent. Each principal committee of the Board may retain outside advisors, legal counsel, and consultants of their choosing at the Company’s expense and without obtaining the Board’s or management’s consent.

 

Director Independence

Under the listing standards of The NASDAQ Stock Market (“NASDAQ”) and our Corporate Governance Guidelines, the Board must consist of a majority of independent directors. Annually, each director completes a questionnaire designed to provide information to assist the Board in determining whether the director is independent under the listing standards of NASDAQ and our Corporate Governance Guidelines, and whether members of the Audit Committee and Compensation Committee satisfy additional Securities and Exchange Commission (“SEC”) and NASDAQ independence requirements. The Board has adopted guidelines setting forth certain categories of transactions, relationships, and arrangements that it has deemed immaterial for purposes of making determinations regarding a director’s independence, and the Board does not consider any of those transactions, relationships, and arrangements in determining director independence.

 

Based on its review, the Board has determined that each of Wences Casares, Jonathan Christodoro, David W. Dorman, Gail J. McGovern, David M. Moffett, Pierre M. Omidyar, and Frank D. Yeary is independent under the listing standards of NASDAQ and our Corporate Governance Guidelines, including that each director is free of any relationship that would interfere with his or her individual exercise of independent judgment.

 

The Board limits membership on the Audit Committee, the Compensation Committee, and the Governance Committee to independent directors. Our Corporate Governance Guidelines prohibit directors from serving on the board, or as an officer, of another company that would create a significant conflict of interest. Our Corporate Governance Guidelines also provide that any director who has previously been determined to be independent must inform the Lead Independent Director and our Corporate Secretary of any change in his or her principal occupation or status as a board member of any other public company, or any change in circumstance that may cause his or her status as an independent director to change.

 

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

None of the members of the Compensation Committee is or has been an employee of PayPal. None of our executive officers served on the board of directors or compensation committee of another entity that has an executive officer that serves on the Board or the Compensation Committee.

 

  2016 Proxy Statement
 
       
Corporate Governance   29

 

Board Leadership and Lead Independent Director

 

 

In accordance with our Bylaws, the Board elects our Chairman of the Board and our CEO. Our Corporate Governance Guidelines require that the roles of Chairman and CEO be held by separate individuals. The Board’s policy is that the positions of Chairman and CEO should be held by separate persons as an aid in the Board’s oversight of management and to allow the CEO to focus primarily on management responsibilities. Mr. Donahoe currently serves as our Chairman.

 

Our independent directors designated Mr. Moffett as Lead Independent Director in July 2015 to serve a two-year term that will expire following our 2017 Annual Meeting. The Lead Independent Director’s responsibilities are detailed in our Corporate Governance Guidelines, and include:

  Providing the Chairman with input as to an appropriate schedule of Board meetings;
  Providing the Chairman with input as to the preparation of agendas for Board meetings;
  Providing the Chairman with input as to the quality, quantity, and timeliness of the flow of information from the Company’s management that is necessary for the independent directors to effectively and responsibly perform their duties;
  Making recommendations to the Chairman regarding the retention of consultants who report directly to the Board (other than consultants who are selected by the various committees of the Board);
  Presiding over executive sessions of the Board;
  Acting as a liaison between the Independent Directors and the Chairman of the Board and CEO on sensitive issues;
  Together with the Chairman, leading the Board in its review of the results of the annual self-assessment process, including acting on director feedback as needed; and
  Together with the Chair of the Governance Committee, conducting interviews to confirm the continued qualification and willingness to serve of each director whose term is expiring at an annual meeting prior to the time at which directors are nominated for re-election.

 

Board Committees

 

 

The Board has three principal committees: the Audit Committee, the Compensation Committee, and the Governance Committee. Each committee has a written charter, which is available on the corporate governance section of our investor relations website at https://investor.paypal-corp.com/corporate-governance.cfm . The table below provides the current membership for each principal Board committee.

 

  Audit Committee Compensation Committee Governance Committee
Wences Casares    
Jonathan Christodoro    
John J. Donahoe      
David W. Dorman   Chair
Gail J. McGovern   Chair
David M. Moffett* Chair    
Pierre M. Omidyar      
Daniel H. Schulman      
Frank D. Yeary    

 

* Mr. Moffett served as a member of the Compensation Committee from June 26, 2015 through January 13, 2016.

 

www.paypal.com
 
       
30   Corporate Governance

 

Below is a description of each principal committee of the Board.

  Audit Committee    
       
  Members
 
Gail J. McGovern
David M. Moffett (Chair)
Frank D. Yeary
 
Meetings in 2015: 6
Primary Responsibilities
  The Audit Committee provides assistance and guidance to the Board in fulfilling its oversight responsibilities with respect to:
  PayPal’s corporate accounting and financial reporting practices;
  PayPal’s compliance with legal and regulatory requirements, including PayPal’s compliance management systems;
  PayPal’s risk and compliance management programs;
    The independent auditor’s qualifications and independence;
    The performance of PayPal’s internal audit function and independent auditor;
    The quality and integrity of PayPal’s financial statements and reports;
    Reviewing and approving all audit engagement fees and terms, as well as all non-audit engagements with the independent auditor;
    Producing the Audit Committee Report for inclusion in our proxy statement; and
    Overseeing PayPal’s Code of Business Conduct as applied to PayPal’s directors and executive officers.
       
    The charter of the Audit Committee describes its specific responsibilities and functions.
       
    Independence
    The Board has determined that each member of the Audit Committee meets the independence requirements of NASDAQ and the SEC and otherwise satisfies the requirements for audit committee service imposed by the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Board has also determined that each member of the Audit Committee is financially literate and that Mr. Moffett is an “audit committee financial expert” as defined by SEC rules.

 

  2016 Proxy Statement
 
       
Corporate Governance   31

 

  Compensation Committee    
       
  Members
 
Wences Casares
Jonathan Christodoro
David W. Dorman (Chair)
 
Meetings in 2015: 4
Primary Responsibilities
  The primary responsibilities of the Compensation Committee are to:
   
  Review and approve all compensation programs applicable to directors and executive officers, the overall strategy for employee compensation, and the compensation of our CEO and our other executive officers;
  Oversee and monitor compliance with the Company’s stock ownership guidelines applicable to directors and executive officers;
    Review the Compensation Discussion and Analysis contained in our proxy statement and prepare the Compensation Committee Report for inclusion in our proxy statement; and
    Review and consider the results of any advisory stockholder votes on executive compensation.
       
    The charter of the Compensation Committee describes its specific responsibilities and functions.
     
    Independence
    Each member of the Compensation Committee meets the independence requirements of NASDAQ and the SEC.
     
    Additionally, the Compensation Committee assesses on an annual basis the independence of its compensation consultants, outside legal counsel, and other compensation advisers. Additional disclosure regarding the role of the Compensation Committee in compensation matters, including the role of consultants in compensation decisions, can be found under “Compensation Discussion and Analysis — Other Compensation Practices and Policies — Roles and Responsibilities — Independent Compensation Consultant” below.

 

www.paypal.com
 
       
32   Corporate Governance

 

  Corporate Governance and Nominating Committee    
       
  Members
 
David W. Dorman
Gail J. McGovern (Chair)
 
Meetings in 2015: 2
Primary Responsibilities
  The primary responsibilities of the Governance Committee include:
  Making recommendations to the Board as to the appropriate size of the Board or any Board committee;
  Reviewing the qualifications of candidates for the Board;
  Making recommendations to the Board on potential Board and Board committee members, whether as a result of vacancies (including any vacancy created by an increase in the size of the Board) or as part of the annual election cycle;
    Reviewing our Corporate Governance Guidelines annually; and
    Establishing procedures to exercise oversight of the evaluation of the Board and senior management, and leading an annual evaluation of the Board and senior management.
       
    The charter of the Governance Committee describes its specific responsibilities and functions.
     
    Independence
    Each member of the Governance Committee meets the independence requirements of NASDAQ.

 

Meetings and Attendance

 

 

Our Board holds regularly scheduled quarterly meetings. At each regularly scheduled Board meeting, a member of each principal Board committee reports on any significant matters addressed by the committee since the last quarterly Board meeting. In addition, the outside directors have the opportunity to meet without our management or the other directors as part of each regularly scheduled Board meeting. The Lead Independent Director leads these discussions.

 

Our Board met two times during 2015. Each director nominee who is a current director attended at least 75% of all of our Board meetings and committee meetings for committees on which he or she served in 2015.

 

All directors are expected to attend the Annual Meeting.

 

  2016 Proxy Statement
 
       
Corporate Governance   33

 

Certain Transactions with Directors and Officers

 

 

Related-Person Transaction Policy

The Board has adopted a written related-person transaction policy governing the review and approval of related person transactions that is administered by the Audit Committee. The policy applies to any transaction or series of transactions in which the Company or a consolidated subsidiary is a participant, the amount involved exceeds $120,000, and a related person under the policy has a direct or indirect material interest. The policy defines a “related person” to include directors, nominees for director, executive officers, beneficial owners of more than 5% of PayPal’s outstanding common stock and their respective immediate family members.

 

Under the policy, transactions requiring review are referred to the Audit Committee for pre-approval, ratification or other action. Management will provide the Audit Committee with a description of any related-person transaction proposed to be approved or ratified. This description will include the terms of the transaction, the business purpose of the transaction, and the benefits to PayPal and to the relevant related person. In determining whether to approve or ratify a related-person transaction, the Audit Committee will consider the following factors:

  Whether the terms of the transaction are (i) fair to the Company and (ii) at least as favorable to the Company as would apply if the transaction did not involve a related person;
  Whether there are demonstrable business reasons for the Company to enter into the transaction;
  Whether the transaction would impair the independence of an outside director under the Company’s director independence standards; and
  Whether the transaction would present an improper conflict of interest for any director or executive officer, taking into account the size of the transaction, the overall financial position of the related person, the direct or indirect nature of the related person’s interest in the transaction and the ongoing nature of any proposed relationship, and any other factors the committee deems relevant.

 

The Company also has practices that address potential conflicts in circumstances where a non-employee director is a control person of an investment fund that desires to make an investment in or acquire a company that may compete with one of the Company’s businesses. Under those circumstances, the director is required to notify the Company’s CEO and Chief Legal Officer of the proposed transaction, and the Company’s senior management then assesses the nature and degree to which the investee company is competitive with the Company’s businesses, as well as the potential overlaps between the Company and the investee company. If the Company’s senior management determines that the competitive situation and potential overlaps between PayPal and the investee company are acceptable, approval of the transaction by the Company would be conditioned upon the director agreeing to certain limitations (including refraining from joining the board of directors of, serving as an advisor to, or be directly involved in the business of the investee company or conveying any confidential or proprietary information regarding the investee company to the Company or regarding the Company’s line of business with which the investee competes to the investee company, abstaining from being the primary decision-maker for the investment fund with respect to the investee company, recusing himself/herself from portions of Board meetings that cover confidential competitive information reasonably pertinent to the investee company and agreeing to any additional limitations deemed to be reasonably necessary or appropriate by the Company’s senior management as circumstances change). All transactions by investment funds in which a non-employee director is a control person also remain subject in all respects to the Board’s written policy for the review of related person transactions, discussed above.

 

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34   Corporate Governance

 

Transactions with Related Persons

 

 

We have entered into indemnification agreements with each of our directors and executive officers. These agreements require us to indemnify such individuals, to the fullest extent permitted by Delaware law, for certain liabilities to which they may become subject as a result of their affiliation with the Company.

 

On January 21, 2015, eBay entered into the Standstill Agreement with the Icahn Group pursuant to which eBay appointed Mr. Christodoro to serve as a member of the eBay board of directors. At the time of the Separation in July 2015, the Company assumed certain obligations under the Standstill Agreement, which no longer applied to eBay. Pursuant to the Standstill Agreement, Mr. Christodoro elected to resign from the eBay board of directors and became a member of the PayPal Board, with such resignation and appointment effective as of the effective time of the Separation. A full description of the Standstill Agreement is included in a Form 8-K filed with the SEC by eBay on January 23, 2015.

 

While eBay ceased to hold any shares of PayPal common stock upon the completion of the Separation, PayPal is required to disclose these relationships because eBay held more than 5% of PayPal’s outstanding common stock in 2015.

 

Prior to our Separation from eBay, we entered into a separation and distribution agreement and various other agreements to govern the ongoing relationship between the parties, including an operating agreement, colocation services agreements, transition services agreements, a tax matters agreement, an employee matters agreement, an intellectual property matters agreement, a data sharing addendum, and a product development agreement, to effect the Separation and provide a framework for our relationship with eBay after the Separation. The separation and distribution agreement, the tax matters agreement, the employee matters agreement, and the intellectual property matters agreement determine the allocation of assets and liabilities (including by means of licensing) between PayPal and eBay following the Separation for those respective areas and include indemnification obligations related to liabilities and obligations. The operating agreement, the colocation services agreements and the data sharing addendum establish certain commercial relationships between the PayPal and eBay related to payment processing, credit, information technology infrastructure and data sharing. The transition services agreements provide for the performance of certain services by each company for the benefit of the other for a limited period of time after the Separation. For summaries of these agreements, please see the section entitled “Certain Relationships and Related Party Transactions” in the Information Statement dated June 29, 2015, which was attached as Exhibit 99.1 to Form 8-K filed by PayPal with the SEC on July 20, 2015, the description of which is incorporated by reference herein. The descriptions of these agreements in the Information Statement do not purport to be complete and, in certain cases, are subject to, and qualified in their entirety by reference to, the full terms and provisions of the agreements filed or incorporated by reference as exhibits to our most recent Annual Report on Form 10-K. Except for the information under the caption “Certain Relationships and Related Party Transactions”, none of the information included in the Information Statement is incorporated by reference in, or otherwise constitutes a part of, this proxy statement.

 

  2016 Proxy Statement
 
    35

 

OUR EXECUTIVE OFFICERS

 

Executive officers are elected annually by the Board and serve at the discretion of the Board. Set forth below is information regarding our executive officers as of April 4, 2016.

 

Name Age Position Biography
Daniel H. Schulman 58 President and Chief Executive Officer Mr. Schulman’s biography is set forth on page 19 under the heading “Proposal 1 — Election of Directors — Director Nominees.”
Jonathan Auerbach 53 Senior Vice President, Chief Strategy & Growth Officer Mr. Auerbach serves PayPal as Senior Vice President, Chief Strategy & Growth Officer. He has served in that capacity since July 2015.
Tomer Barel 43 Senior Vice President, Chief Risk Officer Mr. Barel serves PayPal as Senior Vice President, Chief Risk Officer. He has served in that capacity since July 2015.
Gary Marino 59 Senior Vice President, Global Credit and the Americas Mr. Marino serves PayPal as Senior Vice President, Global Credit and the Americas. He has served in that capacity since July 2015.
Marcia Morales-Jaffe 57 Senior Vice President, Chief People Officer Ms. Morales-Jaffe serves PayPal as Senior Vice President, Chief People Officer. She has served in that capacity since August 2015.
A. Louise Pentland 44 Senior Vice President, Chief Legal Officer and Secretary Ms. Pentland serves PayPal as Senior Vice President, Chief Legal Officer and Secretary. She has served in that capacity since July 2015.
John D. Rainey 45 Senior Vice President, Chief Financial Officer Mr. Rainey serves PayPal as Senior Vice President, Chief Financial Officer. He has served in that capacity since August 2015.
William J. Ready 36 Senior Vice President, Global Head Product & Engineering Mr. Ready serves PayPal as Senior Vice President, Global Head Product & Engineering. He has served as an executive officer since July 2015.
Sripada Shivananda 43 Senior Vice President, Chief Technology Officer Mr. Shivananda serves PayPal as Senior Vice President, Chief Technology Officer. He has served in that capacity since April 2016.

 

www.paypal.com
 
36    

 

STOCK OWNERSHIP INFORMATION

 

Security Ownership of Certain Beneficial Owners and Management

 

 

The following table sets forth certain information known to us with respect to beneficial ownership of our common stock as of April 4, 2016 by (1) each stockholder known to us to be the beneficial owner of more than 5% of our common stock, (2) each director and nominee for director, (3) each of the executive officers named in the 2015 Summary Compensation Table below, and (4) all executive officers and directors as a group. Unless otherwise indicated below, the address for each of our executive officers and directors is c/o PayPal Holdings, Inc., 2211 North First Street, San Jose, California 95131.

 

    Shares Beneficially
Owned (1)
Name of Beneficial Owner   Number   Percent
Pierre M. Omidyar 2   82,124,658   6.8 %  
The Vanguard Group 3   66,870,503   5.5 %  
Daniel H. Schulman 4   242,702   *  
John D. Rainey 5     *  
Patrick L.A. Dupuis 6   94,103   *  
Jonathan Auerbach 7   59,426   *  
Tomer Barel 8   43,822   *  
A. Louise Pentland 9   46,523   *  
Hill Ferguson 10     *  
Wences Casares 11   10   *  
Jonathan Christodoro 12   1,642   *  
John J. Donahoe 13   503,655   *  
David W. Dorman 14   13,163   *  
Gail J. McGovern 15   162   *  
David M. Moffett 16   67,546   *  
Frank D. Yeary 17   1,749   *  
All directors and executive officers as a group (19 persons) 18   83,589,053   7.0 %  

 

* Less than one percent
1 This table is based upon information supplied by officers, directors, and principal stockholders and any Schedules 13D and 13G filed with the SEC. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Unless otherwise indicated in the footnotes to this table, the persons and entities named in the table have sole voting and sole investment power with respect to all shares beneficially owned, subject to community property laws where applicable. Shares of our common stock subject to options that are currently exercisable or exercisable within 60 days of April 4, 2016, and restricted stock units (“RSUs”) that are scheduled to vest within 60 days of April 4, 2016 are deemed to be outstanding for the purpose of computing the percentage ownership of the person holding those options or RSUs, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. The percentage of beneficial ownership is based on 1,211,931,004 shares of common stock outstanding as of April 4, 2016.

 

  2016 Proxy Statement
 
       
Stock Ownership Information   37

 

2 Mr. Omidyar is founder of eBay. Includes 70,000 shares held by his spouse as to which he disclaims beneficial ownership.
3 The Vanguard Group and its affiliates and subsidiaries have beneficial ownership of an aggregate of 66,870,503 shares of the Company’s common stock. The Vanguard Group has sole voting power of 2,087,330 shares of the Company’s common stock, shared voting power of 109,100 shares of the Company’s common stock, sole dispositive power of 64,654,811 shares of the Company’s common stock, and shared dispositive power of 2,215,692 shares of the Company’s common stock. The address for The Vanguard Group is 100 Vanguard Blvd., Malvern, PA 19355.
4 Mr. Schulman is our President and CEO. Includes 116,112 shares Mr. Schulman has the right to acquire pursuant to outstanding options exercisable within 60 days of April 4, 2016.
5 Mr. Rainey is our Senior Vice President, Chief Financial Officer.
6 Mr. Dupuis is our Senior Vice President and our former Interim Chief Financial Officer and served in that capacity until August 24, 2015. Includes 30,271 shares Mr. Dupuis has the right to acquire pursuant to outstanding options exercisable within 60 days of April 4, 2016.
7 Mr. Auerbach is our Senior Vice President, Chief Strategy & Growth Officer. Includes 22,072 shares Mr. Auerbach has the right to acquire pursuant to outstanding options exercisable within 60 days of April 4, 2016, and 37,354 RSUs scheduled to vest within 60 days of April 4, 2016.
8 Mr. Barel is our Senior Vice President, Chief Risk Officer. Includes 19,671 shares Mr. Barel has the right to acquire pursuant to outstanding options exercisable within 60 days of April 4, 2016.
9 Ms. Pentland is our Senior Vice President, Chief Legal Officer and Secretary. Includes 13,244 shares Ms. Pentland has the right to acquire pursuant to outstanding options exercisable within 60 days of April 4, 2016, and 33,279 RSUs scheduled to vest within 60 days of April 4, 2016.
10 Mr. Ferguson is our former Senior Vice President, Consumer and served until September 15, 2015. Does not include ownership by Mr. Ferguson as he is no longer employed by the Company and the Company does not have access to information regarding his ownership.
11 The address for Mr. Casares is Xapo Inc., 2983 Woodside Road, Woodside CA 94062.
12 The address for Mr. Christodoro is Icahn Associates, 767 Fifth Avenue, 47th Floor, New York, NY 10153.
13 Includes 368,513 shares Mr. Donahoe has the right to acquire pursuant to outstanding options exercisable within 60 days of April 4, 2016.
14 The address for Mr. Dorman is Knoll Ventures, Tower Place 200, Suite 1000, 3348 Peachtree Road, NE, Atlanta, Georgia 30326.
15 The address for Ms. McGovern is American Red Cross, 430 17th Street, NW, Washington, DC 20006.
16 Includes 14,014 shares Mr. Moffett has the right to acquire pursuant to outstanding options exercisable within 60 days of April 4, 2016.
17 The address for Mr. Yeary is CamberView Partners, LLC, 2 Embarcadero Center, Suite 2150, San Francisco, California 94111.
18 Includes 792,687 shares subject to options exercisable within 60 days of April 4, 2016, and 131,500 RSUs scheduled to vest within 60 days of April 4, 2016.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

 

Section 16(a) of the Exchange Act requires our directors, executive officers, and holders of more than 10% of our common stock to file reports regarding their ownership and changes in ownership of our securities with the SEC, and to furnish us with copies of all Section 16(a) reports that they file.

 

We believe that during the fiscal year ended December 31, 2015, our directors, executive officers, and greater than 10% stockholders complied with all applicable Section 16(a) filing requirements, except for James Barrese and Hill Ferguson. Messrs. Barrese and Ferguson each filed one Form 4 two days late in August 2015 on RSU releases.

 

In making these statements, we have relied upon a review of the copies of Section 16(a) reports furnished to us and the written representations of our directors, executive officers, and greater than 10% stockholders.

 

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38    

 

PROPOSAL 2 — ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION

 

We are asking our stockholders to vote on an advisory basis to approve the compensation paid to our NEOs (“say on pay”), as described in the Compensation Discussion and Analysis and the compensation table sections of this proxy statement.

 

As discussed in the Compensation Discussion and Analysis, the Compensation Committee is committed to an executive compensation program that serves the long-term interests of our stockholders. We believe that attracting and retaining superior talent — supported by a competitive compensation program that is highly performance-based — is key to delivering long-term stockholder returns. The Compensation Committee believes that the goals of our executive compensation program are appropriate and that the program is properly structured to achieve those goals. In deciding how to vote on this proposal, the Board encourages you to read the Compensation Discussion and Analysis and the compensation table sections of this proxy statement.

 

The Board recommends that stockholders vote “FOR” the following resolution:

 

“RESOLVED, that the Company’s stockholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed in the Company’s Proxy Statement for the 2016 Annual Meeting of Stockholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the 2015 Summary Compensation Table, and the other related tables and disclosures.”

 

This “say on pay” vote is advisory, and therefore not binding on the Company, the Board, or the Compensation Committee. However, the Board and the Compensation Committee value the opinions of our stockholders and will take into account the outcome of this vote in considering future compensation arrangements.

 

The Board of Directors Recommends a Vote FOR Proposal 2.

 

  2016 Proxy Statement
 
    39

 

PROPOSAL 3 — ADVISORY VOTE ON THE FREQUENCY OF THE STOCKHOLDER ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION

 

In addition to providing stockholders with the opportunity to cast a “say on pay” advisory vote on the compensation of our NEOs, in accordance with SEC rules, we are also providing our stockholders with the opportunity to indicate how frequently we should seek an advisory vote on the compensation of our NEOs in the future. This non-binding advisory vote is commonly referred to as a “say on frequency” vote. Under this proposal, our stockholders may indicate whether they would prefer to have an advisory vote on executive compensation every year, every two years, or every three years.

 

The Compensation Committee and the Board believe that the advisory vote on executive compensation should be conducted every year because we believe this frequency will enable our stockholders to vote, on an advisory basis, on the most recent executive compensation information that is presented in our proxy statement, leading to more meaningful and timely communication between the Company and our stockholders on the compensation of our NEOs.

 

Stockholders are not voting to approve or disapprove the Board’s recommendation. Instead, you may cast your vote on your preferred voting frequency by choosing any of the following four options with respect to this proposal: “every year,” “every two years,” “every three years,” or “abstain.”

 

For the reasons discussed above, we are asking our stockholders to vote for a frequency of “every year.”

 

The say on frequency vote is advisory, and therefore not binding on the Company, the Board, or the Compensation Committee. However, the Board and the Compensation Committee value the opinions expressed by stockholders in their vote on this proposal, and will consider the option that receives the most votes in determining the frequency of future advisory votes on compensation of our NEOs.

 

The Board of Directors Recommends a Vote FOR “ EVERY YEAR .”

 

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40    

 

COMPENSATION DISCUSSION AND ANALYSIS

 

Dear PayPal Stockholder:

2015 was a historic year for PayPal, as we completed our separation from eBay in July 2015 to become an independent company again, celebrating the beginning of a new era. Today, PayPal is a leading technology platform company enabling digital and mobile payments on behalf of consumers and merchants worldwide. As a stand-alone company, our active customer accounts increased 11% in 2015 compared to 2014 and our customer engagement increased 12% in 2015 compared to 2014. Our total payment volume increased 20% in 2015 compared to 2014. Further, our FX-neutral revenue increased 19% to $9.2 billion in 2015 compared to 2014. Ultimately, our 2015 results reflect the dedication of approximately 16,800 employees worldwide, led by our President and Chief Executive Officer, Dan Schulman.

 

In terms of executive compensation, 2015 was a year of transition. We entered the year as part of eBay; and, as part of eBay, executive compensation decisions prior to the separation were made by the Compensation Committee of eBay (“the eBay Compensation Committee”) and designed to meet the objectives of eBay’s combined global business. Expecting that the separation would happen in 2015, the eBay Compensation Committee put into place an executive compensation program designed with two primary objectives.

 

The first program objective was to incentivize delivering business results for the combined company. The second was to incentivize the important work of creating a transition plan to enable two market leading technology companies to develop strong foundations, business models and leadership teams as separate companies. Following the separation, as the Compensation Committee of the Board of Directors of PayPal Holdings, Inc. (the “Committee”), we undertook a thorough review of the executive compensation programs we inherited from eBay, and redesigned the strategy to better fit our business. Our focus was to consider the unique requirements of the Financial Technology (“FinTech”) competitive landscape, which serve the long-term interests of PayPal’s stockholders.

 

The Compensation Discussion and Analysis (“CD&A”) that follows will give you an overview of our named executive officers’ compensation for fiscal year 2015 based on the decisions that were made by the eBay Compensation Committee prior to the separation. Just as importantly, the CD&A covers the compensation decisions that we, as the Committee, made post-separation, for the business going forward.

 

Our goal was to create transparent and simple programs that are motivational to our employees, align with stockholder interests and external expectations, and enable us to effectively compete for and win top talent. Our goal was also to build the strongest possible leadership team for PayPal. As we filled certain key roles, we made compelling employment offers to attract great leaders to choose PayPal over their existing positions and competing offers. We believe that our hiring and compensation decisions are building a strong foundation for future growth.

 

We encourage you to review this analysis carefully, and we hope you agree that our executive compensation programs support PayPal’s growth strategy and are well aligned with creating long-term stockholder value.

 

David W. Dorman (Chairman of the Compensation Committee)
Wences Casares
Jonathan Christodoro

 

  2016 Proxy Statement
 
       
Compensation Discussion and Analysis   41

 

Introduction

 

 

The company began fiscal 2015 as the payments business of one of the world’s largest e-commerce companies, and ended the year as a separate public company and a global technology platform company focused on payments and commerce. Our executive compensation programs for 2015 were a continuation of the programs that had been established by eBay, with specific performance metrics set for the business of PayPal.

 

After the separation from eBay in July 2015 (the “Separation”), PayPal’s Compensation Committee (the “Committee”) undertook a careful review of the Company’s business and the competitive environment in which it will operate as an independent public company. Recognizing that, as a financial technology company, PayPal’s business model is significantly different from that of eBay’s, the Committee reviewed the primary elements of the compensation programs in which PayPal’s executive officers participate. The Committee reconsidered its peer groups to tailor them to both the companies against which its performance is compared and the companies with whom it is competing for talent in Silicon Valley and beyond. The Committee also reconsidered the compensation programs with the goal of creating programs that properly incent and reward executives for performance that exceeds expectations; provide transparency for executives and stockholders; and remain comparable and competitive to programs that employees may be offered by other potential employers. After undertaking this thorough review, the Committee proposed, and the independent members of the Board approved, the programs for 2016 described below.

 

This Compensation Discussion and Analysis (“CD&A”) describes the compensation for each of PayPal’s named executive officers (“NEOs”) for 2015 as well as the executive compensation programs adopted for 2016. For fiscal 2015, the NEOs, whose compensation will be discussed in detail, were:
Daniel H. Schulman President and Chief Executive Officer
John D. Rainey Senior Vice President, Chief Financial Officer
Patrick L. A. Dupuis Senior Vice President, Former Interim Chief Financial Officer
Jonathan Auerbach Senior Vice President, Chief Strategy & Growth Officer
Tomer Barel Senior Vice President, Chief Risk Officer
A. Louise Pentland Senior Vice President, Chief Legal Officer and Secretary
Hill Ferguson Former Senior Vice President, Consumer

 

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42   Compensation Discussion and Analysis          

 

Executive Summary - Overview of Executive Compensation Programs

 

 

The following is a brief overview of the primary compensation elements for NEOs in 2015 and the changes we made for 2016.

 

Primary Compensation Elements for NEOs in 2015

 

  Total Direct Compensation  
      Salary   Annual
Incentive Award
  PBRSUs   RSUs   Stock Options  
  When is it set?   Set at hire; reviewed
annually
  Paid annually in
February
  Granted annually
in March
  Granted annually
in April
  Granted annually
in April
 
  Form of payment   Cash   Equity  
  Timeframe of
targeted performance
  Short-term emphasis   Long-term emphasis  
  Performance period   Ongoing   1 year   2 year period to meet performance targets; an additional 1 year vesting period for all or a portion of earned units   Generally, 4 year time-based vesting period   Generally, 4 year time-based vesting period  
  2015 performance
measures
 

N/A

 

Company Performance – FX-Neutral Revenue and Non-GAAP Net Income

 

Individual Performance

 

FX-Neutral Revenue and Non-GAAP Operating Margin Dollars, with Return on Invested Capital Modifier

 

Time-based vesting; value varies based on stock price performance

 

Time-based vesting; stock price appreciation from the grant date

 
  Objective  

Compensates for expected day-to-day performance

 

Rewards individuals’ current contributions to the Company

 

Reflects the scope of their roles and responsibilities

 

Attracts highly capable leaders in an extremely competitive talent market

 

Compensates for successful annual performance

 

Motivates executives to meet short-term performance goals that are designed to enhance the value of the Company

 

Attracts highly capable leaders in an extremely competitive talent market

 

Compensates for successful achievement of two year performance goals that are designed to enhance the longer term value of the Company

 

Intended to retain executives for the long term

 

Attracts highly capable leaders in an extremely competitive talent market

 

Compensates for the creation of longer term value over time

 

Intended to retain executives for the long term

 

Recognizes individual executive’s recent performance and potential future contributions

 

Attracts highly capable leaders in an extremely competitive talent market

 

Compensates for the creation of longer term value over time

 

Intended to retain executives for the long term

 

Provides a total compensation opportunity with payouts that increase in value as stockholder value increases

 

Attracts highly capable leaders in an extremely competitive talent market

 
                         

 

 

  2016 Proxy Statement
 
       
          Compensation Discussion and Analysis   43

 

 

Summary of 2016 Executive Compensation Changes

With the Separation and the formation of a new leadership team and compensation committee, the Company had the opportunity to evaluate the legacy compensation practices and policies and define a go-forward approach tailored to PayPal’s specific business and talent objectives. The Committee determined that the objective of the executive compensation program is to reward strong performance and attract and retain core top talent. Additionally, the program should be transparent and easy to understand for both participants and stockholders.

 

The Committee began its work by reconsidering the peer group used in measuring performance plans, considering the Committee’s goals to both reward performance and attract and retain core top talent. As discussed in more detail below, in reviewing our executive compensation program, the Committee ultimately considered two peer groups: one peer group utilized for evaluating relative performance and another peer group utilized in designing pay programs calculated to retain key employees against talent competitors. The two peer groups are similar, but there are certain companies in the “talent” peer group that are not in the “performance” peer group.

 

With the mandate of creating transparent programs that reward strong performance in the short term and the longer term while retaining core top talent, the Committee undertook a thorough review of its programs with the assistance of its independent compensation consultant, Pay Governance LLC (“Pay Governance”). The resulting newly-designed executive compensation program for 2016 is structured to more closely align executive pay with Company performance by rewarding continued financial success in our businesses while also driving strategic growth. The following is a summary description of our executive compensation programs for 2016:

 

Redesigned
Annual Incentive
Award Program
(“AIP”)
The Company maintained an annual incentive program with a similar construct as prior to the Separation. FX-Neutral Revenue serves as the “gate,” or the funding performance target. Assuming the funding target is achieved, Non-GAAP Net Income is the primary performance metric that establishes the payout. The AIP continues to weight financial performance at 75%, and individual performance at 25%. The one structural change made to the AIP was the introduction of “net new actives” as an additional performance metric. Assuming the funding target is achieved, for every 12.5% increase in net new actives above budgeted target, an incremental 1% will be added to the financial performance component. The net new actives performance metric is intended to reinforce the critical importance of growing the customer base to build for the future.

 

 

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44   Compensation Discussion and Analysis          

 

 

 

Restructured Mix
of Long-Term
Incentives
Recognizing that the Company’s talent peer group companies have been trending away from stock options, we eliminated stock options in the mix of long-term incentives and restructured the mix of long-term incentive grant value for our executive officers to consist of 50% performance-based restricted stock units (“PBRSUs”) and 50% restricted stock units (“RSUs”).
   
PBRSUs  
   
Emphasis on
Long-Term
Strategic Growth
To further emphasize the creation of longer term value for stockholders, we increased the performance period of PBRSUs from two-year to three-year performance cycles with full cliff vesting following the end of the performance period, subject to the Committee’s approval of the level of achievement against the predetermined performance targets.
   
Revised PBRSU
Performance
Metrics
We simplified the PBRSU performance metrics to focus on compound annual growth rate (“CAGR”) of two key business metrics:
FX-Neutral Revenue – intended to emphasize growth in active customer accounts, number of payment transactions and total payment volume; and
Free Cash Flow – intended to emphasize cash generation capability of the business to finance its continued growth and investment requirements, while positioning the Company to take advantage of inorganic growth opportunities.
     

 

 

  2016 Proxy Statement
 
       
          Compensation Discussion and Analysis   45

 

 

 

Changed RSU
Time-Based
Vesting Schedule
to Three Years
In recognition of trends among the Company’s talent peer group, we moved to three-year ratable vesting for RSUs.

 

Comparison of Mix of Long-Term Incentives

The following charts compare the mix of long-term incentive grant values for our executive officers for 2015 and 2016.

 

 

 

 

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The following is a brief overview of the primary compensation elements for NEOs in 2016.

 

Primary Compensation Elements for NEOs in 2016

 

       
  2016 Compensation Changes    
       
       Salary   Total Direct Compensation
Annual Incentive Award
   PBRSUs    RSUs  
                     
  When is it set?   Set at hire; reviewed
annually
  Paid annually in February   Granted annually
in March
  Granted annually
in April
 
                     
  Form of
payment
  Cash   Equity  
                     
  Timeframe
of targeted
performance
  Short-term emphasis   Long-term emphasis  
             
  Performance
period
  Ongoing   1 year  

3 year performance period with cliff vesting, if any, following end of performance period

 

 

3 year time-based vesting ratable period

 

 
                     
                     
  2016
performance
measures
  N/A  

Company Performance – FX-Neutral Revenue and Non-GAAP Net Income, with Net New Actives adjustment

 

 

FX-Neutral Revenue CAGR and Free Cash Flow CAGR

 

  Time-based vesting; value varies based on stock price performance  
          Individual Performance          
                     
  Objective  

Compensates for expected day-to-day performance

 

Rewards individuals’ current contributions to the Company

 

Reflects the scope of their roles and responsibilities

 

Attracts highly capable leaders in an extremely competitive talent market

 

Compensates for successful annual performance

 

Motivates executives to meet short-term performance goals that are designed to enhance the value of the Company

 

Attracts highly capable leaders in an extremely competitive talent market

 

Compensates for successful achievement of 3 year performance goals that are designed to enhance the longer term value of the Company

 

Intended to retain executives for the long term

 

Attracts highly capable leaders in an extremely competitive talent market

 

Compensates for the creation of longer term value over time

 

Recognizes individual executive’s recent performance and potential future contributions

 

Intended to retain executives for the long term

 

Attracts highly capable leaders in an extremely competitive talent market

 
                     
                     

 

 

  2016 Proxy Statement
 

       
          Compensation Discussion and Analysis   47

 

Key Considerations in Setting Pay

OBJECTIVES OF EXECUTIVE COMPENSATION PROGRAM

Prior to the Separation, the eBay Compensation Committee’s compensation decisions were guided by eBay’s compensation philosophy and practices.

 

The goals of the eBay Compensation Committee’s executive compensation program were to:

  align compensation with the eBay business objectives and performance;
  motivate NEOs to enhance long-term stockholder value;
  position us competitively among the companies against which we recruit and compete for talent; and
  enable us to attract, retain and reward NEOs and other key employees who contribute to our long-term success.

 

Following the Separation, in September 2015, the Committee articulated PayPal’s redefined compensation philosophy to reflect its separation from eBay and the challenges inherent in operating as an independent FinTech company.

 

As such, in addition to the prior philosophy and practices, we prioritized the following:

  Simplicity, Transparency and Clarity of our programs – such that executives can directly link Company and individual performance to their pay, and further, such that stockholders can directly link returns on their investment to Company performance
  One Team – unified goals and objectives for the entire executive staff (and all employees Company-wide) to drive operational decisions and Company performance
  Winning the War for Talent – recognizing the unique FinTech space PayPal has entered post-Separation, prioritizing nimble and aggressive compensation strategies to attract and retain key talent
  Individual Performance – such that top performers are compensated commensurate with results, both on the upside and the downside, and holding leaders accountable for under-performance

 

PAY FOR PERFORMANCE

Our guiding principle for our executive compensation program continues to be aligning executive compensation with the interests of our stockholders by tying a significant portion of executive compensation to our performance.

 

2015 Performance Highlights

  We successfully completed the strategic goal to separate PayPal from eBay to enhance stockholder value.
  With the expectation that the Company would be separating from eBay during the year, PayPal specific performance metrics were established. Based on 2015 Company performance, the bonus payouts and the performance-based restricted stock units that were granted in 2014 with a two-year performance period paid out slightly above target.
  We successfully identified, negotiated and completed four acquisitions, including Paydiant and Xoom, and intend to continue to build on our pattern of success in developing the capabilities we have acquired.
  The following graphic shows certain of our key financial performance metrics and operational highlights for 2015. We use certain of these key metrics as financial performance measures in our compensation program and believe such measures help to align the interests of our executives with those of our stockholders.

 

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48   Compensation Discussion and Analysis          

 

  Our 2015 Key Performance Metrics  
           
    Top Line Growth:      
  Revenue of over $9.2 Billion   Up 19%* from 2014  
      *Calculated on an FX neutral basis  
           
           
    Expanding Our Base:      
  Active Customer Accounts of 179 Million   Up 11% from 2014  
           
           
    Driving Customer Engagement:      
  27 Transactions Per Active Account   Up 12% from 2014  
           
           
    Generated Free Cash Flow of $1.8 Billion**      
  **See reconciliation to operating cash flow included in the MD&A section on page 46 of our 2015 Annual Report on Form 10-K filed with the SEC on February 11, 2016  

 

 

Linking 2015 NEO Compensation to Performance

We believe that our executive compensation programs were effective at incentivizing results in 2015 by appropriately aligning pay and performance. The pie charts below show the target total direct compensation mix for 2015 for Mr. Schulman as our CEO and the average for our other NEOs. Target Total Direct Compensation is the sum of (i) 2015 base salary, as shown in the “Salary” column of the Summary Compensation Table, (ii) target 2015 incentive cash award, as shown as the “Target Incentive Amount” in the table under the “Compensation Framework – Incentive (Performance-Based) Compensation for 2015 – Annual Incentive Award Program – Target Incentive Amounts” section below and (iii) target annual long-term incentive value, as shown as “2015 LTI Grant Value” in the tables under the “Compensation Framework – Incentive (Performance-Based) Compensation for 2015 – Long-Term Incentive  Components – Long-Term Incentive Annual Target Value” section below.

 

 

 

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          Compensation Discussion and Analysis   49

 

Annual Incentive Award Program

Our eligible NEOs earned annual cash bonuses under the 2015 annual incentive award program (the “2015 AIP”), which is the Company’s annual cash bonus program for eligible employees adopted pursuant to the PayPal Employee Incentive Plan. The Committee approved funding 2015 cash bonuses under the 2015 AIP only upon the Company achieving a pre-established threshold level of FX-Neutral Revenue (the “2015 AIP Funding Threshold”), which was set prior to the time of the Separation. Our Committee then approved specific awards of these cash bonuses based upon the Company’s performance with regard to the pre-established Non-GAAP Net Income performance goals and each executive’s individual performance, as further discussed under “Compensation Framework – Incentive (Performance-Based) Compensation for 2015 – Annual Incentive Award Program.” The Company exceeded the 2015 AIP Funding Threshold, and based on the Company’s Non-GAAP Net Income performance against the pre-established performance goals, the Committee determined that the Company performance component of the 2015 AIP earnout was 118% of target.

 

Performance-Based Restricted Stock Units (PBRSUs)

In 2014, the eBay Compensation Committee awarded Senior Vice Presidents (which included certain of our NEOs) long-term incentive annual target values, granted 50% as PBRSUs, 30% as RSUs and 20% as stock options, to further align compensation of our NEOs to the Company’s performance. PBRSUs granted to our NEOs in 2014 were subject to an additional time-based vesting period if the Company met or exceeded specified financial performance criteria of FX-Neutral Revenue and Non-GAAP Operating Margin Dollars during the 2014-2015 performance period. Recognizing the impact that the Separation would have on performance metrics, the eBay Compensation Committee specified PayPal-specific performance targets for 2015. Under the PBRSUs that were awarded in 2014 with a two-year performance period (the “2014-2015 PBRSUs”), as tailored to specific PayPal performance for 2015, we exceeded the FX-Neutral Revenue threshold goal and the Non-GAAP Operating Margin Dollars and Return on Invested Capital target goals, resulting in an earnout of 102% of the target number of PBRSUs awarded. These PBRSUs were granted as time-based RSUs on March 1, 2016, subject to an additional one-year time-based vesting period from the RSU grant date.

 

The Company’s 2015 performance affected two PBRSU award cycles, 2014-2015 and 2015-2016. When setting the performance targets of the PBRSUs that were granted in 2015 with a two-year performance period (the “2015-2016 PBRSUs”), the eBay Compensation Committee set PayPal-specific performance targets for 2015 and 2016 that were designed to be challenging but achievable over the two-year performance period. Award earnouts for the 2015-2016 PBRSUs will be determined based on performance against approved targets for FX-Neutral Revenue, Non-GAAP Operating Margin Dollars and Return on Invested Capital (“ROIC”), to be evaluated following the completion of the 2015-2016 performance period.

 

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KEY GOVERNANCE PRACTICES

We are committed to having strong governance standards with respect to our compensation programs and practices. Consistent with this focus, we have the following programs and practices that we believe are mindful of the concerns of our stockholders and governance best practices.

 

   
  What We Do
  Pay for
Performance
  The majority of our NEOs’ Target Total Direct Compensation in 2015 is performance-based compensation.
       
  Clawback Policy   Our clawback policy is applicable to each officer employed as a Vice President or in a more senior position, and permits the Committee to require forfeiture or reimbursement of incentive compensation, which includes any cash incentive award, equity award, or equity-based award paid or awarded to any covered employee during the period in which he or she is designated as a covered employee, if (i) an action or omission by the covered employee constitutes a material violation of the Code of Business Conduct; or (ii) an action or omission by the covered employee results in material financial or reputational harm to the Company. In addition, for covered employees that are employed as a senior vice president or in a more senior position or as a vice president who is a member of the finance function, the following event is also covered: a material restatement of all or a portion of the Company’s financial statements that is the result of a supervisory or other failure by the covered employee.
       
  Meaningful
Stock Ownership
Guidelines
  Our stock ownership guidelines align the long-term interests of our NEOs and non-employee directors with those of our stockholders and discourage excessive risk-taking. Our guidelines require stock ownership levels as a value of PayPal shares equal to a multiple of base salary (CEO at 6x and other executive officers at 2x) or annual retainer (non-employee directors at 5x), and include stock retention requirements for executive officers until such target ownership levels are met.
       
  Prohibition
of Hedging
and Pledging
Transactions
  The Company’s insider trading policy prohibits members of our Board, executive officers and other employees from (i) entering into any hedging or monetization transactions relating to our securities or otherwise trading in any instrument relating to the future price of our securities or (ii) pledging PayPal common stock as collateral for any loans.
       
  Multi-Year
Vesting Schedule
Requirement
  The Company’s equity compensation plan provides that awards (other than options and stock appreciation rights) will vest over a minimum vesting period of three years (or, in the case of awards subject to performance goals, one year), with limited exceptions, to reinforce a culture in which the Company’s executives remain focused on the Company’s long-term success.
       
  Independent
Compensation
Consultant
  The Committee engages its own independent compensation consultant, Pay Governance, to advise on executive and director compensation matters. Pay Governance does not provide any other services to the Company.
       
  Annual Risk Assessment   Based on our annual risk assessment, we concluded that our compensation programs do not present any risk that is reasonably likely to have a material adverse effect on the Company.
       
  Annual Comparator Peer Group Review   The Committee, with the assistance of Pay Governance, reviews the makeup of our comparator peer groups annually and makes adjustments to the composition of the groups as it deems appropriate.
       

 

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          Compensation Discussion and Analysis   51

 

   
  What We Don’t Do
  No Excise Tax Gross-Ups
on Severance Payments
  We do not provide any gross-ups of excise taxes on severance or other payments in connection with a change in control.
       
  No “Single-
Trigger”
Payments and
Acceleration of
Equity Awards
  We do not pay “single-trigger” payments or maintain any plans that require single-trigger acceleration of equity awards to executives upon a change in control of the Company.
       
  No Tax
Gross-Ups on
Perquisites
  We do not provide tax gross-ups on perquisites other than in limited circumstances for business-related relocations and assignment-related benefits that are under our control, at our direction and deemed to benefit our business operations.
       
  No Continuation
of Fringe Benefits
  We do not continue executive fringe benefits following a termination of employment under our severance and change in control arrangements.
       
  No Discounting
of Stock Options
or Repricing
of Underwater
Options
  We expressly prohibit the discounting of stock options and the repricing of underwater stock options without stockholder approval under the Company’s equity compensation plan.
       

 

 

 

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Compensation Framework

 

Incentive (Performance-Based) Compensation for 2015

When deciding the target amount and form of each element of compensation for each of our executive officers, the eBay Compensation Committee took into account the size and complexity of the executive officer’s job and business unit or function. The Committee continues to take into account such considerations, including the following (the “Incentive Compensation Factors”):

  performance against financial performance measures for the executive’s business unit or function;
  defining business unit or function strategy and roadmaps and executing against them;
  organizational development, including hiring, development and retention of the team of each business unit or function;
  leadership;
  improving and supporting innovation and execution for the business unit or function;
  negotiating, closing and integrating acquisitions, dispositions, and/or strategic partnerships; and
  achievement of strategic and operational objectives, and executing against budgets.

 

No specific weightings were assigned to these factors; instead, individual performance was evaluated based on a holistic and subjective assessment of each individual executive’s performance against these factors.

 

ANNUAL INCENTIVE AWARD PROGRAM

The 2015 AIP provides our NEOs with the opportunity to earn annual cash incentive compensation based on achievement of the Company’s financial and business objectives and each employee’s own individual performance.

 

The Committee believes that it is important to have our executives’ annual incentives tied to overall Company financial and/or business performance, with individual compensation differentiated based on individual performance.

 

Target Incentive Amounts

The 2015 annual cash incentive target as a percentage of base salary for each NEO was determined based on (i) the eBay Compensation Committee’s assessment of data from public filings of eBay’s 2015 peer group companies and general industry data for comparable technology companies that were included in proprietary third-party surveys; (ii) each NEO’s position within the Company; and (iii) for the NEOs that commenced employment with us in 2015, arms-length negotiations of offer letters related to each NEO’s employment commencement.

 

The eBay Compensation Committee aimed to set target annual cash incentive opportunities for our NEOs at approximately the 50th percentile based on that data; however, individual target annual cash incentive opportunities may be higher or lower than the median depending on the Incentive Compensation Factors and the result of the arms-length negotiations of offer letters related to each NEO’s employment commencement.

 

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          Compensation Discussion and Analysis   53

 

The table below shows the target 2015 AIP opportunities for each of our NEOs, expressed (i) as a percentage of base salary and (ii) in dollars.

 

  Annual Cash Incentive Target as Percentage of   Target Incentive Amount
Name Base Salary   (in Dollars) 1
Daniel H. Schulman Prior to Separation: 175%
After Separation: 200%
  $1,884,616  
John D. Rainey 100%   $212,500  
Patrick L. A. Dupuis 65%   $341,250  
Jonathan Auerbach 65%   $265,625  
Tomer Barel 65%   $235,268  
A. Louise Pentland 100%   $398,846  
Hill Ferguson 65%   $233,700  

 

1 The Target Incentive Amount is pro-rated based on the eligible earnings paid while such NEO was employed in a 2015 AIP-eligible position during the annual bonus performance period. The amount reported for Mr. Barel’s Target Incentive Amount is 65% of his 2015 base salary, converted from New Israeli Shekels (“NIS”) to U.S. dollars (“USD”) at an exchange rate of 1 NIS to 0.254 USD.

 

Company Performance Measures

In early 2015, the eBay Compensation Committee set the Company performance measures under the 2015 AIP for our NEOs, to support a tight link between Company performance and incentive payouts. Expecting that PayPal’s business would be separated from eBay during the year, the eBay Compensation Committee established performance metrics and target performance levels specific to the PayPal business. In establishing these targets at the beginning of the year, the eBay Compensation Committee was required to make certain assumptions about the go-forward PayPal business, such as the tax rate that would apply to the Company following the Separation. Certain of these metrics could not be known with perfect certainty at the time, but were made with the best available information. The eBay Compensation Committee adopted, and the Committee later ratified, the two performance measures for the 2015 AIP, as set forth in the following table.

 

Measure   Definition   Purpose
FX-Neutral Revenue   Calculated on a fixed foreign exchange basis (which we refer to as FX-Neutral)   The eBay Compensation Committee believed, and the Committee continues to believe, that a revenue threshold should be included to ensure that no cash incentive is paid if future income may be impaired by insufficient revenue growth.
Non-GAAP
Net Income
  Non-GAAP net income excluded certain items, primarily stock-based compensation expense and related employer payroll taxes, amortization of acquired intangible assets, impairment of goodwill, separation expenses, certain one-time gains, losses and/or expenses, and income taxes related to these items. Non-GAAP net income is calculated quarterly, is publicly disclosed as part of our quarterly earnings releases, and is a basis of third-party analysts’ estimates of the Company’s results.   The eBay Compensation Committee believed, and the Committee continues to believe, that non-GAAP net income is a key measure of short- and intermediate-term results for the Company given that it can be directly affected by the decisions of the Company’s management and provides the most widely followed measure of financial performance for our industry. The Committee also believes that this primary non-GAAP net income measure should apply only if a minimum revenue threshold is met and should result in no cash incentive being paid when future income will be negatively impacted by insufficient revenue growth.

 

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The eBay Compensation Committee determined that the annual cash incentives payable for 2015 had both a minimum FX-Neutral Revenue threshold (the “2015 AIP Funding Threshold”) and a minimum Non-GAAP Net Income threshold. Unless both of these thresholds are met, there is no incentive payout. If both thresholds are met, the Company uses total Non-GAAP Net Income as the primary determinant of the payout for the 2015 AIP. The Company performance earnout level under the 2015 AIP could range from 50% at the minimum Non-GAAP Net Income level up to 200% at the maximum Non-GAAP Net Income level (assuming the 2015 AIP Funding Threshold was also met). If the plan becomes funded, 75% of the Target Incentive Amount of the 2015 AIP is based on the Company’s Non-GAAP Net Income financial performance against the pre-established goals. The remaining 25% of the Target Incentive Amount of the 2015 AIP is based on individual performance.

 

The table below shows the (i) threshold, (ii) target and (iii) maximum performance goals established by the eBay Compensation Committee for the 2015 AIP, which were set in the first quarter of 2015 based primarily on the Company’s approved budget for the year, (iv) the actual levels achieved in 2015, and (v) the resulting Company Performance Score, defined as an earnout percentage based on Company performance against pre-established goals.

 

          Percentage of Target
Company Measure Threshold Target Maximum 2015 Actual Achieved 1
FX-Neutral Revenue $8.64 Billion N/A N/A $9.25 Billion 2 N/A
Non-GAAP Net Income $1.57 Billion $1.65 Billion $1.78 Billion $1.69 Billion 2 118%
Company Performance Score         118%

 

1 After the end of each year, the Company’s actual performance is compared to the performance measures to determine the earnout level of that portion of the AIP, subject to Committee–approved variation due to material events not contemplated at the time the targets were set (such as major acquisitions) and to the Committee’s negative discretion.
2 As part of its review of the Company’s performance against its targets, the Committee considered whether any significant corporate events, not contemplated at the time the targets were set, should lead to an adjustment of FX-Neutral Revenue or Non-GAAP Net Income results. The Committee concluded that (1) the FX-Neutral Revenue results should be adjusted to exclude the impact of items that are directly attributable to the Separation and (2) the Company’s Non-GAAP Net Income results should be adjusted to exclude the impact of (i) an increased tax rate to normalize for the impact of non-deductible items and first quarter 2015 transfer pricing reserves, (ii) Consumer Financial Protection Bureau regulatory settlement related to prior years, (iii) the sale of participation interests in a portion of our consumer credit portfolio, which impact was specifically excluded from budget discussions in early 2015, (iv) certain extraordinary executive compensation related expenses related to forming the current executive management team, (v) additional revenue recognized as a result of the amendment of our credit program agreement with Synchrony Financial (formerly GE Capital Retail Bank) and (vi) items that are directly attributable to the Separation.

 

Individual Performance Measures

To facilitate differentiation based on individual performance, 25% of the Target Incentive Amount for our NEOs is based on individual performance (the “Individual Performance Score”). In circumstances where the Company’s financial performance is above its threshold goal but below target, a modifier is applied to the individual performance component to reduce it proportionately based on the Company financial performance component (the “Non-GAAP Net Income Modifier”). For example, if the Company exceeded the FX-Neutral Revenue threshold but total Non-GAAP Net Income was 90% of target, then the individual performance component would be calculated as follows: Target Incentive Amount x 25% x Individual Performance Score x 90%. The modifier only reduces, and cannot increase, the individual performance component based on the Company’s financial performance.

 

To determine each NEO’s Individual Performance Score, which may range from 0% to 200%, Mr. Schulman presented to the Committee his assessment of each NEO’s individual performance, and the Committee assessed Mr. Schulman’s individual performance. The evaluations included an assessment of each NEO’s performance with respect to individual performance factors (collectively, the “Performance Factors”).

 

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          Compensation Discussion and Analysis   55

 

The Performance Factors relate specifically to each executive’s job function and generally encompass the following for each executive:

 

NEO 1 Performance Factors
Daniel H. Schulman Lead successful separation of PayPal from eBay
  Maintain and strengthen leading market position and brand as independent company
  Provide leadership and direction to position PayPal as a leading financial technology platform company enabling digital and mobile payments
  Create world class executive management team and culture to enable PayPal to attract and retain top talent
John D. Rainey Execute financial plans designed to meet or exceed expectations for growth, margin and cash flow targets post-Separation
  Implement programs and processes to facilitate cost savings and operational efficiencies
  Lead effective investor relations activities and external guidance process
Patrick L. A. Dupuis Prior to Separation
  Co-lead successful separation of PayPal from eBay as Interim Chief Financial Officer
  Execute financial plans designed to meet or exceed expectations for growth, margin and cash flow targets
  Implement programs and processes to facilitate cost savings and operational efficiencies
  Lead effective investor relations activities and external guidance process
     
  Post-Separation
  Create simplicity, quality and productivity initiatives to increase PayPal’s consumer experience and engagement levels, enabling greater revenue opportunities
Jonathan Auerbach Lead PayPal’s efforts to develop and manage strategic growth priorities, as a newly formed independent company
  Support development and implementation of product roadmap based on strategic planning efforts
Tomer Barel Lead initiatives to develop and deploy automated risk management and fraud detection solutions
  Continually refine all aspects of risk management of PayPal, including enterprise, regulatory, credit and financial risks
A. Louise Pentland Lead compliance with financial and regulatory requirements
  Lead corporate governance initiatives to reflect best practices
  Provide effective legal support related to acquisitions and integration

 

1 Mr. Ferguson stepped down from his position as Senior Vice President, Consumer, effective September 15, 2015. In light of his employment termination, he was not eligible for a payout under the 2015 AIP; however, Mr. Ferguson was eligible to receive a prorated 2015 AIP payout pursuant to the terms of the SVP and Above Standard Severance Plan (“Severance Plan”). See “Potential Payments Upon Termination or Change in Control” section below for more information.

 

In determining the Individual Performance Score for each NEO, Mr. Schulman and the Committee did not place specific weightings on the Performance Factors, but performed a holistic and subjective assessment of each individual executive’s performance against his or her respective Performance Factors, taking into account the relative importance to the Company of the Performance Factor. Mr. Schulman recommended to the Committee each NEO’s Individual Performance Score other than his own.

 

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In early 2016, under the direction of our Chairman of the Committee, the Committee evaluated the performance of our CEO and his direct reports under a 360° review process, by which the Chairman of the Board interviewed each of our NEOs (other than Mr. Ferguson) and discussed our CEO’s performance and the performance of each of our NEOs (other than Mr. Ferguson) as part of its review of individual performance. The Committee then made a final determination, in its sole and absolute discretion, as to the Individual Performance Score for each applicable NEO after considering Mr. Schulman’s recommendations (other than with respect to himself), reviewing the individual’s performance with respect to the Performance Factors, and considering its own observations and assessments of the NEOs’ and PayPal’s performance, including its determinations following the Committee’s 360° review process. The Committee approved the Individual Performance Scores of Messrs. Rainey, Dupuis, Auerbach and Barel and Ms. Pentland as recommended by Mr. Schulman of 100%, 150%, 125%, 175% and 150%, respectively. For Mr. Schulman, the Committee approved an Individual Performance Score of 150%.

 

2015 AIP Payout

The actual amount of an NEO’s 2015 AIP award was determined by the following formula:

 

 
Target Incentive Amount
 
x
 
(a) 75% x Company Performance Score
 
+
 
(b)(i) (25% x Individual Performance Score) x (ii) Non-GAAP Net Income Modifier, if any
 
= 2015 AIP Payout
 

 

Because the minimum threshold for the FX-Neutral Revenue was met in 2015, the 2015 AIP was funded. The table below shows the 2015 AIP Payout for each NEO, based on Company and individual performance.

 

            (a) 75%       (b)(i) 25%       (b)(ii) Non-        
    Target Incentive       (Company       (Individual       GAAP Net        
    Amount       Performance       Performance       Income       2015 AIP
NEO   (in Dollars) 1   x   Score)   +   Score)   x   Modifier   =   Payout
Daniel H. Schulman   $1,884,616         118%       150%       N/A       $2,374,615  
John D. Rainey   $212,500         118%       100%       N/A       $241,188  
Patrick L. A. Dupuis   $341,250         118%       150%       N/A       $429,975  
Jonathan Auerbach   $265,625         118%       125%       N/A       $318,086  
Tomer Barel 2   $235,268         118%       175%       N/A       $311,141  
A. Louise Pentland   $398,846         118%       150%       N/A       $502,546  
Hill Ferguson 3   N/A         N/A       N/A       N/A       N/A  

 

1 The Target Incentive Amount is pro-rated based on the eligible earnings paid while such NEO was employed in a 2015 AIP eligible position during the annual bonus performance period.
2 The amount reported for Mr. Barel’s 2015 AIP Payout is converted from NIS to USD at an exchange rate of 1 NIS to 0.254 USD.
3 In connection with Mr. Ferguson stepping down from his position as Senior Vice President, Consumer, effective September 15, 2015, Mr. Ferguson was eligible to receive a prorated 2015 AIP payout pursuant to the terms of the Severance Plan, or $265,250, which is reflected in the “All Other Compensation” column of the 2015 Summary Compensation Table. See “Potential Payments Upon Termination or Change in Control” section below for more information.

 

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Supplemental Bonus Payment to Mr. Dupuis

In September 2015, following the determination that Mr. Dupuis would transition into his new role as Senior Vice President, Simplicity, Quality, Productivity, the Committee determined to award Mr. Dupuis a supplemental bonus payment equal to $525,000, in recognition of his leadership role in and contributions related to the Separation, including his instrumental role in negotiating the operating agreement between PayPal and eBay, his leadership role related to the separation of financial operations as Interim CFO and his significant role in investor outreach in connection with the Separation.

 

2016 AIP

For 2016, the Committee approved an annual incentive design under the PayPal Employee Incentive Plan that retains the FX-Neutral Revenue and Non-GAAP Net Income performance measures framework (the “financial performance-related components”), including the requirement that both the FX-Neutral Revenue threshold and a minimum Non-GAAP Net Income threshold be met for the plan to be funded (the “2016 AIP”). In addition, the Committee introduced the “net new actives” operational performance metric, as an adjustment of 1 percentage point for every 12.5% of net new active accounts above the budgeted target. The introduction of the “net new actives” performance metric is intended to reinforce the critical importance of growing the customer base to build for the future and is defined as the change in the number of active customer accounts compared to the prior period, in this case 2016 compared to 2015. The 2016 AIP also retains the Individual Performance Score construct, to facilitate differentiation based on individual performance.

 

Further, in February 2016, the Committee approved increases to the annual cash incentive target as a percentage of base salary for the following NEOs that were then-serving as executive officers, for purposes of internal equity and individual performance:

 

  2015 AIP Target as Percentage of 2016 AIP Target as Percentage of
NEO Base Salary Base Salary
Jonathan Auerbach 65% 75%
Tomer Barel 65% 75%

 

LONG-TERM INCENTIVE COMPONENTS

Long-Term Incentive Annual Target Value

Prior to the Separation, the long-term incentive (“LTI”) annual target value for 2015 was determined within guidelines that the eBay Compensation Committee annually established for each position. These guidelines were based on the desired pay positioning relative to companies with which eBay competed for talent. The midpoint of the guidelines, or the median target award, reflected the 50th percentile of the competitive market. The target levels of individual awards were based on individual performance and potential, as well as comparative market information and the need for individual retention incentives. The individual awards could be higher or lower than the median target award by an amount ranging from zero to three times the median target award. As discussed below, the Company also hired several new executives in key roles; in recruiting these individuals to join the Company, it was necessary to provide these individuals with certain initial and subsequent equity awards.

 

In 2015, the eBay Compensation Committee set equity award guidelines by position based on the following:

  equity compensation practices of technology companies in our peer group, as disclosed in their public filings (see “Use of Peer Group Comparisons” below for our 2015 peer group), and
  equity compensation practices for comparable technology companies that were included in proprietary third-party surveys.

 

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Based on these guidelines (and for Mr. Schulman, pursuant to his September 2014 offer letter, in early 2015) the eBay Compensation Committee approved the 2015 LTI grant values for the following NEOs who were employed in the eBay organization at the beginning of 2015, as shown in the table below.

 

NEO 2015 LTI Grant Value
Daniel H. Schulman $11,000,000 1
Tomer Barel $2,000,000
Hill Ferguson $2,000,000

 

1 The eBay Compensation Committee agreed to the size of Mr. Schulman’s annual equity award for 2015 as well as an equity award upon the completion of the Separation, as follows:
  a. 2015 annual equity awards: Target Grant Value of $9 million, to be granted pursuant to eBay’s annual equity grant procedures and policy
  b. Separation awards: Target Grant Value of $2 million, with a grant date effective immediately prior to the Separation

 

Once the LTI annual target value had been set for each eligible executive officer, the following formula was used to allocate the annual equity awards, resulting in the number of shares subject to such awards, as shown in the table below:

  50% PBRSUs,
  30% time-based RSUs, and
  20% stock options.

 

NEO 2015 Target PBRSUs 1 2015 RSUs 2 2015 Stock Options 3
Daniel H. Schulman 3/16/15: 121,029 4/1/15: 72,618 4/1/15: 145,234
  7/17/15: 25,402 7/17/15: 15,243 7/17/15: 30,485
Tomer Barel 3/16/15: 26,896 4/1/15: 16,138 4/1/15: 32,275
Hill Ferguson 3/16/15: 26,896 4/1/15: 16,138 4/1/15: 32,275

 

1 The target number of PBRSUs was determined by dividing the USD value of the award by the Average eBay Closing Price (i.e., generally, the average of the closing prices of eBay common stock for a period of 10 consecutive trading days prior to the grant date). For the PBRSUs with a grant date on or before July 17, 2015, the amounts shown represent the target number of PayPal PBRSUs, following adjustment using a conversion ratio based on the volume-weighted average price for each of eBay’s and PayPal’s common stock immediately before and immediately following the Separation (the “Conversion Ratio”).
2 The number of RSUs granted was determined by dividing the USD value of the award by the Average eBay Closing Price. For RSUs with a grant date on or before July 17, 2015, the amounts shown represent the number of PayPal RSUs, following adjustment of eBay RSUs using the Conversion Ratio.
3 The number of stock options granted was determined by dividing the USD values of the award by the Average eBay Closing Price multiplied by three. For stock options with a grant date on or before July 17, 2015, the amounts shown represent the number of PayPal stock options, following adjustment of eBay options using the Conversion Ratio.

 

In addition to the LTI annual grant values noted above, the eBay Compensation Committee made, and the Committee may make, special equity-related compensation decisions for performance, retention, acquisitions, and/or recruitment purposes (including “make good” payments for equity or other compensation awards from a former employer that an executive officer may be required to forfeit or forgo by accepting employment with the Company) that cause individual equity compensation in a particular year to differ from the generally stated compensation strategy and guidelines.

 

2015 was an extraordinary year for the Company in contemplation of the Separation. As a result, the eBay Compensation Committee determined that it was necessary to make compensation decisions to help us attract and retain key executive officers deemed instrumental to the thoughtful and orderly execution of the Separation and the positioning of PayPal for success as an independent, publicly-traded company. Accordingly, the eBay

 

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Compensation Committee approved the 2015 LTI grant values for Mr. Auerbach and Ms. Pentland, both of whom commenced employment with eBay following the regular annual grant of equity awards. In addition, following the Separation, the Committee approved the 2015 LTI grant values for Mr. Rainey, who commenced employment with PayPal, and Mr. Dupuis, who transitioned into a new role.

 

NEO 2015 LTI Grant Value
John D. Rainey $5,000,000
Patrick L. A. Dupuis 1 $2,000,000
Jonathan Auerbach $5,000,000
A. Louise Pentland $3,000,000

 

1 The Committee determined to award Mr. Dupuis his annual equity award for 2015 on October 15, 2015, after his new role at PayPal following the Separation was identified, which was determined not to be an executive officer position.

 

The LTI annual target values were converted using the formula used to allocate the annual equity awards: 50% PBRSUs, 30% RSUs and 20% stock options, as shown in the table below.

 

NEO 2015 Target PBRSUs 1 2015 RSUs 2 2015 Stock Options 3
John D. Rainey 9/15/15: 72,825 9/15/15: 43,695 9/15/15: 87,390
Patrick L. A. Dupuis 10/15/15: 28,885 10/15/15: 18,471 10/15/15: 36,941
Jonathan Auerbach 5/15/15: 67,915 5/15/15: 40,750 5/15/15: 81,498
A. Louise Pentland 5/15/15: 40,750 5/15/15: 24,450 5/15/15: 48,899

 

1 The target number of PBRSUs was determined by dividing the USD value of the award by the Average eBay Closing Price for PBRSUs with a grant date on or before July 17, 2015. For PBRSUs with a grant date after July 17, 2015, the average of the closing prices of PayPal common stock for the 10 consecutive trading days prior to the grant date or the closing price on the date of grant was used. For the PBRSUs with a grant date on or before July 17, 2015, the amounts shown represent the target number of PayPal PBRSUs, following adjustment of eBay PBRSUs using the Conversion Ratio.
2 The number of RSUs granted was determined by dividing the USD value of the award by the Average eBay Closing Price or the Average PayPal Closing Price (i.e., the average of the closing prices of PayPal common stock for the 10 consecutive trading days prior to the grant date), as applicable. For RSUs with a grant date on or before July 17, 2015, the amounts shown represent the number of PayPal RSUs, following adjustment of eBay RSUs using the Conversion Ratio.
3 The number of stock options granted was determined by dividing the USD values of the award by the Average eBay Closing Price, or the Average PayPal Closing Price, as applicable, multiplied by three. For stock options with a grant date on or before July 17, 2015, the amounts shown represent the number of PayPal stock options, following adjustment of eBay options using the Conversion Ratio.

 

In addition to the LTI grant values discussed above, the eBay Compensation Committee or the Committee, as applicable, approved supplemental equity grants in the form of RSUs to Mr. Auerbach, Ms. Pentland and Mr. Rainey, pursuant to the terms of their respective offers of employment, as shown in the table below. For Messrs. Auerbach and Rainey, the supplemental grants were “make good” awards intended to replace equity that each forfeited from prior employment. For Ms. Pentland, the supplemental grant was deemed necessary to induce Ms. Pentland to commence employment with PayPal in the face of a competing offer.

 

NEO Supplemental Grant Value Supplemental # of RSUs 1
John D. Rainey $4,500,000 9/15/15: 131,085
Jonathan Auerbach $4,000,000 5/15/15: 108,664
A. Louise Pentland $4,000,000 5/15/15: 108,664

 

1 The number of RSUs granted was determined by dividing the USD value of the award by the Average eBay Closing Price or Average PayPal Closing Price, as applicable. For RSUs with a grant date on or before July 17, 2015, the amounts shown represent the number of PayPal RSUs, following adjustment of eBay RSUs using the Conversion Ratio. The supplemental RSU awards granted to Mr. Auerbach and Ms. Pentland vest in four equal installments on each of the first, second, third and fourth anniversaries of the grant date, subject to continued employment. The supplemental RSU award granted to Mr. Rainey vests in three installments on each of the first, second and third anniversaries of the grant date, subject to continued employment.

 

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The following describes the three components of our equity-based LTIs: Performance-Based Restricted Stock Units, time-vested restricted stock units and stock options.

 

Performance-Based Restricted Stock Units (PBRSUs)

The NEOs were eligible to receive awards of PBRSUs, which were designed to result in grants of RSUs with additional time-based vesting requirements if the Company meets or exceeds specified financial performance criteria set by the eBay Compensation Committee. The amount and value of the award depend on the Company’s performance relative to the performance goals approved by the eBay Compensation Committee at the beginning of the performance period, subject to the adjustments relating to the Separation described under “2014-2015 PBRSUs”. The 2014-2015 and 2015-2016 PBRSU cycles each have two-year performance periods and are followed by a time-based vesting condition.

 

Under the PBRSU program, assuming above-minimum threshold performance, PBRSU recipients would receive time-vesting RSUs. For the 2014-2015 and 2015-2016 performance periods, for all eligible NEOs, one-half of the RSUs vest in March following the end of the performance period and the other half of the award vest in March of the following year, more than one full year following the completion of the performance period. For the 2015-2016 performance period, 100% of any PBRSU awards granted to Mr. Schulman and Mr. Rainey, as CEO and CFO of PayPal on the award date, are expected to vest, if at all, one year after the grant of time-vesting RSUs is made following the end of the two-year performance period, subject to the Committee’s review and approval and the approval of the achievement of the performance goals. This vesting schedule subjects 100% of Mr. Schulman’s and Mr. Rainey’s PBRSU awards to a full three years of stock price volatility before the shares vest. The eBay Compensation Committee believed that the post-performance period vesting feature of the PBRSUs provided an important mechanism that helped to retain and further align their interests with long-term stockholder value.

 

 

 

As discussed above, the eBay Compensation Committee established a target level of total annual equity compensation for each employee at the level of Senior Vice President or above and awarded a portion of his or her annual equity compensation in PBRSUs. For the PBRSUs with the 2014-2015 two-year performance period (“2014-2015 PBRSUs”), the payout is based on aggregate eBay performance for 2014 and PayPal specific performance measures for 2015. For the PBRSUs with the 2015-2016 two-year performance period (“2015-2016 PBRSUs”), the payout will be based on Company performance measures and results over the two-year performance period ending December 31, 2016. For both performance periods, the 2015 performance targets for the Company were set by the eBay Compensation Committee. If company performance meets the target performance goals, the target number of PBRSUs will be granted. If company performance exceeds or falls short of the target performance goals, the number of PBRSUs granted will be increased or decreased formulaically.

 

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PERFORMANCE MEASURES AND RATIONALES

The following table outlines the performance measures for the 2014-2015 PBRSUs and the 2015-2016 PBRSUs and the eBay Compensation Committee’s rationale for their selection:

 

Measure/Weighting   Definition   Purpose
FX-Neutral Revenue
(50% weighting)
  Calculated on a fixed foreign exchange basis (referred to as FX-Neutral)   The eBay Compensation Committee believed that both the FX-Neutral Revenue and Non-GAAP Operating Margin Dollars measures should be used to help ensure that executives are accountable for driving profitable growth, and making appropriate tradeoffs between investments that increase operating expense and future growth in revenue. As discussed above, the Committee selected different performance metrics for the 2016-2018 PBRSUs.
Non-GAAP Operating Margin Dollars
(50% Weighting)
  Non-GAAP operating margin dollars excludes certain items, primarily stock-based compensation expense and related employer payroll taxes, amortization of acquired intangible assets, impairment of goodwill, separation expenses, and certain one-time gains, losses and/or expenses  
Return on Invested Capital
(Modifier)
      This modifier is used to hold leaders accountable for the efficient use of capital. As discussed above, the Committee determined to not use this modifier for the 2016-2018 PBRSUs in the interest of simplicity and transparency for participants and stockholders.

 

PBRSU MECHANICS AND TARGETS

The two year targets were generally set at a level consistent with the one-year income target for the annual cash incentive plan and the three year targets provided to the investment community at eBay’s analyst events. To receive a PBRSU earnout, at least one of the FX-Neutral Revenue or Non-GAAP Operating Margin Dollars minimum performance thresholds must be met. Each of the minimum performance thresholds for FX-Neutral Revenue and Non-GAAP Operating Margin Dollars is independent, and if either minimum threshold is met, the award is earnable with respect to that performance measure in accordance with the percentages shown in the table below. If the minimum performance level for either FX-Neutral Revenue or Non-GAAP Operating Margin Dollars is not met, then there is no earnout attributable to that performance measure.

 

The following chart shows the minimum, target, and maximum levels for FX-Neutral Revenue and Non-GAAP Operating Margin Dollars and the Return on Invested Capital modifier (linear interpolation applies to performance between threshold, target and maximum, with no funding for performance below threshold):

 

    (50% x FX-Neutral
Revenue)
+ (50% x Non-GAAP
Operating Margin Dollars)
  x Return on Invested Capital
(Modifier)
Threshold   25%   25%     80%
Target   50%   50%     100%
Maximum   100%   100%     120%

 

The target award is multiplied by the percentage resulting from this calculation to determine the actual number of PBRSUs awarded, subject to variation due to material events not contemplated at the time the

 

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targets were set (such as major acquisitions) and to the Committee’s negative discretion. Accordingly, PBRSU awards may range from 0% to 240% of the target award, based on FX-Neutral Revenue, Non-GAAP Operating Margin Dollars, and Return on Invested Capital for the two-year performance period.

 

2014-2015 PBRSUs

The following table shows the goals for the FX-Neutral Revenue and Non-GAAP Operating Margin Dollars set by the eBay Compensation Committee at the beginning of the 2014-2015 performance period, adjusted by the eBay Compensation Committee to reflect PayPal-specific performance goals for 2015, the actual results for these measures and the percentage of target achieved.

 

          Percentage of Target
Measure Threshold Target Maximum Actual 1 Achieved
FX-Neutral Revenue $26.39 million $28.37 million $31.21 million $27.37 million 2 75%
Non-GAAP Operating Margin Dollars $6.24 million $6.56 million $7.09 million $6.60 million 2 106%
ROIC 15.3% 19.1% 22.9% 21.5% 3 113%
Total 2014-2015 PBRSU Earnout         102%

 

1 Actual performance includes aggregate eBay performance for 2014 and PayPal-specific performance for 2015.
2 As part of its review of the Company’s performance against its targets, the Committee considered whether any significant corporate events not contemplated at the time the targets were set should lead to an adjustment of FX-Neutral Revenue and Non-GAAP Operating Margin Dollars results. The Committee concluded that the Company’s FX-Neutral Revenue and Non-GAAP Operating Margin Dollars results should be adjusted to exclude items that are directly attributable to the Separation.
3 Actual ROIC performance is based on adjusted tax rate for the impact of non-deductible items and first quarter 2015 transfer pricing reserves.

 

2015-2016 PBRSUs

The Company’s 2015 performance will also impact the 2015-2016 PBRSUs. When those targets were set, they were designed to be challenging but achievable over the two-year performance period. As discussed above, the two year targets were generally set at a level consistent with the one-year income target for the annual cash incentive plan and the three year targets provided to the investment community at eBay’s analyst events.

 

Restricted Stock Units and Stock Options

Included in our 2015 equity-based LTI grants are time-vesting RSUs and stock options:

 

RSUs For 2015 and prior periods, generally vest in four equal installments on the first, second, third and fourth anniversaries of the grant date. In contrast to stock options, time-vesting RSUs have some value regardless of whether our stock price increases or decreases. Time-vesting RSUs help to secure and retain executives and instill an ownership mentality over the vesting period.

 

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Stock Options Generally vest 25% on the first anniversary and 1/48 each month thereafter, such that 100% of the stock option will be fully vested by the fourth anniversary of the grant date, subject to continuing employment. Stock options have a 7-year term. We grant stock options with the intent of aligning the executives’ interests with stockholders’ interests by providing the opportunity for executives to realize value only when our stock price increases.

 

Furthermore, if the stock price increases, the vesting period helps to retain executives. However, if our stock price does not increase, then the stock options provide no value to executives.

 

2016 Long-Term Incentive Program

As discussed above, our executive compensation program prior to 2016 largely reflected the historical practices of eBay approved by the eBay Compensation Committee before the Separation. Following the Separation, the Committee undertook a thorough review of these practices and in January 2016, after consultation with Pay Governance regarding market practices and review of Pay Governance’s recommendations, the Committee established the LTI program for 2016.

 

As part of the overall design of the 2016 LTI program, the Committee eliminated stock options in favor of an equally-weighted approach to the LTI program, resulting in a restructured mix of long-term incentive grant value for our executive officers consisting of 50% PBRSUs and 50% RSUs. The Committee chose to eliminate stock options as an instrument in the program in light of the trends among our talent peer group away from stock options.

 

2016 LONG-TERM INCENTIVE ANNUAL TARGET VALUE

The following table shows the 2016 LTI grant values approved in February 2016 by the Committee for the following NEOs that were then-serving as executive officers.

 

NEO 2016 LTI Grant Value  
Daniel H. Schulman $13,000,000  
John D. Rainey $4,000,000  
Jonathan Auerbach $2,500,000  
Tomer Barel $3,000,000  
A. Louise Pentland $4,000,000  

 

2016 PBRSUs

In January 2016, the Committee approved a revised structure for PBRSUs granted in 2016. To emphasize the importance of long-term, sustained strategic growth, the Committee approved increasing the performance period to three-year performance cycles with cliff vesting following the end of the performance period, subject to the Committee’s approval of the level of achievement against the predetermined performance targets (the “2016-2018 PBRSUs”).

 

The Committee also approved a simplified approach to the 2016-2018 PBRSU performance metrics to focus on the compound annual growth rates (“CAGR”) of (i) FX-Neutral Revenue and (ii) Free Cash Flow as equally-weighted metrics.

 

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The Committee believes that CAGR is appropriate as it is consistent with our long-term goal of increasing revenue and free cash flow growth. As discussed previously in this CD&A, FX-Neutral Revenue is intended to emphasize growth in active customer accounts, number of payment transactions and total payment volume and Free Cash Flow is intended to emphasize the cash generation capability of the business to finance its continued growth and investment requirements, while positioning the Company to take advantage of inorganic growth opportunities.

 

The threshold, target and maximum CAGR goals are aligned with external guidance and were designed to be challenging but achievable over the three-year performance period. The chart below shows earnout at threshold, target and maximum.

 

  Threshold Target Maximum
FX-Neutral Revenue CAGR
(50% weighting)
50% Earnout 100% Earnout 200% Earnout
Free Cash Flow CAGR
(50% weighting)
50% Earnout 100% Earnout 200% Earnout

 

2016 RSUs

As part of the overall design of the 2016 LTI program, the Committee approved a vesting schedule for time-vesting RSUs granted in or after January 2016 to vest in approximately equal annual installments on the first, second and third anniversaries of the grant date. The Committee believes that this change is consistent with trends among the Company’s talent peer group. This change also aligns the vesting period of the RSUs with the performance period of the PBRSUs.

 

Other Compensation Elements

BASE SALARY

At the beginning of each year, the eBay Compensation Committee met and the Committee will continue to meet to review market data and to review and approve each executive officer’s base salary for the year. For 2015, the eBay Compensation Committee and the Committee assessed executive officer’s base salary against the 50th percentile of the salaries paid to comparable executives at peer group companies. The eBay Compensation Committee and the Committee assessed competitive market data on base salaries from public filings of our peer group companies and general industry data for comparable technology companies that are included in proprietary third-party surveys. When considering the competitive market data, the eBay Compensation Committee and the Committee also considered the fact that the data is historical and does not necessarily reflect those companies’ current pay practices. The eBay Compensation Committee and the Committee also considered individual performance, levels of responsibility, breadth of knowledge, and prior experience in their evaluation of base salary adjustments. In hiring a new executive, the eBay Compensation Committee and the Committee must also take into account any competing offers that may be made to the individual. The base salaries of each of Messrs. Rainey, Auerbach and Ms. Pentland were also determined pursuant to arms-length negotiations of offer letters related to their employment commencement. As a result of such analysis, individual base salaries may be higher or lower than the median.

 

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The table below shows the base salary for each NEO as of the end of fiscal 2015.

 

NEO Base Salary as of 12/31/2015  
Daniel H. Schulman $1,000,000  
John D. Rainey $650,000  
Patrick L. A. Dupuis $525,000  
Jonathan Auerbach $625,000  
Tomer Barel $381,000  
A. Louise Pentland $610,000  
Hill Ferguson 1 N/A  

 

1 Mr. Ferguson stepped down from his position as Senior Vice President, Consumer, effective September 15, 2015. Mr. Ferguson’s annual base salary prior to his employment termination was $500,000.

 

In February 2016, the Committee approved base salary increases, effective as of April 1, 2016, for the following NEOs that were then-serving as executive officers, for purposes of internal equity and individual performance:

 

NEO Base Salary as of 4/1/2016  
Tomer Barel $500,000  
A. Louise Pentland $ 625,000  

 

MAKE-GOOD AWARDS AND PAYMENTS

 

Mr. Schulman

In connection with his employment with his former employer, Mr. Schulman was subject to a “clawback agreement” that required Mr. Schulman to repay his former employer for gains made on equity and incentive awards, as well as forfeited equity awards, in the event he accepted employment with a company viewed to be a strategic competitor. By accepting employment with PayPal, which was designated as a strategic competitor by his former employer, Mr. Schulman was required to repay, on a pre-tax basis, all amounts that were realized from vested and exercised equity and certain bonus payments that Mr. Schulman had received in the two years prior to his termination of employment with his prior employer. Mr. Schulman also forfeited vested equity from his former employer. In recognition that the pre-tax income Mr. Schulman received from equity and annual incentive compensation awards that vested or were exercised during the 24 months prior to his termination of employment was required to be repaid to Mr. Schulman’s former employer (a portion of which was paid directly by eBay) pursuant to a clawback arrangement, eBay made a make-good equity grant and an annual incentive award clawback payment in 2014. eBay’s intent in making these payments was to make Mr. Schulman “whole” for these payments, so that, on an after-tax basis, Mr. Schulman would not lose money personally from the repayments. In 2015, the Company and Mr. Schulman determined that the prior payments were insufficient to make Mr. Schulman “whole.” Consequently, in 2015, in recognition of the clawback requirements and the clawback repayments by Mr. Schulman to his former employer pursuant to its demands of repayment, the eBay Compensation Committee approved a payment to Mr. Schulman of $555,000 as a “make-good” payment.

 

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Mr. Rainey

Mr. Rainey commenced employment with PayPal in August 2015 as our Senior Vice President, Chief Financial Officer. Pursuant to the terms of his offer letter, in recognition of the forfeited bonus payment from and forfeited equity awards with his former employer, Mr. Rainey received a “make-good” cash payment equal to $4,150,000 on March 4, 2016, which had been subject to his continued employment with PayPal through the payment date. Further, pursuant to the terms of his offer letter, in recognition of his forfeited equity awards with his former employer, Mr. Rainey will receive a second “make-good” cash payment equal to $2,000,000 on or around February 28, 2017, subject to his continued employment with PayPal through the payment date. These “make-good” payments are subject to a clawback, should Mr. Rainey’s employment be terminated for cause or should he resign without good reason prior to the second anniversary of his date of employment.

 

Mr. Auerbach

Mr. Auerbach commenced employment with eBay in April 2015 as PayPal’s Senior Vice President, Chief Strategy and Growth Officer. Pursuant to the terms of his offer letter, in recognition of the forfeited 2014 bonus payment from his former employer, Mr. Auerbach received a “make-good” cash payment equal to $760,000 following his commencement of employment with eBay. Further, pursuant to the terms of his offer letter, in recognition of his forfeited equity awards with his former employer, the eBay Compensation Committee approved additional lump sum cash payments of $1,000,000, $500,000 and $500,000, to be paid on the first, second and third anniversaries of his date of employment, respectively, subject to his continued employment with PayPal through each payment date.

 

DEFERRED COMPENSATION

The PayPal Holdings, Inc. Deferred Compensation Plan (“DCP”), our non-qualified deferred compensation plan, provides our U.S.-based executives a mechanism to defer compensation in excess of the amounts that are legally permitted to be deferred under our tax-qualified 401(k) savings plan (the “401(k) Plan”). Together, the 401(k) Plan and the DCP allow participants to set aside tax-deferred amounts. The Committee believes the opportunity to defer compensation is a competitive benefit that enhances our ability to attract and retain talented executives while building plan participants’ long-term commitment to PayPal. The return on the deferred amounts is linked to the performance of market-based investment choices made available in the plan. None of our NEOs participated in the DCP during 2015.

 

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OTHER BENEFITS

Perquisites

We provide certain executive officers with perquisites and other personal benefits that the Committee believes are reasonable and consistent with our overall compensation program and philosophy. These benefits are provided to enable the Company to attract and retain these executive officers. The Committee periodically reviews the levels of these benefits provided to our executive officers. In 2015, we offered the following perquisites to our NEOs to attract and retain key executive talent:

 

 

Limited Personal Use of
Corporate Airplane at
Mr. Schulman’s Expense
Mr. Schulman was permitted to make limited personal use of the Company’s aircraft for up to 50 hours per year; however, Mr. Schulman is required to reimburse the Company for any personal use of the aircraft pursuant to the terms of a lease arrangement for all trip related expenses and hourly direct operating costs, as permitted under federal aviation regulations. As a result of this arrangement, Mr. Schulman’s personal use of the aircraft resulted in no additional cost to the Company in fiscal year 2015.
   
Relocation Allowances
and Benefits
In circumstances where the Company is recruiting an executive candidate who would have to relocate to accept our job or promotion offer, we provide such executives with relocation allowances to assist the executive candidate’s relocation to and home purchase in Northern California.
   
  In 2015, Mr. Rainey received a one-time relocation allowance of $1,000,000 in connection with his employment commencement with us following an arms-length negotiation with Mr. Rainey, intended to assist Mr. Rainey with his home purchase in northern California. Mr. Rainey’s relocation allowance payment is subject to a two-year clawback, should Mr. Rainey’s employment be terminated for cause or should he resign without good reason prior to the second anniversary of his date of employment. Ms. Pentland also received a one-time relocation allowance of $3,500,000 in 2015 in connection with her employment commencement with us following an arms-length negotiation with Ms. Pentland in the face of a competing offer, intended to assist Ms. Pentland with her relocation and transition to northern California. Ms. Pentland’s relocation allowance payment is subject to a three-year clawback, should Ms. Pentland’s employment be terminated for cause or should she resign without good reason prior to the third anniversary of her date of employment.
   
  We further provide these executives with relocation assistance pursuant to the Company’s standard executive relocation program, which includes travel (including temporary commuting costs), shipping household goods, temporary housing and participation in a home sale program, to assist with the executive’s relocation costs. These payments and expenses benefit the Company, are business-related and are primarily to eliminate or lessen the expenses that the executive incurs as a direct result of the Company’s request.

 


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International
Assignment-Related
Benefits
Due to the international footprint of the Company, it is at times necessary for the Company to temporarily relocate employees internationally, away from their home country. In these circumstances, we provide these employees with international assignment-related benefits and tax equalization benefits designed to equalize the income tax paid by the employee so that his or her total income and employment tax costs related to any earnings from the Company while on the international assignment (including earnings related to granting or vesting of equity-based awards) will be no more than an amount the employee would have paid had all of the earnings been taxable solely pursuant to the tax laws in his or her home country. The international assignment-related and tax equalization benefits for our executives are consistent with our global mobility services program applicable to all employees that are temporarily relocated due to long-term international assignments. These payments and expenses are viewed as benefiting the Company, are business-related and are primarily to eliminate or lessen the expenses that the employee incurs as a direct result of the Company’s request.
   
Security on Personal
Travel
We maintain a comprehensive security policy, and as a component of this policy, we may determine that in certain circumstances, certain executives should be required to have personal security protection. Examples of such circumstances may be because a particular threat has been made against an executive or because the executive is on personal travel in a location in which the executive may be a particular target of criminal activity. We require that the executive accept such security protection because we feel it is in the interests of the Company and its stockholders that the executive not be vulnerable to security threats to the executive or members of the executive’s family while on personal travel. Determinations as to the imposition of security protection and the nature and logistics of that protection are made by the Company’s head of corporate security.

 


Severance and Change in Control Provisions

As of the end of fiscal year 2015, Messrs. Schulman, Rainey, Auerbach, Barel and Dupuis and Ms. Pentland have severance and change in control arrangements (the “Executive Severance Provisions”), either through specific provisions included in their offer letter or substantially similar provisions provided under the Company’s SVP and Above Standard Severance Plan and Change in Control Severance Plan for Key Employees. Under the Executive Severance Provisions, benefits are only provided if an executive’s employment is terminated by PayPal without cause or by the executive for good reason. No benefits are provided under the Executive Severance Provisions if there is a change in control without a qualifying termination of employment. The Executive Severance Provisions do not provide for excise tax gross-ups.

 

The Committee believes that these Executive Severance Provisions are essential to fulfill our objective to recruit, retain and develop key, high-quality management talent in the competitive market because these arrangements provide reasonable protection to the executive in the event that he or she is not retained under specific circumstances. Further, the Executive Severance Provisions are intended to facilitate changes in the

 

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leadership team by setting terms for the termination of an NEO in advance, thus allowing a smooth transition of responsibilities when it is deemed to be in the best interest of the Company. Change in control provisions in the Executive Severance Provisions are intended to allow executives to focus their attention on our business operations in the face of the potentially disruptive impact of a proposed change in control transaction, to assess takeover bids objectively without regard to the potential impact on their own job security and to allow for a smooth transition in the event of a change in control of PayPal. These factors are especially important in light of the executives’ key leadership roles at PayPal.

 

See “Potential Payments Upon Termination or Change in Control” for a description of the benefits payable under the Executive Severance Provisions.

 

Effective as of September 15, 2015, Mr. Ferguson stepped down from his position as Senior Vice President, Consumer. Mr. Ferguson was entitled to benefits under the PayPal Holdings, Inc. SVP and Above Standard Severance Plan. See “Potential Payments Upon Termination or Change in Control” for a description of the severance paid to Mr. Ferguson pursuant to his separation.

 

Other Compensation Practices and Policies

 

 

Roles and Responsibilities

INDEPENDENT COMPENSATION COMMITTEE

Our executive compensation programs are designed and administered under the direction and control of the Committee. The Committee is comprised solely of independent directors, who review and approve our overall executive compensation programs and practices and set the compensation of our senior executives.

 

INDEPENDENT COMPENSATION CONSULTANT

Pay Governance serves as the Committee’s independent compensation consultant. It provides the Committee with advice and resources to help it assess the effectiveness of the Company’s executive compensation strategy and programs. Pay Governance reports directly to the Committee, and the Committee has the sole power to terminate or replace Pay Governance at any time.

 

As part of its engagement, the Committee has directed Pay Governance to work with our Senior Vice President, Chief People Officer and other members of management to obtain information necessary for Pay Governance to form recommendations and evaluate management’s recommendations to the Committee. Pay Governance also meets with the Committee during its regular meetings, in executive session (where no members of management are present), and with the Committee chair and other members of the Committee outside of its regular meetings. As part of its engagement in 2015, Pay Governance provided an environmental scan of executive compensation, evaluated the Company’s peer group composition, evaluated compensation levels at the peer group companies, assessed and proposed equity and cash compensation guidelines for various executive job levels, assessed compensation for the Company’s executive officers, advised on the framework for the Company’s annual and long-term incentive awards, evaluated clawback policies, assessed conversion of equity-based awards in connection with the Separation and assessed Board compensation. Pay Governance does not provide any other services to the Company.

 

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The Committee recognizes that it is essential to receive objective advice from its independent compensation consultant. To that end, the Committee closely examines the procedures and safeguards that its compensation consultant takes to ensure that its services are objective. The Committee has assessed the independence of Pay Governance pursuant to SEC rules and concluded that Pay Governance’s work for the Committee does not raise any conflict of interest.

 

CEO AND THE HUMAN RESOURCES (“PEOPLE”) DEPARTMENT

The Committee works with members of our management team, including our CEO, our Senior Vice President, Chief People Officer and Vice President, Compensation and Benefits to formulate the specific plan and award designs, including performance measures and performance levels, necessary to align our executive compensation program with our business objectives and strategies.

 

Generally, our CEO reviews with the Committee his performance evaluations of each of our other NEOs and his recommendations regarding base salary adjustments, short-term incentive awards and long-term equity awards for them to ensure that the Committee’s decisions reflect our corporate financial and operational results as well as individual performance. In addition to our CEO’s evaluations, in early 2016, under the direction of our Chairman of the Committee, the Committee evaluated the performance of our CEO and his direct reports under a 360° review process, by which the Chairman of the Board interviewed each of the NEOs (other than Mr. Ferguson) and discussed our CEO’s performance and the performance of each of our NEOs (other than Mr. Ferguson) as part of its review of individual performance. The Committee makes all final decisions regarding the compensation of our NEOs.

 

While certain members of management attended the meetings of the Committee and the Board in 2015 upon invitation, they did not attend executive sessions of the meetings.

 

 

Use of Peer Group Comparisons

To set total compensation guidelines, in early 2015, eBay’s Compensation Committee reviewed market data of companies that were viewed as comparable to eBay and that it believed competed with eBay for executive talent, business, and capital. The eBay Compensation Committee reviewed both specific data from public filings from peer group companies and general industry data for comparable technology companies that are included in proprietary third-party surveys. The eBay Compensation Committee believed that it was necessary to consider this market data in making compensation decisions to attract and retain talent. It also recognized that at the executive level, eBay competed for talent against larger global companies, as well as smaller, non-public companies.

 

In deciding whether a company should be included in the peer group, the eBay Compensation Committee generally considered the following screening criteria:

 

  revenue;
  market value;
  historical growth rates;
  primary line of business;
  whether the company has a recognizable and well-regarded brand; and
  whether eBay competed with the company for talent.

 


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For each member of the peer group, one or more of the factors listed above was relevant to the reason for inclusion in the group, and, similarly, one or more of these factors may not have been relevant to the reason for inclusion in the group.

 

For 2015, the peer group selected by the eBay Compensation Committee consisted of the following companies:

 

Adobe Systems Incorporated Cisco Systems, Inc. MasterCard Incorporated
Amazon.com, Inc. Facebook, Inc. Microsoft Corporation
American Express Company Google Inc. (Alphabet Inc.) Symantec Corporation
Capital One Financial Corp. Intel Corporation Visa Inc.
Charles Schwab & Co., Inc. Intuit Inc. Yahoo! Inc.

 

In considering compensation programs for 2016 and going forward, the Committee began its work by reconsidering the peer group used in measuring performance plans, considering the Committee’s goals to both reward performance and retain core top talent. Traditionally, companies compare their performance against the performance of a group of companies whose business models are relatively similar to those of the company. Compensation programs have been designed to reward performance that is relatively stronger than that of its peers. Compensation programs have also been designed to roughly parallel the programs of members of the performance peer group because employees have historically been recruited by these competitors.

 

In considering the topic of retention, the Committee considered that, as a company operating in the vibrant, competitive and fast-growing Silicon Valley, attrition of core talent can generally be high. Employees are often recruited by companies whose business models differ from the Company’s. The Committee also considered that employees who were voluntarily leaving the Company frequently reported that they were leaving because the competitive employer offered them a better financial opportunity.

 

In such an environment, the programs that reward relative performance may be insufficient to retain talent. Consequently, many of the Company’s competitors for talent would not be included in a peer group used for measuring the relative performance of the Company. By comparing its compensation programs only against members of a peer group used to measure relative performance, the Company risks continuous loss of key talent to companies outside the peer group offering more attractive compensation programs.

 

The Committee considered that because the Company is consistently competing with certain companies that would not be included in a “performance” peer group, it may be appropriate to utilize two peer groups in designing and administering the Company’s compensation programs. One peer group would be utilized for measuring relative performance and another peer group would be utilized in designing pay programs calculated to retain key employees against talent competitors. The two peer groups may be similar, but there may be certain companies in the “talent” peer group that would not be in the “performance” peer group.

 


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As part of the overall executive compensation program design for 2016, the Committee approved a “talent” peer group for 2016, comprised of internet and technology companies, intended to more closely align with the companies with which we compete for talent, consisting of the following Technology Peer Group Companies and Financial Peer Group Companies (the “2016 Talent Peer Group”):

 

Technology Peer Group Companies

 

Apple Inc. Symantec Corp.
Adobe Systems LinkedIn Inc.
Amazon.com Netflix Inc.
Facebook Inc. Twitter Inc.
Google Inc. (Alphabet Inc.) Oracle Inc.
Intuit Inc. Square, Inc.
Salesforce.com  

 

Financial Peer Group Companies

 

American Express Company MasterCard Inc.
Discover Financial Services Vantiv, Inc.
First Data Corp. Visa Inc.
Global Payments Inc. The Western Union Company

 

The Committee also approved the following “performance” peer group for 2016, comprised of companies with which our financial performance is more closely compared, consisting of the following:

 

American Express Company MasterCard Inc.
Discover Financial Services Vantiv, Inc.
First Data Corp. Visa Inc.
Global Payments Inc. The Western Union Company

 

For any performance metric in which relative performance would be considered (for example, “total stockholder return”), the performance peer group would be used. For 2016, the Committee did not select any metrics that were dependent on relative performance, but may do so in the future.

 


Clawbacks

The Committee has adopted a clawback policy that covers each officer employed as a vice president or in a more senior position (who we refer to as covered employees), and applies to incentive compensation, which includes any cash incentive award, equity award, or equity-based award paid or awarded to any covered employee during the period in which he or she is designated as a covered employee. For all covered employees, the occurrence of either of the following events is covered: (a) an action or omission by the covered employee that constitutes a material violation of the Company’s Code of Business Conduct or (b) an action or omission by the covered employee that results in material financial or reputational harm to the Company. In addition, for covered employees that are employed as a senior vice president or in a more senior position or as a vice president who is a member of the finance function, the following event is also covered: a material restatement of all or a portion of the Company’s financial statements that is the result of a supervisory or other failure by the covered employee.

 

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Under the clawback policy, the Committee has the authority and discretion to determine whether an event covered by the policy has occurred and, depending on the facts and circumstances, may (but need not) require the full or partial forfeiture and/or repayment of any incentive compensation covered by the policy that was paid or awarded to a covered employee. The forfeiture and/or repayment may include all or any portion of the following:

  Any incentive compensation that is greater than the amount that would have been paid to the covered employee had the covered event been known;
  Any outstanding or unpaid incentive compensation, whether vested or unvested, that was awarded to the covered employee; and
  Any incentive compensation that was paid to or received by the covered employee (including gains realized through the exercise of stock options) during the twelve month period preceding the date on which the Company had actual knowledge of the covered event or the full impact of the covered event was known, or such longer period of time as may be required by any applicable statute or government regulation.

 

Stock Ownership Guidelines

Our Board adopted stock ownership guidelines to better align the interests of our directors and executive officers with the interests of our stockholders and further promote our commitment to sound corporate governance. Under these guidelines, our CEO is required to achieve ownership of PayPal common stock valued at six times his annual base salary and our remaining executive officers are required to achieve ownership of PayPal common stock valued at two times their annual base salary. It is expected that each executive officer will meet his or her applicable guideline level within five years of his or her appointment to their position. Our stock ownership guidelines can be found on our investor relations website at https://investor.paypal-corp.com/corporate-governance.cfm.

 

Prior to the executive officer satisfying his or her applicable guideline level, such executive officer is required to retain an amount equal to 25% of the net shares received as the result of the exercise, vesting or payment of any PayPal equity awards granted to such executive officer.

 

Our non-employee directors are also subject to the Company’s stock ownership guidelines. The guideline level, generally, for each non-employee director of PayPal is five times such director’s annual retainer (but not including any additional retainer paid as a result of service as a board chair, lead independent director, committee chair or committee member). Directors are required to satisfy their guideline level within five years of joining the Board, and are expected to continuously own sufficient shares to satisfy the guideline once attained for as long as they remain a member of the Board.

 

Shares that count towards satisfaction of the stock ownership guidelines for directors and executive officers include the following:

 

  shares owned outright by the director or executive officer, or his or her immediate family members residing in the same household;
  shares held in trust for the benefit of the director or executive officer, or his or her immediate family members; and
  vested deferred stock units, deferred restricted stock units or deferred performance stock units that may only be settled in shares.

 

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Hedging and Pledging Policy

The Company’s insider trading policy prohibits directors, executive officers and other employees from entering into any hedging or monetization transactions relating to our securities or otherwise trading in any instrument relating to the future price of our securities, such as a put or call option, futures contract, short sale, collar, or other derivative security. The policy also prohibits directors and executive officers from pledging PayPal common stock as collateral for any loans.

 

Equity Grant Policies

The Committee approves all equity grants to our executive officers. For grants to employees below the executive officer level, the PayPal Holdings, Inc. Non-Officer Equity Committee has been delegated the authority, subject to certain limitations, to approve equity compensation grants, including grants to employees who are newly hired or newly promoted. Mr. Schulman has been the sole member of the Non-Officer Equity Committee following Separation.

 

In January 2016, the Committee reviewed PayPal’s share usage, overhang and potential dilution, with Pay Governance. Pay Governance estimates that PayPal’s 2015 share usage rate is 1.1%, based on data as of September 2015, ranks near the median, and is well aligned with, our overall 2016 Talent Peer Group Companies, and in the bottom quartile of our Technology Peer Group Companies. Similar to dilution comparisons, PayPal’s overhang levels are below the overall 2016 Talent Peer Group Companies median and falls in the bottom quartile relative to our Technology Peer Group Companies, and for the most recent twelve months, PayPal’s total stock-based compensation expense suggests total award values are well aligned with our overall 2016 Talent Peer Group Companies.

 

Tax and Accounting Considerations

We are limited by Section 162(m) of the Internal Revenue Code (“IRC”) to a deduction for federal income tax purposes of up to $1 million of compensation paid to our CEO and any of our other three most highly compensated executive officers, other than our CFO, in a taxable year. Compensation above $1 million may be deducted if, by meeting certain technical requirements, it can be classified as “performance-based compensation.” Although the Committee uses the requirements of Section 162(m) as a guideline, deductibility is not the sole factor it considers in assessing the appropriate levels and types of executive compensation. The Committee expressly retains the full discretion to forgo deductibility when the Committee believes it to be in the interests of the Company and our stockholders.

 

PayPal accounts for stock-based compensation in accordance with FASB ASC Topic 718, which requires the Company to recognize compensation expense for share-based payments (including stock options, restricted stock units and other forms of equity compensation). The impact of FASB ASC Topic 718 has been taken into account by our Committee in determining to use a portfolio approach to equity grants.

 

REPORT OF THE COMPENSATION COMMITTEE

The Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management. Based on such review and discussions, the Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference into the Company’s 2015 Annual Report on Form 10-K.

 

David W. Dorman (Chairman of the Compensation Committee)
Wences Casares
Jonathan Christodoro

 

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COMPENSATION TABLES

 

2015 Summary Compensation Table

 

 

The following table summarizes the total compensation earned by each of our named executive officers, or NEOs, for the fiscal year ended December 31, 2015 and, to the extent required under the SEC executive compensation disclosure rules, the fiscal year ended December 31, 2014.

 

As discussed in this proxy statement, PayPal separated from eBay and became an independent public company effective July 17, 2015 (the “Separation”). The information provided below includes compensation earned by our NEOs for services provided to eBay prior to the Separation.

 

Name and
Principal
Position
(a)
  Year
(b)
  Salary
($)
(c)
  Bonus 6
($)
(d)
  Stock
Awards 7
($)
(e)
  Option
Awards 8
($)
(f)
  Non-Equity
Incentive Plan
Compensation 9
($)
(g)
  Change in
Pension
Value and
Non-qualified
Deferred
Compensation
Earnings
($)
(h)
  All Other
Compensation 10
($)
(i)
  Total
($)
Daniel H. Schulman
President and Chief
Executive Officer
 
  2015   942,308     8,825,674   1,537,111   2,374,615     764,783   14,444,491
  2014   204,231     14,508,104   1,330,803   335,960     22,308,808   38,687,906
John D. Rainey 1
Senior Vice President,
Chief Financial Officer
  2015   212,500     8,369,049   706,251   241,188     1,153,558   10,682,546
Patrick L. A. Dupuis
Senior Vice President,
Former Interim Chief
Financial Officer
 
  2015   525,000   525,000   1,639,465   309,566   429,975     10,600   3,439,606
  2014   520,904   50,000   2,777,670   138,930   330,514     11,208   3,829,226
Jonathan Auerbach 2
Senior Vice President,
Chief Strategy and
Growth Officer
  2015   408,654     8,108,545   710,904   318,086     928,386   10,474,575
Tomer Barel 3
Senior Vice President,
Chief Risk Officer
  2015   361,950     1,585,208   270,794   311,141     2,146,499   4,675,592
A. Louise Pentland 4
Senior Vice President,
Chief Legal Officer and
Secretary
  2015   398,846     6,486,866   426,548   502,546     3,674,330   11,489,136
Hill Ferguson 5
Former Senior Vice
President, Consumer
  2015   359,539     1,585,208   270,794       4,236,850   6,452,391
  2014   460,904     6,301,753   236,170   259,950     11,168   7,269,945
                                     
   
1 Mr. Rainey joined PayPal on August 24, 2015.
2 Mr. Auerbach joined PayPal on April 27, 2015.
3 Amounts reported for Mr. Barel’s “salary” and “non-equity incentive plan compensation” columns were converted from New Israeli Shekels (NIS) to U.S. dollars (USD) at an exchange rate of 1 NIS to 0.254 USD. The amounts reported for his “all other compensation” column were converted from NIS to USD using the published exchange rate from the OANDA Corporation currency database on the first date of each month, which was applied for “all other compensation” amounts that were paid during that month.
4 Ms. Pentland joined PayPal on April 27, 2015.
5 Mr. Ferguson stepped down from his position as Senior Vice President, Consumer, effective September 15, 2015.
6 Amount shown for Mr. Dupuis is a discretionary bonus payment in recognition of his leadership role in and contributions related to the Separation following the determination that Mr. Dupuis would transition into his new role as Senior Vice President, Simplicity, Quality, Productivity.

 

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7 Amounts shown represent the grant date fair value of RSUs and PBRSUs granted to each of our NEOs as computed in accordance with FASB ASC Topic 718. The grant date fair value of RSUs is determined using the fair value of the underlying common stock on the grant date. The estimated fair value of PBRSUs is calculated based on the probable outcome of the performance measures for the applicable performance period as of the date on which such awards are granted for accounting purposes. Assuming the highest level of performance is achieved under the applicable performance measures for the 2015-2016 PBRSUs, the maximum possible value of those awards using the fair value of the underlying common stock on the date that such awards were granted for accounting purposes is presented below:

 

Name Maximum Value of 2015-2016 PBRSUs
(as of Grant Date for Accounting Purposes)
Mr. Schulman $13,405,013
Mr. Rainey $5,907,564
Mr. Dupuis $2,399,997
Mr. Auerbach $6,081,381
Mr. Barel $2,414,824
Ms. Pentland $3,648,918
Mr. Ferguson $2,414,824

 

8 Amounts shown represent the grant date fair value of stock option awards granted to each of our NEOs as computed in accordance with FASB ASC Topic 718. The assumptions used in calculating these amounts are incorporated herein by reference to Note 13 to the combined and consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015 (the “2015 Form 10-K”).
9 Amounts shown represent the performance-based annual incentive plan compensation earned under the Company’s annual incentive plan for fiscal 2015 (“2015 AIP”). See “Compensation Discussion and Analysis – Compensation Framework – Incentive (Performance-Based) Compensation for 2015” for a more detailed discussion.
10 The dollar amounts for each perquisite and each other item of compensation shown in the “all other compensation” column and in this footnote represent the Company’s incremental cost of providing the perquisite or other benefit to our NEOs, net of any amounts reimbursed by our NEOs, accrued for payment or paid to the service provider or NEO, as applicable. See “Compensation Discussion and Analysis – Compensation Framework – Other Compensation Elements” for additional discussions on these benefits. Amounts include the following perquisites and other items of compensation provided to our NEOs in 2015.

 

Name   Relocation a   Tax Gross Up for Relocation and Assignment Related Benefits b   401(k) Match c   Gift Certificate (Award/ Prize) d   Severance Pay e   Assignment- Related Benefits f   Other Payments and Benefits g   2015 Pro Rata
Bonus h
  Make Good Payments i   Total
Mr. Schulman   $56,360   $33,413   $10,600               109,410       $555,000   $764,783
Mr. Rainey   $1,079,656   $73,902                               $1,153,558
Mr. Dupuis           $10,600                           $10,600
Mr. Auerbach   $104,063   $64,323                           $760,000   $928,386
Mr. Barel       $1,862,242               $198,317   $85,940           $2,146,499
Ms. Pentland   $3,605,907   $68,423