DEF 14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

SCHEDULE 14A

(Rule 14a-101)

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934 (Amendment No.    )

 

 

Filed by the Registrant  ☑                             Filed by a Party other than the Registrant  ☐

Check the appropriate box:

 

  Preliminary Proxy Statement
  Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
  Definitive Proxy Statement
  Definitive Additional Materials
  Soliciting Material Under Rule Pursuant to § 240.14a-12

FAIR ISAAC CORPORATION

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

Payment of Filing Fee (Check the appropriate box):

  No fee required.
  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
  1)  

Title of each class of securities to which transaction applies:

 

     

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Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

     

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  5)  

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  Fee paid previously with preliminary materials:
  Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing.
  1)  

Amount previously paid:

 

     

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LOGO

FAIR ISAAC CORPORATION

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD MARCH 4, 2020,

AND PROXY STATEMENT

 

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

Please take notice that the 2020 Annual Meeting of the Stockholders of Fair Isaac Corporation (“Annual Meeting”) will be held at the time and place and for the purposes indicated below.

 

TIME

9:30 A.M., local time, on Wednesday, March 4, 2020

 

PLACE

Fair Isaac Corporation

 

181 Metro Drive, Suite 600

 

San Jose, California 95110

 

ITEMS OF BUSINESS

1.

To elect nine directors to serve until the 2021 Annual Meeting and thereafter until their successors are elected and qualified;

 

  2.

To approve the amendment to the 2012 Long-Term Incentive Plan;

 

  3.

To approve the advisory (non-binding) resolution relating to the named executive officer compensation as disclosed in the accompanying proxy statement;

 

  4.

To ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending September 30, 2020; and

 

  5.

To transact such other business as may properly come before the meeting or any adjournment thereof.

All of the above matters are more fully described in the accompanying proxy statement.

 

RECORD DATE

You can vote if you were a stockholder of record at the close of business on January 6, 2020. A complete list of stockholders entitled to vote at the Annual Meeting shall be open to the examination of any stockholder, for any purpose germane to the Annual Meeting, during ordinary business hours for at least ten days prior to the Annual Meeting at our offices at 181 Metro Drive, Suite 600, San Jose, California 95110.

 

ANNUAL REPORT

Our 2019 Annual Report on Form 10-K accompanies the proxy statement.

 

VOTING

Your Vote Is Important. We invite all stockholders to attend the meeting in person. However, to assure your representation at the meeting, you are urged to mark, sign, date and return the enclosed proxy card as promptly as possible in the postage-prepaid envelope enclosed for that purpose or follow the Internet or telephone voting instructions on the proxy card. Any registered stockholder attending the meeting may vote in person even if he or she returned a proxy card.


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ADMITTANCE TO MEETING

Admittance to the Annual Meeting will be limited to stockholders. If you are a stockholder of record and plan to attend, please detach the admission ticket from your proxy card and bring it with you to the Annual Meeting. Stockholders who arrive at the Annual Meeting without an admission ticket will be required to present identification matching the corresponding stockholder account name at the registration table located outside the meeting room. If you are a stockholder whose shares are held by a bank, broker or other nominee, you will be asked to certify to such ownership at the registration table prior to the Annual Meeting.

 

 

 

LOGO

 

 

Mark R. Scadina

Executive Vice President, General Counsel and Secretary

January 28, 2020


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Table of Contents

 

PROXY SUMMARY

     1  

2020 Annual Meeting of Stockholders

     1  

Voting Methods

     1  

Voting Matters

     2  

Our Director Nominees

     2  

Our Corporate Governance Facts

     3  

Our Compensation Facts

     4  

2019 Elements of Compensation

     5  

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     6  

PROPOSAL 1: ELECTION OF DIRECTORS

     8  

Annual Elections

     8  

Majority Voting Standard

     8  

Director Nominee Selection Process

     8  

Stockholder-Recommended Director Candidates

     8  

Director Nominee Biographies

     9  

PROPOSAL 2: APPROVAL OF THE AMENDMENT TO THE 2012 LONG-TERM INCENTIVE PLAN

     14  

Background

     14  

Determination of Share Increase

     14  

Description of the 2012 LTIP as Proposed to Be Amended

     15  

Incentive Awards Under the 2012 LTIP

     22  

PROPOSAL 3: ADVISORY VOTE ON EXECUTIVE OFFICER COMPENSATION

     23  

PROPOSAL 4: RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

     24  

Audit and Non-Audit Fees

     24  

Policy on Audit Committee Preapproval of Audit and Non-Audit Services of Independent Auditors

     24  

REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

     26  

CERTAIN RELATIONSHIPS AND RELATED PERSONS TRANSACTIONS

     27  

CORPORATE GOVERNANCE

     28  

Board Leadership Structure

     28  

Board Risk Oversight Role

     28  

Attendance at Board Meetings

     28  

Annual Board Self-Evaluations

     28  

Board Committees

     28  

DIRECTOR COMPENSATION PROGRAMS

     31  

Non-Employee Director Compensation

     31  

Director Stock Ownership Guidelines

     32  

Director and Officer Liability Insurance Policies

     32  

DIRECTOR COMPENSATION FOR FISCAL 2019

     33  

EXECUTIVE COMPENSATION

     35  

Compensation Discussion and Analysis

     35  

Leadership Development and Compensation Committee Report

     51  

Leadership Development and Compensation Committee Interlocks and Insider Participation

     51  

Compensation Policies and Practices in Relation to Risk Management

     51  

Summary Compensation Table

     52  

Grants of Plan-Based Awards for Fiscal 2019

     54  

Letter Agreements

     55  


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Outstanding Equity Awards at Fiscal 2019 Year End

     57  

Fiscal 2019 Option Exercises and Stock Vested

     58  

Non-Qualified Deferred Compensation for Fiscal 2019

     58  

Potential Payments Upon Termination or Change in Control

     60  

Executive Officer Management Agreements

     60  

Severance Arrangements

     61  

Equity Awards

     61  

Insurance Benefits

     61  

Estimated Payments That Would Have Been Made to the Named Executive Officers

     61  

Equity Compensation Plan Information

     69  

CEO Pay Ratio

     71  

HELPFUL INFORMATION AND ONLINE RESOURCES

     72  

OTHER INFORMATION

     76  


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PROXY 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 are advised to read the entire proxy statement carefully before voting.

2020 Annual Meeting of Stockholders

 

Date and Time:

  

9:30 A.M., local time, on Wednesday, March 4, 2020

Place:

  

Fair Isaac Corporation’s offices located at 181 Metro Drive, Suite 600, San Jose,
California 95110

Record Date:

  

January 6, 2020

Voting Methods

 

By internet

www.proxyvote.com

  

Use the internet to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the meeting date. The availability of internet voting for beneficial owners will depend on the voting processes of your broker, bank or nominee. We recommend that you follow the voting instructions in the materials you receive.

By telephone

1-800-690-6903

  

Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the meeting date. The availability of telephone voting for beneficial owners will depend on the voting processes of your broker, bank or nominee. We recommend that you follow the voting instructions in the materials you receive.

By mail   

Be sure to complete, sign and date the proxy card and return it in the prepaid envelope. If you are a stockholder of record and you return your signed proxy card without indicating your voting preferences, the persons named in the proxy card will vote FOR the election of directors, FOR the approval of the amendment to the 2012 Long-Term Incentive Plan, FOR the approval of the advisory (non-binding) resolution relating to the named executive officer compensation as disclosed in this proxy statement, and FOR the ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for fiscal 2020.

In person at the Annual Meeting   

All stockholders may vote in person at the Annual Meeting. If you are a beneficial owner of shares, you must obtain a legal proxy from your broker, bank or nominee and present it to the inspector of election with your ballot when you vote at the meeting.

 

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Voting Matters

Stockholders are being asked to vote on the following matters at the 2020 Annual Meeting of Stockholders. Please see the corresponding page numbers for additional information regarding each proposal.

 

Proposals

  Vote
Required
    Board
Recommendation
  Page Number for
Additional
Information

1.

  Election of Directors     Majority     FOR   8

2.

  Approval of the Amendment to 2012 Long-Term Incentive Plan     Majority     FOR   14

3.

  Advisory Vote to Approve Executive Compensation     Majority     FOR   23

4.

  Ratification of Independent Registered Public Accounting Firm     Majority     FOR   24

Our Director Nominees

 

Name

  Age     Years as
Director
 

Principal Occupation

 

Independent

 

Committee
Memberships

  Other
Current
Public
Boards
                     

AC(1)

 

GNEC(2)

 

LDCC(3)

   

Braden R. Kelly

    49     7   Partner of Health Evolution Partners   Yes    

LOGO

 

 

LOGO

 

 

Fabiola R. Arredondo

    53       Managing Partner of Siempre Holdings LLC   Yes         2

A. George Battle

    76     23   Former Chief Executive Officer and Executive Chairman of Ask Jeeves, Incorporated   Yes    

LOGO

 

 

LOGO

 

  1

James D. Kirsner

    76     13   Former Chief Financial Officer and head of Barra Ventures at Barra, Inc.   Yes  

LOGO

 

 

LOGO

 

   

William J. Lansing

    61     14   Chief Executive Officer of Fair Isaac Corporation   No        

Eva Manolis

    56     1   Former Vice President of Amazon.com, Inc.   Yes      

LOGO

 

  1

Marc F. McMorris

    51     4   Managing Director and Co-Founder of Carrick Capital Partners, LLC   Yes  

LOGO

 

     

Joanna Rees

    58     5   Managing Partner at West   Yes      

LOGO

 

 

David A. Rey

    69     9   Former Executive Vice President and Chief Client Relationship Officer of UnitedHealth Group   Yes  

LOGO

 

     

 

(1) 

AC = Audit Committee

 

(2) 

GNEC = Governance, Nominating and Executive Committee

 

(3) 

LDCC = Leadership Development and Compensation Committee

LOGO   = Member       LOGO   = Chair

 

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Our Corporate Governance Facts

 

Board and Committee Summary

  

Current Size of Board

     8  

Current Number of Independent Directors

     7  

Board Committees Consist Entirely of Independent Directors

     Yes  

All Directors Attended at least 75% of Meetings Held

     Yes  

Annual Election of All Directors

     Yes  

Majority Voting for Directors

     Yes  

Plurality Carveout for Contested Elections

     Yes  

Director Resignation Policy

     Yes  

Separate Chairman and CEO

     Yes  

Chairman is Independent Director

     Yes  

Independent Directors Meet Regularly in Executive Session

     Yes  

Annual Board and Committee Self-Evaluations

     Yes  

Risk Oversight by Full Board and Committees

     Yes  

Annual Advisory Vote on Executive Compensation

     Yes  

Prohibit Hedging and Short Sales of FICO Securities

     Yes  

Stock Ownership Requirements for Directors and Executive Officers

     Yes  

Executive Compensation Recovery Policy

     Yes  

Stockholder Rights Summary

  

Controlled Company

     No  

Classified Board

     No  

Vote Standard for Mergers/Acquisitions

     Majority  

Vote Standard for Charter or Bylaw Amendment

     66.67%  

Stockholder Ability to Call Special Meetings

     No  

Stockholder Ability to Act by Written Consent

     Yes  

Cumulative Voting

     No  

Board Ability to Issue Blank-Check Preferred Stock

     Yes  

Poison Pill

     No  

 

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Our Compensation Facts

As administered by our Leadership Development and Compensation Committee (the “Committee”), our compensation program seeks to closely link the financial interests of our Company’s executives with those of our stockholders. In making compensation decisions at the outset of fiscal 2019 and throughout the year, the Committee sought to reinforce the linkage between Company performance and executive compensation. In keeping with this objective, base salaries for incumbent executive officers in fiscal 2019 remained flat as part of the continued focus on prominently featuring performance-based cash incentives and equity.

The Committee uses the following guidelines in our compensation program to help achieve this overarching goal.

 

   

What We Do:

     

What We Do Not Do:

LOGO

 

We closely link performance-based rewards with the achievement of performance goals.

 

LOGO

 

Our compensation plans do not have minimum guaranteed payout levels.

LOGO

 

We cap payouts under our plans to discourage excessive or inappropriate risk taking by our executives.

 

LOGO

 

We do not permit hedging or short sales of our stock.

LOGO

 

Two-thirds of our long-term incentives are performance-based.

 

LOGO

 

We do not permit repricing of underwater stock options without stockholder approval.

LOGO

 

We emphasize long-term incentives to align executives’ interests with those of our stockholders.

 

LOGO

 

We do not provide tax gross-ups for our executives (other than with respect to relocation benefits and required spousal travel).

LOGO

 

We have double-trigger change in control provisions.

 

LOGO

 

We do not provide material perquisites.

LOGO

 

We have stock ownership guidelines that encourage ownership and further align our executives’ interests with those of our stockholders.

   

LOGO

 

We have a peer group comprised of companies of similar size and from relevant industries.

   

LOGO

 

Our Committee retains an independent compensation consultant.

   

LOGO

 

We hold an annual advisory vote on executive compensation.

   

LOGO

 

We seek feedback on executive compensation through stockholder engagement.

   

LOGO

 

We have a compensation recovery, or “clawback,” policy pertaining to both cash and equity incentive-based compensation.

   

LOGO

 

We have a mandatory minimum vesting period of one year for equity awards.

   

LOGO

 

We limit the aggregate fair value of equity awards granted in any calendar year.

   

LOGO

 

We cap payouts under our severance policies.

   

 

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2019 Elements of Compensation

 

Element

 

Purpose and Philosophy

Base Salary  

•   Base salary provides executive officers with financial stability and predictable cash flow.

 

•   Individual base salaries are determined by evaluating the executive officer’s role within the Company, experience, performance, and potential for development, as well as the base salaries of comparable roles within the peer group companies and the broader marketplace.

Short-Term Cash

Incentives

 

•   This element rewards the achievement of annual Company and individual performance goals.

 

•   Cash incentives are expressed as a target percentage of base salary determined with reference to the peer group companies and the broader marketplace.

 

•   Participant may earn between zero and 250% of target, depending both upon Company and individual performance.

Long-Term Equity

Incentives

 

•   Long-term equity incentives directly link a significant portion of total executive officer compensation to the market value of our common stock, while promoting retention through multi-year vesting and performance periods.

 

•   Performance Share Units (“PSUs”) are earned based upon the extent to which annual Company financial targets are achieved with as few as zero and as many as 200% of target PSUs eligible to be earned. Earned units are then subject to multi-year vesting, promoting continued linkage to the market price of our common stock while also promoting retention.

 

•   Market Share Units (“MSUs”) are earned based on relative total stockholder return over one-year, two-year and three-year performance periods with as few as zero and as many as 200% of target MSUs eligible to be earned.

 

•   Restricted Stock Units (“RSUs”) represent a more stable equity-based compensation vehicle, ensuring linkage to the stock price performance of our common stock while promoting retention over a multi-year vesting period.

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Except as otherwise indicated, the following table and accompanying footnotes show information regarding the beneficial ownership of our common stock as of December 2, 2019 by:

 

   

each person who is known by us to own beneficially more than 5% of our common stock;

 

   

each current director and nominee for director;

 

   

each named executive officer; and

 

   

all directors and executive officers as a group.

As of the dates indicated in footnotes (3), (4), (5) and (6) below, publicly available information indicated that certain stockholders were beneficial owners of more than 5% of the outstanding shares of our common stock. The information in the table below is as reported in their filings with the Securities and Exchange Commission (“SEC”). The percentages noted in the table are as provided by such beneficial owners as of the date of their filing and not as of December 2, 2019. Based on a review of such SEC filings, we are not aware of any other beneficial owner of more than five percent of our common stock.

Shares of common stock underlying options that are currently exercisable or exercisable within 60 days are considered outstanding and beneficially owned by the person holding the options for the purposes of computing the percentage ownership of that person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. As of December 2, 2019, 28,983,938 shares of common stock were outstanding.

 

Directors, Nominees, Named Executive Officers,

Executive Officers and 5% Stockholders

   Beneficial Ownership(1)  
   Number      Percent(2)  

BlackRock, Inc.(3)

     2,929,507        10.1

55 East 52nd Street, New York, NY 10055

     

Vanguard Group, Inc.(4)

     2,594,620        8.96

100 Vanguard Blvd., Malvern, PA 19355

     

Wellington Management Group LLP(5)

     1,500,843        5.18

280 Congress Street, Boston, MA 02210

     

Eaton Vance Management(6)

     1,469,735        5.08

2 International Place, Boston, MA 02110

     

William Lansing(7)

     478,458        1.64

James Wehmann(8)

     108,053        *  

Michael Pung(9)

     99,659        *  

A. George Battle(10)

     65,578        *  

Stuart Wells(11)

     61,397        *  

Braden Kelly(12)

     59,094        *  

David Rey(13)

     47,961        *  

James Kirsner(14)

     41,279        *  

Joanna Rees(15)

     37,971        *  

Wayne Huyard(16)

     32,343        *  

Marc McMorris(17)

     19,371        *  

Claus Moldt(18)

     3,843        *  

Eva Manolis(19)

     3,605        *  

Michael McLaughlin

     0        *  

Fabiola Arredondo

     0        *  

All directors, nominees and executive officers as a group (16 persons)(20)

     1,121,901        3.81

 

*

Represents holdings of less than 1%.

 

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(1) 

To the Company’s knowledge, the persons named in the table have sole voting and sole dispositive power with respect to all shares shown as beneficially owned by them, subject to community property laws where applicable and the information contained in the footnotes to this table.

 

(2) 

If the named person holds stock options exercisable on or prior to January 31, 2020, or restricted stock units that will vest on or prior to January 31, 2020, the shares underlying those options or restricted stock units are included in the number for such person. Shares deemed issued to a holder of stock options or restricted stock units pursuant to the preceding sentence are not deemed issued and outstanding for purposes of the percentage calculation with respect to any other stockholder.

 

(3) 

Information as to this person (including affiliated entities) is based on the report on the Schedule 13G/A filed by this person on January 28, 2019. BlackRock, Inc. has sole voting power as to 2,810,211 shares and sole dispositive power as to 2,929,507 shares.

 

(4) 

Information as to this person is based on the report on the Schedule 13G/A filed by this person on February 11, 2019. The Vanguard Group has sole voting power as to 15,735 shares, shared voting power as to 3,953 shares, sole dispositive power as to 2,577,677 shares and shared dispositive power as to 16,943 shares.

 

(5) 

Information as to this person (including affiliated entities) is based on the report on the Schedule 13G/A filed by this person on January 8, 2020. Wellington Management Group LLP has shared voting power as to 1,377,948 shares and shared dispositive power as to 1,500,843 shares.

 

(6) 

Information as to this person is based on the report on the Schedule 13G/A filed by this person on February 14, 2019. Eaton Vance Management has sole voting and dispositive power as to 1,469,735 shares.

 

(7) 

Includes options to purchase 196,103 shares and restricted stock units representing 15,798 shares. The Lansing Revocable Trust holds 102,212 shares.

 

(8) 

Includes restricted stock units representing 6,665 shares.

 

(9)

The Michael and Debora Pung 2014 Living Trust holds 94,168 shares and restricted stock units representing 5,491 shares.

 

(10) 

Includes options to purchase 13,055 shares. The A. George Battle 2011 Separate Property Trust holds 52,523 shares. Excludes 5,230 shares held by the Battle Family Foundation as Mr. Battle does not have voting or dispositive power as to those shares.

 

(11) 

Includes restricted stock units representing 6,225 shares.

 

(12) 

Includes options to purchase 46,807 shares.

 

(13) 

Includes options to purchase 47,961 shares.

 

(14) 

Includes options to purchase 17,501 shares. The Kirsner Family Trust holds 23,778 shares.

 

(15) 

Includes options to purchase 30,597 shares.

 

(16) 

Includes restricted stock units representing 6,614 shares. The Wayne and Linda Huyard Trust holds 25,729 shares.

 

(17) 

Includes options to purchase 15,048 shares.

 

(18) 

Includes restricted stock units representing 3,843 shares.

 

(19)

Includes options to purchase 3,605 shares.

 

(20) 

Reflects the options, restricted stock units and shares held in trust referenced in footnotes 7, 8, 10 and 12 through 19 above, plus additional options to purchase 60,823 shares and restricted stock units representing 12,340 shares held by executive officers not listed in this table.

 

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PROPOSAL 1: ELECTION OF DIRECTORS

Annual Elections

Directors are elected each year at our Annual Meeting of Stockholders to hold office until our next annual meeting or until a qualified replacement is duly elected. Our Bylaws specify that the Board of Directors will establish by vote how many directors will serve on the Board. The Board of Directors approved an increase to the number of directors from eight to nine and nominated Fabiola Arredondo on December 20, 2019, with the increase to take effect upon her election to the Board.

Majority Voting Standard

To be elected, the number of votes cast “FOR” a director nominee must exceed the number of votes cast “AGAINST” that nominee. The Company requires that all nominees submit an irrevocable letter of resignation as a condition to being named as a nominee, which resignation will be effective if (i) the nominee fails to receive a sufficient number of votes to be elected and (ii) the Board accepts such resignation. Cumulative voting for the election of directors is not permitted.

Director Nominee Selection Process

Our Governance, Nominating and Executive Committee selects nominees on the basis of recognized achievements and their ability to bring various skills and experience to the deliberations of the Board, as described in more detail in the Corporate Governance Guidelines available on the “Investors” page of our website at www.fico.com. The Governance, Nominating and Executive Committee also strongly values diversity and seeks opportunities to promote diversity within the Company’s leadership. This viewpoint is reflected in our Corporate Governance Guidelines and our Governance, Nominating and Executive Committee Charter, both of which include diversity as a consideration, and the Governance, Nominating and Executive Committee takes this into account when assessing our incumbents and candidates.

All of the current nominees to the Board were recommended as nominees by the Governance, Nominating and Executive Committee, and the full Board voted unanimously to designate them as nominees for election at the Annual Meeting. All of the nominees are presently serving on our Board, and all have been previously elected by our stockholders except for Fabiola Arredondo, who was recommended by current members of the Board.

Stockholder-Recommended Director Candidates

Our Governance, Nominating and Executive Committee considers director candidates recommended by stockholders who are entitled to vote for the election of directors at the Annual Meeting and comply with the notice procedures described below. A stockholder who wishes to nominate a candidate must send a written notice to the FICO Corporate Secretary. Each notice must include the following information about the nominee:

 

   

Name, age, and business and residence addresses;

 

   

Principal occupation or employment;

 

   

Class, series and number of shares of FICO beneficially owned, and additional detailed “ownership information” regarding derivatives, voting arrangements, dividend interests, and related matters (as described in detail in our Bylaws);

 

   

A statement of the person’s citizenship; and

 

   

Any other information that must be disclosed about nominees in proxy solicitations pursuant to Section 14 of the Exchange Act, and the rules and regulations promulgated thereunder (including the nominee’s written consent to be named as a nominee and to serve as a director if elected).

Each notice must also include the following information about the nominating stockholder and any beneficial owner on whose behalf the nomination is made:

 

   

The name and address, as they appear in our records;

 

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The class, series and number of shares of FICO beneficially owned, and additional detailed “ownership information” regarding derivatives, voting arrangements, dividend interests, and related matters (as described in detail in our Bylaws);

 

   

A description of all agreements pursuant to which the nomination is being made, and any material interest of such stockholder or beneficial owner, or any affiliates or associates of such person, in such nomination;

 

   

A representation that the stockholder giving notice intends to appear in person or by proxy at the Annual Meeting to nominate the persons named in its notice;

 

   

A representation whether the stockholder or the beneficial owner intends, or is part of a group that intends, to deliver a proxy statement or form of proxy to holders of at least the percentage of FICO’s outstanding shares required to elect the nominee or otherwise solicit proxies from stockholders in support of the nomination; and

 

   

Any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to Section 14 of the Exchange Act, and the rules and regulations promulgated thereunder.

We may require any proposed nominee to furnish such other information as may reasonably be required by us to determine the eligibility of the proposed nominee to serve as a director.

Our Corporate Secretary must receive this information not less than 90 days nor more than 120 days prior to the anniversary date of the immediately preceding Annual Meeting. In the case of an Annual Meeting which is held more than 25 days before or after such anniversary date, in order for notice by the stockholder to be considered timely, it must be received no later than the close of business on the 10th day following the date of the first public announcement of the date of the Annual Meeting.

Director Nominee Biographies

Set forth below is biographical information for each director nominee, as well as information regarding the particular experience, qualifications, attributes or skills of the nominees that led the Governance, Nominating and Executive Committee to conclude that they should serve as members of the Board. Each of these nominees is currently serving as a member of the Board, except for Ms. Arredondo.

Our Board of Directors has determined that Messrs. Kelly, Battle, Kirsner, McMorris and Rey and Mses. Arredondo, Rees, and Manolis meet its independence standards, which are set forth in the Corporate Governance Guidelines on the “Investors” page of our website at www.fico.com. The Board defines an independent director as one who has no material relationship with the Company and its subsidiaries either directly or as a partner, stockholder or officer of an organization that has a relationship with the Company. In addition, independent directors must meet the requirements to be considered independent directors as defined under the current rules of the New York Stock Exchange (“NYSE”). Mr. Lansing is not independent, as he is employed by us as our CEO.

Each of the nominees has consented to being named in the proxy statement and to serve if elected. If any nominee becomes unavailable to serve, however, the persons named in the enclosed form of proxy intend to vote the shares represented by the proxy for the election of such other person or persons as may be nominated or designated by the Board of Directors, unless either they are directed by the proxy to do otherwise or the Board of Directors instead reduces the number of directors.

Braden R. Kelly.    Director since 2013 and Chairman of the Board of Directors since February 2016; Chair of the Governance, Nominating and Executive Committee; Member of the Leadership Development and Compensation Committee; Age 49.

Mr. Kelly has been a Partner at Health Evolution Partners, a private equity investment firm focused on the health care industry, since January 2015 and has served in various positions at Health Evolution Partners, including Investment Partner from June 2013 to December 2014 and Senior Advisor from August 2008 to

 

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May 2013. From August 1995 to December 2006, Mr. Kelly was an employee and then Partner and Managing Director at General Atlantic Partners LLC, a global private equity investment firm focused on technology growth investing. Prior to joining General Atlantic Partners, Mr. Kelly worked in the investment banking division of Morgan Stanley & Co. as a member of the mergers, acquisitions and restructuring department. Mr. Kelly does not serve on any other public company boards nor has he served on any other public company boards in the past five years. Mr. Kelly earned an undergraduate degree from the University of Notre Dame.

Mr. Kelly has a deep financial background and contributes a critical business and corporate development perspective to the Board of Directors through his extensive experience with strategic mergers and acquisitions, a key growth opportunity for the Company. Mr. Kelly’s extensive analysis of the technology and health care industries through his work as a private equity investor provides him with valuable insight into the business environments in which our Company and the companies in some of our key markets operate. The Board also benefits from Mr. Kelly’s significant experience as a strategic advisor to companies and his global experience working with growth companies in the United States, Europe and India.

Fabiola R. Arredondo.    New Director Nominee; Age 53.

Fabiola R. Arredondo has been the Managing Partner of Siempre Holdings, a private, single family investment office based in Greenwich, Connecticut, since 2001. Ms. Arredondo previously held senior operating roles at Yahoo! Inc., the British Broadcasting Corporation (BBC) and Bertelsmann SE & Co. KGaA. Since March 2017, Ms. Arredondo has served as a director of Campbell Soup Company, where she also serves as a member of the Audit Committee and the Finance and Corporate Development Committee. Since March 2015, Ms. Arredondo has served as a director of Burberry PLC, where she also serves as a member of the Nomination and Remuneration Committees. From January 2007 to January 2016, Ms. Arredondo also served as a director of Experian PLC. Ms. Arredondo received a bachelor’s degree in political science from Stanford University, and an M.B.A. from Harvard Business School.

Ms. Arredondo brings a wealth of domestic and international operational and strategic experience as a former senior executive in the digital technology and media fields to the Board of Directors. She also has extensive public, private and non-profit board experience in a number of relevant areas, including: business model transformations; investment acquisition, integration and disposition skills; and the development of e-commerce distribution networks and effective digital marketing and sales initiatives.

A. George Battle.    Director since 1996; Chair of the Leadership Development and Compensation Committee; Member of the Governance, Nominating and Executive Committee; Age 76.

From January 2004 to August 2005, Mr. Battle served as Executive Chairman at Ask Jeeves, Inc., a provider of information search and retrieval services. From December 2000 until January 2004, Mr. Battle served as Chief Executive Officer at Ask Jeeves. From 1968 until his retirement in 1995, Mr. Battle was an employee and then partner at Arthur Andersen LLP and Andersen Consulting (now known as Accenture Ltd.), global accounting and consulting firms. Mr. Battle’s last position at Andersen Consulting was Managing Partner, Market Development, responsible for Andersen Consulting’s worldwide industry activities, its Change Management and Strategic Services offerings, and worldwide marketing and advertising. Mr. Battle is also a director at Expedia, Inc., a public company. In the last five years, Mr. Battle served on the boards of Workday, Inc., Netflix, Inc. and LinkedIn Corporation, all public companies. Mr. Battle received an undergraduate degree from Dartmouth College and an M.B.A. from the Stanford University Business School.

Mr. Battle brings strong leadership, seasoned business acumen, and a long career of diverse experience to the Board of Directors. He is our longest serving director, has in the past sat on all of our standing Board committees, and has extensive historical knowledge about the Company’s business units, technologies, and culture. We value his more than 25 years as a business consultant with a national consulting firm and his prior experience as a chief executive officer. He also serves on another public company board and a number of private company boards, which provides us with important perspectives on corporate governance and other matters, as well as best practices enacted at other companies.

 

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James D. Kirsner.    Director since 2007; Chair of the Audit Committee; Member of the Governance, Nominating and Executive Committee; Age 76.

In 2001, Mr. Kirsner served as a consultant and interim Chief Operating Officer at Tukman Capital Management, an equity management firm. From 1993 until 2001, Mr. Kirsner was the Chief Financial Officer and head of Barra Ventures at Barra, Inc., an investment risk management services company. From 1967 until 1993, Mr. Kirsner was an audit professional with Arthur Andersen LLP, an international accounting and consulting firm. Mr. Kirsner was a partner in the firm from 1977 until his retirement in 1993. Within the last five years, Mr. Kirsner served on the board of the following public company: Advent Software, Inc. Mr. Kirsner received his undergraduate and master’s degrees from Wharton School of Business at the University of Pennsylvania.

Mr. Kirsner brings extensive financial and accounting expertise to the Board of Directors. He serves as Chair of the Company’s Audit Committee and is qualified as an “audit committee financial expert” as defined under SEC guidelines. His significant public accounting, public company CFO, investment, and audit committee experience provide Mr. Kirsner with the financial acumen and leadership skills necessary to serve as Chair of our Audit Committee. He has also served on the board of another publicly traded company in the software industry, which provides us with additional valuable perspectives on our industry and on issues affecting similarly situated publicly traded companies.

William J. Lansing.    Director since 2006; Age 61.

Since January 2012, Mr. Lansing has served as the Company’s Chief Executive Officer. From February 2009 to November 2010, Mr. Lansing served as Chief Executive Officer and President at Infospace, Inc. From 2004 until 2007, Mr. Lansing served as Chief Executive Officer and President at ValueVision Media, Inc. (now EVINE Live Inc.). From 2001 to 2003, he served as a General Partner at General Atlantic LLC, a global private equity firm. From 2000 to 2001, he was Chief Executive Officer at NBC Internet, Inc., an integrated Internet media company. From 1998 to 2000, he served as President, then as Chief Executive Officer at Fingerhut Companies, Inc., a direct marketing company. From 1996 to 1998, he was Vice President, Corporate Business Development at General Electric Company. In 1996, he was Chief Operating Officer/Executive Vice President at Prodigy, Inc. From 1986 through 1995, Mr. Lansing worked with McKinsey & Company, Inc. Mr. Lansing also served as Chairman of the Board for Shutterfly, Inc. from February 2017 to September 2019. He holds an undergraduate degree from Wesleyan University and a J.D. from Georgetown University.

Mr. Lansing is the only member of management who serves on our Board of Directors. As our Chief Executive Officer, Mr. Lansing has extensive, first-hand knowledge of our corporate strategy, business units, operations, and employees, as well as the opportunities, risks, and challenges faced by our Company. Mr. Lansing brings to his roles as an executive officer and director an extensive background in management through his past chief executive officer and other senior management positions held at various companies. His experience in the technology industry, particularly in the areas of the Internet and e-commerce, provides significant value across several of our business units.

Eva Manolis.    Director since April 2018; Member of the Leadership Development and Compensation Committee; Age 56.

Ms. Manolis formerly served as Vice President of Consumer Shopping Experience from May 2010 to August 2016 — and previously held various management positions beginning in 2005 — at Amazon.com, Inc., an electronic commerce and cloud-computing company, where she led the worldwide development of core consumer-facing features, functionality and user interface designs across multiple websites, mobile apps, and business lines. Prior to joining Amazon, Ms. Manolis co-founded and served as Senior Vice President of Products at Shutterfly, Inc. from 1999 to 2002, and served as Senior Vice President, Product and Operations at KeepMedia, Inc., an online content provider, from 2002 to 2005. From October 2016 through September 2019, Ms. Manolis served as a director of Shutterfly, Inc., a public company, where she also served as a member of the Nominating and Governance Committee. Since August 2019, Ms. Manolis

 

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has served as a director of iRobot, Inc. Ms. Manolis earned Bachelor of Science and Master of Science degrees in Electrical Engineering from Brown University.

Ms. Manolis brings a strong background in leadership and management in the technology industry, with a focus on designing and building innovative customer products and services. We value her deep expertise in this area, as well as her knowledge of corporate governance matters from her service on the board of directors of Shutterfly, Inc.

Marc F. McMorris.    Director since 2015; Member of the Audit Committee; Age 51.

Mr. McMorris has been Managing Director at Carrick Capital Partners, a private equity investment firm that he co-founded, since January 2012. From September 1999 to December 2011, Mr. McMorris served in various leadership positions at General Atlantic, LLC, a global private equity investment firm focused on technology growth investing, including Managing Director from 2003 to December 2011. Mr. McMorris earned an undergraduate degree from the University of Pennsylvania and an M.B.A. from Wharton School of Business at the University of Pennsylvania.

Mr. McMorris’s extensive experience in evaluating companies in the financial services and technology industries, together with his mergers and acquisitions experience, provides a strong complement to our Board. He currently provides guidance to technology companies in several different areas, including software as a service (“SaaS”), an area of strong focus for the Company moving forward. He is also qualified as an “audit committee financial expert” as defined under SEC guidelines.

Joanna Rees.    Director since 2015; Member of the Leadership Development and Compensation Committee; Age 58.

Since June 2016, Ms. Rees has been a Managing Partner at West, a market creation company founded by the former head of marketing at Apple Inc., where she leads West’s investment activities. From 2012 to June 2016, Ms. Rees was a Managing Director of Soda Rock Partners, an investment and consulting firm, where she served as an investor, board member and senior advisor to several private high-growth companies. In 1996, Ms. Rees founded VSP Capital, a San Francisco-based venture capital firm, where she served as Managing Partner until 2011. During her tenure with VSP Capital, Ms. Rees served on the board of more than 25 private, venture-backed companies across a broad range of industries. From 1995 to 1996, Ms. Rees worked at Vrolyk & Company, a boutique merchant bank, and from 1993 to 1995, Ms. Rees worked at BA Securities, an investment banking subsidiary of Bank of America. Ms. Rees spent her early career in advertising and brand management. From 1984 to 1989, she held several senior marketing management positions with Groupe Danone, a $20+ billion global consumer products firm, with her last position as head of new product development. Ms. Rees began her career at Benton & Bowles (now DMB&B), an advertising agency, working on multiple consumer brands. Ms. Rees was the co-creator of the Build Brand Value CEO forum, which she ran from 1997 to 2003 as part of VSP Capital. Within the last five years, Ms. Rees served on the board of the following public companies: Care.com, Inc. and Leapfrog Enterprises. Ms. Rees earned her M.B.A. from Columbia University and a B.S. from Duke University.

Ms. Rees’s leadership and experience in investing in, advising and building leading growth companies are valuable to the Company as it seeks to continue to grow its business and broaden its portfolio with innovative new product categories. Ms. Rees has deep connections across a wide range of industries, including the technology and education industries, and access to thought leaders worldwide.

David A. Rey.    Director since 2011; Member of the Audit Committee; Age 69.

From December 2008 to May 2011, Mr. Rey served as Executive Vice President and Chief Client Relationship Officer of UnitedHealth Group. From 1972 until 2008, Mr. Rey was an employee and then partner at Accenture Ltd. (previously Andersen Consulting and Arthur Andersen LLP), a global consulting firm. Mr. Rey served as both the Global Managing Partner of the healthcare industry practice and, as a Senior Managing Partner, led Accenture’s large client relationship development program. Mr. Rey does not serve on any other public board nor has he served on any other public boards in the past five years. Mr. Rey holds a B.S. in Industrial Engineering and Operations Research from the University of California, Berkeley.

 

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Mr. Rey brings financial reporting and accounting expertise to the Board of Directors, as well as global, cross-industry experience in developing and sustaining the kind of large client relationships that increasingly drive our Company’s business growth. Mr. Rey’s strong financial background qualifies him as an “audit committee financial expert” as defined under SEC guidelines, and as such, he serves on the Company’s Audit Committee. In 2018, Mr. Rey earned the CERT Certificate in Cybersecurity Oversight from the National Association of Corporate Directors (NACD).

Recommendation of the Board of Directors

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION OF EACH OF THE NOMINEES LISTED ABOVE.

 

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PROPOSAL 2: APPROVAL OF THE AMENDMENT TO THE 2012 LONG-TERM INCENTIVE PLAN

Background

On November 30, 2011, our Board of Directors adopted the Fair Isaac Corporation 2012 Long-Term Incentive Plan (as amended, the “2012 LTIP”), subject to stockholder approval. Our stockholders approved the 2012 LTIP at the annual meeting held on February 7, 2012. As adopted, the 2012 LTIP authorized the issuance of up to 6,000,000 shares of our common stock pursuant to awards granted thereunder. On December 17, 2013, January 7, 2016, December 8, 2016, December 8, 2017 and December 7, 2018, our Board of Directors adopted amendments to increase the number of shares of our common stock authorized for issuance under the 2012 LTIP by an additional 4,100,000, 2,500,000, 2,000,000, 1,500,000 and 1,250,000 shares, respectively, which our stockholders approved at the annual meetings held on February 11, 2014, February 24, 2016, February 15, 2017, February 28, 2018 and February 28, 2019, respectively. Consequently, the 2012 LTIP currently authorizes the issuance of up to 17,350,000 shares of our common stock pursuant to awards granted thereunder. Neither unused shares from predecessor equity plans nor any shares subject to awards made under predecessor equity awards that are forfeited or otherwise do not result in the issuance of shares are available for grants under the 2012 LTIP.

As of January 6, 2020, there were 3,707,516 shares of our common stock remaining available for awards under the 2012 LTIP, which is the only plan under which equity awards can currently be made to our employees and non-employee directors. Because of the importance we attach to providing competitive levels of equity-based compensation to our employees, the Leadership Development and Compensation Committee (the “Committee”) believes it prudent to continue an annual cadence of requesting stockholder approval to increase the number of shares authorized under the plan. This approach also provides stockholders with a more frequent opportunity to evaluate plan funding requests in the context of company performance and improves the efficacy of plan resources to support the dynamic needs of the business.

As a result, the Committee recommended, and on December 5, 2019 our Board of Directors adopted, subject to stockholder approval, an amendment to increase the aggregate number of shares of our common stock authorized for issuance under the 2012 LTIP by an additional 1,250,000 shares, to an aggregate of 18,600,000 shares (the “Amendment”). The Amendment does not modify the 2012 LTIP in any other respect.

Stockholder approval of the Amendment is being sought in order to (i) satisfy the stockholder approval requirements of the New York Stock Exchange, and (ii) obtain stockholder approval of the increased number of shares that may be subject to incentive stock options under Section 422 of the Code.

Determination of Share Increase

The following table summarizes information regarding equity awards outstanding and available for future grant as of January 6, 2020 after taking into account the annual equity awards granted on December 10, 2019 and equity awards vested on December 8 and 10, 2019:

Outstanding Equity & Shares Available

(as of 01/06/20)

 

     Shares Subject to
Options Outstanding(1)
     Full-Value Awards
Outstanding(1)
     Shares Remaining
Available for
Future Grant(2)
 
     537,751        1,030,004        3,707,516  

Weighted-Average

Exercise Price of Options

   $ 81.9279        

Weighted-Average

Remaining Term of Options

     2.92 years        

 

(1) 

Represents awards made under the 2012 LTIP and predecessor plan (1992 Long-term Incentive Plan).

 

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(2) 

The 2012 LTIP is currently the only plan with shares available for grant to employees and non-employee directors at FICO.

In making its recommendation to the Board of Directors to increase the 2012 LTIP’s share reserve by 1,250,000 shares through the Amendment, the Committee considered the factors discussed below.

Importance of Long-Term Equity Incentives.    Long-term equity incentives play a critical role in our executive compensation program, motivating executives to make decisions that focus on creating long-term value for our stockholders, aligning executives’ interests with the interests of stockholders and serving as an effective employment inducement and retention device. The Committee considers our ability to continue to provide a competitive level of long-term equity incentives to be critical to our success.

Historical Burn Rate.    The Company is committed to managing its use of equity incentives prudently to balance the benefits equity compensation brings to our compensation program with the dilution it causes our stockholders. As part of its analysis when considering adoption of the Amendment, the Committee considered our “burn rate,” or the number of shares subject to equity awards granted in each of the past three fiscal years expressed as a percentage of the weighted average number of shares outstanding for each of those fiscal years.

The Committee noted that despite our active stock repurchase program our three-year average burn rate percentage is below the suggested burn-rate benchmark published by Institutional Shareholder Services Inc., a leading proxy advisory service (“ISS”), for our industry classification. The Committee believes that our equity compensation and repurchase practices have been in the Company’s and our stockholders’ best interests, noting in particular that our active stock repurchase program has mitigated dilution attributable to our compensation program while somewhat raising our burn rate percentage by reducing the number of shares outstanding by approximately six percent. In particular, over the course of fiscal 2017, 2018 and 2019, we have repurchased approximately 4.3 million shares of our common stock from the market (not counting shares delivered by employees in satisfaction of tax withholding obligations).

Stockholder Value Transfer Test.    When deciding on an appropriate number of shares to add to the 2012 LTIP’s share reserve, the Committee engaged Compensia, Inc. to estimate the stockholder value transfer of the request. Compensia evaluated the value of available shares and plan awards as a percentage of the Company’s market capitalization and determined that the addition of 1,250,000 shares to the 2012 LTIP share reserve was reasonable.

Expected Duration.    The Committee expects that the shares available for future awards, including the additional shares if the Amendment is approved, will be sufficient for currently anticipated awards under the 2012 LTIP at least through the next annual meeting of stockholders. Expectations regarding future share usage under the 2012 LTIP are based on a number of assumptions such as future growth in the population of eligible participants, including the need to make sizable inducement grants for hires made in the executive ranks and the consequences of acquiring other companies; the rate of future compensation increases; the rate at which shares are returned to the 2012 LTIP reserve upon awards’ expiration, forfeiture or cash settlement; the level at which performance-based awards pay out; and the future performance of our stock price. While the Committee believes that the assumptions it used are reasonable, future share usage will differ from current expectations to the extent that actual events differ from the assumptions utilized.

Description of the 2012 LTIP as Proposed to Be Amended

The major features of the 2012 LTIP as recently amended and as proposed to be amended are summarized below, and references to the “2012 LTIP” in the following discussion assume that the Amendment has been approved by our stockholders and becomes effective. The summary is qualified in its entirety by reference to the full text of the 2012 LTIP, a copy of which is filed herewith as Exhibit A. A stockholder may also obtain a copy of the 2012 LTIP from the Company upon request.

 

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Compensation Best Practices

The 2012 LTIP incorporates a range of compensation best practices, including the following key features:

 

   

No Repricing or Replacement of Underwater Options or Stock Appreciation Rights.    The 2012 LTIP prohibits, without stockholder approval, actions to reprice, replace or repurchase options or SARs when the exercise price per share of an option or SAR exceeds the fair market value of the underlying shares.

 

   

No In-the-Money Option or Stock Appreciation Right Grants.    The 2012 LTIP prohibits the grant of options or SARs with an exercise price less than the fair market value of our common stock on the date of grant (except in the limited case of “substitute awards” as described below).

 

   

No Single-Trigger Accelerated Vesting/Payment Following a Change in Control.    The 2012 LTIP provides that payment for outstanding awards in connection with a merger or acquisition in which the Company is not the surviving entity will only be made if and to the extent that the successor entity does not continue, assume or replace such awards. The 2012 LTIP does not provide for automatic acceleration of vesting under any change in control situation.

 

   

No Liberal Share Counting.    Shares delivered or withheld to pay the exercise price or satisfy a tax withholding obligation in connection with any award, shares repurchased by the Company using option exercise proceeds, and any shares subject to a SAR that are not issued in connection with the stock settlement of the SAR upon its exercise, may not be used again for new grants.

 

   

Independent Administration.    The Leadership Development and Compensation Committee of our Board of Directors, which consists of only independent directors, has overall administrative authority over the 2012 LTIP, and only this committee (or our Board acting as a whole) may make awards to executive officers and directors.

 

   

One-Year Minimum Vesting Period.    Service-based awards under the 2012 LTIP are subject to a minimum initial vesting period of one year. Awards under the 2012 LTIP whose vesting is subject to satisfying performance goals are subject to a minimum performance period of one year.

 

   

Limit on Awards to Non-Employee Directors.    The aggregate grant date fair value of awards granted during any calendar year to any non-employee member of our Board of Directors (excluding awards granted in lieu of compensation otherwise payable in cash) may not exceed $800,000.

 

   

Dividend Restrictions.    Any dividends, distributions or dividend equivalents payable with respect to the unvested portion of a performance-based award will be subject to the same restrictions applicable to the underlying shares, units or share equivalents.

 

   

Compensation Recovery Policy.    Incentive-based compensation under the 2012 LTIP is subject to the Executive Officer Incentive Compensation Recovery Policy adopted by the Board of Directors and described in this proxy statement under “Executive Compensation — Compensation Discussion and Analysis — Executive Officer Incentive Compensation Recovery Policy.” The Committee may also provide that awards under the 2012 LTIP shall also be subject to reduction, cancellation, forfeiture or recovery upon the occurrence of participant misconduct.

Eligible Participants

All employees, consultants and advisors of our Company or any subsidiary, as well as all non-employee directors of our Company, will be eligible to receive awards under the 2012 LTIP. As of January 6, 2020, there were approximately 4,000 persons employed by our Company and its subsidiaries, approximately 300 persons providing service to our Company and its subsidiaries as contractors, and seven non-employee members of our Board of Directors, all of whom would be eligible to receive awards under the 2012 LTIP.

Administration

The 2012 LTIP is administered by the Committee. To the extent consistent with applicable law or stock exchange rules, the Committee may delegate its duties, power and authority under the 2012 LTIP to any of its

 

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members, to officers of the Company with respect to awards to participants who are not directors or executive officers of the Company or, in connection with non-discretionary administrative duties, to one or more agents or advisors.

The Committee has the authority to determine the persons to whom awards will be granted; the timing and size of any cash incentive award; the timing, type and number of shares covered by each equity award; and the terms and conditions of the awards. The Committee may also establish and modify rules to administer the 2012 LTIP, interpret the 2012 LTIP and any related award agreement, cancel or suspend an award or the exercisability of an award, or modify the terms of outstanding awards to the extent permitted under the 2012 LTIP. Unless an amendment to the terms of an award is necessary to comply with applicable laws or stock exchange rules, a participant who would be adversely affected by such an amendment must consent to it.

Except in connection with equity restructurings and other situations in which share adjustments are specifically authorized, the 2012 LTIP also prohibits the Committee from repricing any outstanding “underwater” option or SAR without prior approval of the Company’s stockholders. For these purposes, “repricing” includes amending the terms of an underwater option or SAR to lower the exercise price, canceling an underwater option or SAR and granting in exchange replacement options or SARs having a lower exercise price or other forms of awards, or repurchasing the underwater option or SAR.

Subject to certain limits in the 2012 LTIP, the Committee may also establish subplans or modify the terms of awards under the 2012 LTIP with respect to participants residing outside of the United States or employed by a non-U.S. subsidiary in order to comply with local legal requirements or meet the objectives of the 2012 LTIP.

Available Shares and Limitations on Awards

A maximum of 18,600,000 shares of common stock are available for issuance under the 2012 LTIP, any or all of which may be the subject of incentive stock option awards. The shares of common stock to be issued under the 2012 LTIP are either authorized but unissued shares or treasury shares. Under the terms of the 2012 LTIP, the number of shares of common stock subject to options or SARs granted to any one participant during a calendar year may not exceed 1,000,000, and the number of shares subject to performance-based awards other than options or SARs granted to any one participant during any calendar year may not exceed 1,000,000. Further, the aggregate grant date fair value of awards granted during any calendar year to any non-employee member of our Board of Directors (excluding awards granted at the election of such non-employee member in lieu of all or any portion of retainers and fees otherwise payable in cash) may not exceed $800,000. These share limitations are subject to adjustment for changes in the corporate structure or shares of the Company, as described below. Payouts of performance-based awards denominated in cash may not exceed $6,000,000 to any one participant during any calendar year.

Shares of common stock that are issued under the 2012 LTIP or that are potentially issuable pursuant to outstanding awards will reduce the maximum number of shares remaining available for issuance under the 2012 LTIP by one share for each share issued or issuable pursuant to an option or SAR award, and by 2.17 shares for each share issued or issuable pursuant to an award other than an option or SAR.

Any shares of common stock subject to an award under the 2012 LTIP that expires, is forfeited, is settled or paid in cash or otherwise does not result in the issuance of all or a portion of such shares will, to the extent of such expiration, forfeiture, settlement or non-issuance, automatically again become available for issuance under the 2012 LTIP. Each share that again becomes available for issuance will be added back as (i) one share if the share was subject to an option or SAR granted under the 2012 LTIP, or (ii) as 2.17 shares if the share was subject to an award other than an option or SAR granted under the 2012 LTIP. However, any shares tendered or withheld to pay the exercise price or satisfy a tax withholding obligation in connection with any award, any shares repurchased by the Company using option exercise proceeds and any shares subject to a SAR that are not issued in connection with the stock settlement of the SAR on its exercise may not be used again for new grants.

Awards granted under the 2012 LTIP upon the assumption of, or in substitution for, outstanding equity awards previously granted by an entity acquired by our Company or any of its subsidiaries (referred to as

 

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“substitute awards”) will not reduce the number of shares of common stock authorized for issuance under the 2012 LTIP. Additionally, if a company acquired by our Company or any of its subsidiaries has shares available under a pre-existing plan approved by stockholders and not adopted in contemplation of such acquisition, the shares available for grant pursuant to the terms of that pre-existing plan may be used for awards under the 2012 LTIP and will not reduce the shares authorized for issuance under the 2012 LTIP, but only if the awards are made to individuals who were not employed by or providing services to our Company or any of its subsidiaries immediately prior to such acquisition.

Share Adjustment Provisions

If certain transactions with the Company’s stockholders occur that cause the per share value of the common stock to change, such as stock splits, spin-offs, stock dividends or certain recapitalizations (referred to as “equity restructurings”), the Committee will equitably adjust (i) the class of shares issuable and the maximum number and kind of shares subject to the 2012 LTIP, (ii) outstanding awards as to the class, number of shares and price per share, and (iii) award limitations prescribed by the 2012 LTIP. Other types of transactions may also affect the common stock, such as reorganizations, mergers or consolidations. If there is such a transaction and the Committee determines that adjustments of the type previously described in connection with equity restructurings would be appropriate to prevent any dilution or enlargement of benefits under the 2012 LTIP, the Committee will make such adjustments as it may deem equitable.

Types of Awards

The 2012 LTIP allows the Company to award eligible recipients stock options, SARs, restricted stock awards, stock unit awards, other stock-based awards and cash incentive awards. These types of awards are described in more detail below.

Options.    Employees of our Company or any subsidiary may be awarded options to purchase common stock that qualify as “incentive stock options” within the meaning of Section 422 of the Code, and any eligible recipient may be awarded options to purchase common stock that do not qualify as incentive stock options, referred to as “non-statutory options.” The exercise price to be paid by a participant at the time an option is exercised may not be less than 100% of the fair market value of one share of common stock on the date of grant, unless the option is granted as a substitute award as described earlier. “Fair market value” under the 2012 LTIP as of any date means the closing sale price for a share of common stock on the New York Stock Exchange on that date. On January 6, 2020, the closing sale price of a share of common stock on the New York Stock Exchange was $384.00.

The total purchase price of the shares to be purchased upon exercise of an option will be paid by the participant in cash unless the Committee allows exercise payments to be made, in whole or in part, (i) by means of a broker-assisted sale and remittance program, (ii) by delivery to the Company (or attestation as to ownership) of shares of common stock already owned by the participant, or (iii) by a “net exercise” of the option in which a portion of the shares otherwise issuable upon exercise of the option are withheld by the Company. Any shares delivered or withheld in payment of an exercise price will be valued at their fair market value on the exercise date.

An option will vest and become exercisable at such time, in such installments and subject to such conditions as may be determined by the Committee, and no option may have a term greater than 10 years from its date of grant.

The aggregate fair market value of shares of common stock with respect to which incentive stock options granted to any participant may first become exercisable during any calendar year may not exceed $100,000. Any incentive stock options that become exercisable in excess of this amount will be treated as non-statutory options.

Stock Appreciation Rights.    A SAR is the right to receive a payment from the Company, in the form of shares of common stock, cash or a combination of both, equal to the difference between (i) the fair market value of a specified number of shares of common stock on the date of exercise of the SAR, and (ii) the aggregate

 

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exercise price under the SAR of that number of shares. SARs will be subject to such terms and conditions, consistent with the other provisions of the 2012 LTIP, as may be determined by the Committee. The Committee will have the sole discretion to determine the form in which payment of SARs will be made to a participant.

The exercise price per share of a SAR will be determined by the Committee, but may not be less than 100% of the fair market value of one share of common stock on the date of grant, unless the SAR is granted as a substitute award as described earlier. A SAR will vest and become exercisable at such time, in such installments and subject to such conditions as may be determined by the Committee, and no SAR may have a term greater than 10 years from its date of grant.

Restricted Stock Awards.    A restricted stock award is an award of common stock that vests at such times and in such installments as may be determined by the Committee. Until it vests, the shares subject to the award are subject to restrictions on transferability and the possibility of forfeiture. The Committee may impose such restrictions or conditions to the vesting of restricted stock awards as it deems appropriate, including that the participant remain continuously employed by, or in the service of, the Company or a subsidiary for a certain period or that the participant or the Company (or any subsidiary or business unit of the Company) satisfy specified performance criteria. Unless otherwise specified by the Committee, a participant who receives a restricted stock award will have all of the rights of a stockholder, including the right to vote the shares of restricted stock.

Stock Unit Awards.    A stock unit award is a right to receive the fair market value of one or more shares of common stock, payable in cash, shares of common stock, or a combination of both, that vests at such times and in such installments as may be determined by the Committee. Until it vests, a stock unit award is subject to restrictions on transferability and the possibility of forfeiture. Stock unit awards will be subject to such terms and conditions, consistent with the other provisions of the 2012 LTIP, as may be determined by the Committee.

Other Stock-Based Awards.    The Committee may grant awards of common stock and other awards that are valued by reference to and/or payable in common stock under the 2012 LTIP. The Committee has complete discretion in determining the terms and conditions of such awards.

Cash Incentive Awards.    The Committee may grant performance-based awards that are settled in cash or other forms of awards under the 2012 LTIP or a combination thereof. The Committee has complete discretion in determining the amount, terms and conditions of such awards.

Expiration and Vesting

Each award agreement will set forth the date of expiration of each award, which may not be more than 10 years from the grant date.

Awards that vest based solely on service-based vesting conditions will be subject to a vesting period of not less than one year from the grant date and awards with vesting subject to satisfaction of performance goals over a performance period will be subject to a performance period of not less than one year. These minimum vesting and performance periods will not, however, apply in connection with (a) a change in control, (b) termination of service due to death or disability, (c) a substitute award that does not reduce the vesting period of the award being replaced, (d) awards made to non-employee members of our Board of Directors who elect to receive awards in exchange for cash compensation to which they would otherwise be or become entitled, and (e) awards involving an aggregate number of shares not in excess of 5% of the share reserve of 18,600,000.

Dividends and Dividend Equivalents

No dividends are payable on options or SARs. Any dividends or distributions paid with respect to unvested shares of restricted stock will be subject to the same restrictions as the shares to which such dividends or distributions relate, except for regular cash dividends on shares that are subject only to service-based vesting conditions. The Committee may provide that a recipient of a stock unit award or other stock-based award will be entitled to receive dividend equivalents on the units or other share equivalents subject to the award based on dividends actually declared on our outstanding common stock. Any dividend equivalents paid with respect to unvested units or share equivalents that are subject to performance-based vesting will be subject to the same restrictions as the units or share equivalents to which such dividend equivalents relate.

 

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Term and Amendment of the 2012 LTIP

Unless terminated earlier, the 2012 LTIP will terminate on November 30, 2021. Awards outstanding under the 2012 LTIP at the time it is terminated may continue to be exercised, earned or become free of restriction, according to their terms. The Board of Directors may suspend or terminate the 2012 LTIP or any portion of it at any time. The Board of Directors may amend the 2012 LTIP from time to time, but no amendments to the 2012 LTIP will be effective without stockholder approval if such approval is required under applicable laws or regulations or under the rules of the New York Stock Exchange, including stockholder approval for any amendment that seeks to modify the prohibition on underwater option repricing discussed above.

Termination, suspension or amendment of the 2012 LTIP will not adversely affect any outstanding award without the consent of the affected participant, except for amendments necessary to comply with applicable laws or stock exchange rules.

Transferability of Awards

In general, no right or interest in any award under the 2012 LTIP may be assigned, transferred or encumbered by a participant, except by will or the laws of descent and distribution. However, the Committee may provide that an award (other than an incentive stock option) may be transferable by gift to a participant’s family member or pursuant to a qualified domestic relations order. Any permitted transferee of such an award will remain subject to all the terms and conditions of the award applicable to the participant.

Performance-Based Compensation

The 2012 LTIP permits the Committee to grant restricted stock, stock unit, other stock-based awards or cash incentive awards that are intended to be “performance-based compensation” within the meaning of Section 162(m) of the Code. Prior to the enactment of the Tax Cuts and Jobs Act of 2017 (the “Tax Cuts Act”) in December 2017, Section 162(m) generally disallowed a tax deduction to public companies for compensation of more than $1 million paid in any taxable year to each “covered employee,” as defined therein. Amounts that qualified as “performance-based compensation” were exempt from this deduction limitation if our Company met specified requirements set forth in the Code and applicable treasury regulations. The Tax Cuts Act repealed the exemption for “performance-based compensation” from the deduction limit.

Change in Control of the Company

For purposes of the 2012 LTIP, a “change in control” of our Company generally occurs if (i) a person or group acquires 30% or more of our Company’s outstanding stock, (ii) certain changes occur in the composition of the Board of Directors, or (iii) a reorganization, merger or consolidation of our Company, or a sale or disposition of all or substantially all of our Company’s assets, is consummated (unless our Company’s outstanding stock immediately prior to the transaction continues to represent over 70% of the outstanding stock of our Company or the surviving entity immediately after the transaction).

If a change in control of our Company occurs as a result of which our Company does not survive as an operating company or survives only as a subsidiary of another entity, then the consequences will be as described in this paragraph unless the Committee provides otherwise in an applicable award agreement. If any outstanding award is not continued, assumed or replaced by the successor entity in connection with such a change in control, the award will be canceled in exchange for a payment with respect to such award in an amount equal to the excess, if any, between the fair market value of the consideration to be received in the change in control for the number of shares remaining subject to the award over the aggregate exercise price (if any) for the shares remaining subject to such award (or, if there is no excess, such award may be canceled without payment). In the case of performance-based awards, the number of shares remaining subject to an award or the settlement amount of a cash incentive award will be calculated by deeming all performance measures to have been satisfied at targeted performance. If any outstanding award is continued, assumed or replaced by the successor entity in connection with such a change in control, the Committee may provide that such award will become fully vested and exercisable upon the involuntary termination of the participant without cause within a specified amount of time following the change in control.

 

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In the event of a change in control of our Company other than as described in the previous paragraph, the Committee may provide that (i) any award will become fully vested and exercisable upon the change in control or upon the involuntary termination of the participant without cause within a specified amount of time following the change in control, (ii) any option or SAR will remain exercisable during all or some portion of its remaining term, or (iii) awards will be canceled in exchange for payments in a similar manner as described above with respect to a change in control as a result of which our Company does not survive as an operating company or survives only as a subsidiary of another entity.

Effect of Termination of Employment or Other Services

If a participant ceases to be employed by or provide other services for our Company and all subsidiaries, awards under the 2012 LTIP then held by the participant will be treated as set forth below unless provided otherwise in the applicable award agreement.

Upon termination for any reason other than death or disability, all unvested and unexercisable portions of any outstanding awards shall be immediately forfeited, and the currently vested and exercisable portions of options and SARs may be exercised for 90 days after such termination. However, if a participant is 65 or more years old or is 55 or more years old and has been an employee of or provider of other services to our Company for at least 10 years, then the currently vested and exercisable portions of options and SARs may be exercised for one year after such termination.

Upon termination due to death or disability, all outstanding options and SARs will become fully exercisable and will remain exercisable for one year after such termination, and all other awards will fully vest immediately.

U.S. Federal Income Tax Consequences

The following is a summary of the principal United States federal income tax consequences to the Company and to participants subject to U.S. taxation with respect to awards granted under the 2012 LTIP. This summary is not intended to be exhaustive and does not discuss the income tax laws of any city, state or foreign jurisdiction in which a participant may reside.

Non-Statutory Options.    If a participant is granted a non-statutory option under the 2012 LTIP, the participant will not recognize taxable income upon the grant of the option. Generally, the participant will recognize ordinary income at the time of exercise in an amount equal to the difference between the fair market value of the shares acquired at the time of exercise and the exercise price paid. The participant’s basis in the common stock for purposes of determining gain or loss on a subsequent sale or disposition of such shares generally will be the fair market value of our common stock on the date the option was exercised. Any subsequent gain or loss will be taxable as a capital gain or loss. The Company will generally be entitled to a federal income tax deduction at the time and for the same amount as the participant recognizes ordinary income.

Incentive Stock Options.    If a participant is granted an incentive stock option under the 2012 LTIP, the participant will not recognize taxable income upon grant of the option. Additionally, if applicable holding period requirements (a minimum of two years from the date of grant and one year from the date of exercise) are met, the participant will not recognize taxable income at the time of exercise. However, the excess of the fair market value of the shares acquired at the time of exercise over the aggregate exercise price is an item of tax preference income potentially subject to the alternative minimum tax. If shares acquired upon exercise of an incentive stock option are held for the holding period described above, the gain or loss (in an amount equal to the difference between the fair market value on the date of sale and the exercise price) upon disposition of the shares will be treated as a long-term capital gain or loss, and the Company will not be entitled to any deduction. If the holding period requirements are not met, the incentive stock option will be treated as one that does not meet the requirements of the Code for incentive stock options and the tax consequences described above for non-statutory options will apply.

Other Awards.    The current federal income tax consequences of other awards authorized under the 2012 LTIP generally follow certain basic patterns. SARs are taxed and deductible in substantially the same manner as

 

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non-statutory options. An award of nontransferable restricted stock subject to a substantial risk of forfeiture results in income recognition by a participant in an amount equal to the fair market value of the shares received (determined as if the shares were not subject to any risk of forfeiture) at the time the restrictions lapse and the shares vest, unless the participant elects under Section 83(b) of the Code to accelerate income recognition and the taxability of the award to the date of grant. Stock unit awards and cash incentive awards generally result in income recognition by a participant at the time payment of such an award is made in an amount equal to the amount paid in cash or the then-current fair market value of the shares received, as applicable. In each of the foregoing cases, the Company will generally have a corresponding deduction at the time the participant recognizes income, subject to Section 162(m) of the Code with respect to certain “covered employees.” Section 162(m) of the Code denies a deduction to any publicly held corporation for compensation paid to certain “covered employees” in a taxable year to the extent that compensation to the covered employee exceeds $1,000,000.

Section 409A of the Code.    The foregoing discussion of tax consequences of awards under the 2012 LTIP assumes that the award discussed is either not considered a “deferred compensation arrangement” subject to Section 409A of the Code, or has been structured to comply with its requirements. If an award is considered a deferred compensation arrangement subject to Section 409A but fails to comply, in operation or form, with the requirements of Section 409A, the affected participant would generally be required to include in income when the award vests the amount deemed “deferred,” would be required to pay an additional 20% income tax, and would be required to pay interest on the tax that would have been paid but for the deferral. The 2012 LTIP will be administered in a manner intended to comply with Section 409A.

Incentive Awards Under the 2012 LTIP

As of the date of this proxy statement, the Committee has not approved any awards in excess of the current share reserve under the 2012 LTIP and therefore has not approved awards in reliance on the Amendment. Because all awards under the 2012 Plan are granted under the discretion of the Committee, neither the number nor type of future 2012 LTIP awards to be received by or allocated to particular participants or groups of participants is presently determinable. Information regarding awards made to named executive officers under the 2012 LTIP during fiscal 2019 is provided under the caption “Grants of Plan-Based Awards for Fiscal 2019” in this proxy statement.

Required Vote

The affirmative vote of a majority of the shares of our common stock present or represented by proxy and entitled to vote on this proposal at the Annual Meeting is required to approve the Amendment. If stockholder approval is not obtained, then the Amendment to the 2012 LTIP will not become effective.

Recommendation of the Board of Directors

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” APPROVAL OF THE AMENDMENT TO THE FAIR ISAAC CORPORATION 2012 LONG-TERM INCENTIVE PLAN.

 

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PROPOSAL 3: ADVISORY VOTE ON EXECUTIVE OFFICER COMPENSATION

Pursuant to Section 14A of the Exchange Act, the Company seeks a non-binding advisory vote from its stockholders to approve the compensation of our named executive officers as described under “Executive Compensation — Compensation Discussion and Analysis” and the tabular disclosure regarding named executive officer compensation (together with the accompanying narrative disclosure) in this proxy statement.

This proposal gives our stockholders the opportunity to express their views on the Company’s named executive officer compensation. Because your vote is advisory, it will not be binding upon the Board of Directors. However, the Leadership Development and Compensation Committee will take into account the outcome of the vote when making future executive officer compensation decisions.

As we discuss below in our Compensation Discussion and Analysis, we believe that our compensation policies and decisions are designed to deliver a performance-based pay philosophy, are aligned with the long-term interests of our stockholders and are competitive. The Company’s principal compensation policies, which enable the Company to attract, motivate and retain talented executive officers to lead the Company in the achievement of our business objectives, include:

 

   

We make annual cash compensation decisions based on assessment of the Company’s performance against measurable financial goals, as well as each executive’s individual performance.

 

   

We emphasize long-term incentive compensation awards that collectively reward executive officers based on individual performance, external and internal peer equity compensation practices, and the performance of the Company’s stock.

 

   

We delivered approximately two-thirds of the targeted annual long-term award value to top executives for fiscal 2019 in the form of performance-based incentives.

 

   

We require stock ownership by our senior executive officers.

As a result, we are presenting this proposal, which gives you as a stockholder the opportunity to vote on our named executive officer compensation as disclosed in this proxy statement by voting “FOR” or “AGAINST” the following resolution:

RESOLVED, that the stockholders approve the compensation of the Company’s named executive officers, as disclosed in the Compensation Discussion and Analysis, the compensation tables, and the related disclosure contained in the Company’s Proxy Statement for its 2020 Annual Meeting.

Recommendation of the Board of Directors

THE BOARD OF DIRECTORS BELIEVES THAT THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS IS APPROPRIATE AND RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE NAMED EXECUTIVE OFFICER COMPENSATION AS DISCLOSED IN THE COMPENSATION DISCUSSION AND ANALYSIS AND THE COMPENSATION TABLES AND OTHERWISE IN THIS PROXY STATEMENT.

 

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PROPOSAL 4: RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

It is the responsibility of the Audit Committee to select and retain independent auditors. Our Audit Committee has appointed Deloitte & Touche LLP (“Deloitte”) as our independent auditors for the Company’s fiscal year ending September 30, 2020. Although stockholder ratification of the Audit Committee’s selection of independent auditors is not required by our Bylaws or otherwise, we are submitting the selection of Deloitte for stockholder ratification so that our stockholders may participate in this important corporate decision. If not ratified, the Audit Committee will reconsider the selection, although the Audit Committee will not be required to select different independent auditors for the Company.

Representatives of Deloitte will be present at the Annual Meeting and will have an opportunity to make a statement and respond to questions from stockholders present at the meeting.

Audit and Non-Audit Fees

The following table presents fees for professional audit services rendered by the Company’s independent registered public accounting firm for the fiscal years ended September 30, 2019 and September 30, 2018, for the audit of our annual financial statements and fees for other services rendered by the firm during those respective periods.

 

     2019      2018  

Audit Fees

   $ 2,725,000      $ 2,995,000  

Audit-Related Fees

     799,000        714,000  

Tax Fees

     50,000        86,000  

All Other Fees

     2,000        2,000  
  

 

 

    

 

 

 

Total

   $ 3,576,000      $ 3,797,000  
  

 

 

    

 

 

 

Audit Fees.    Audit fees consisted of fees for services rendered in connection with the annual audit of our consolidated financial statements, quarterly reviews of financial statements included in our quarterly reports on Form 10-Q, and the audit of internal control over financial reporting. Audit fees also consisted of services provided in connection with statutory audits, consultation on accounting matters and SEC registration statement services.

Audit-Related Fees.    Audit-related fees consisted principally of fees for financial and non-financial attestation services (Service Organization Control), customer compliance audits, issuance of senior notes and audits of financial statements of employee benefit plans.

Tax Fees.    Tax services consisted of fees for tax consultation and tax compliance services.

All Other Fees.    All other fees consisted of fees for access to an online library of accounting and financial reporting literature.

Our Audit Committee considers whether the provision of services other than for audit fees is compatible with maintaining our independent auditor’s independence, and has determined that these services for fiscal 2019 and 2018 were compatible. The services described above were approved by the Audit Committee pursuant to Rule 2-01 of Regulation S-X under the Exchange Act.

Policy on Audit Committee Preapproval of Audit and Non-Audit Services of Independent Auditors

Our Audit Committee is responsible for appointing, setting compensation, and overseeing the work of the independent auditors. The Audit Committee has established a policy regarding preapproval of all audit and permitted non-audit services provided by the independent auditors. On an ongoing basis, management communicates specific projects and categories of service for which it requests the advance approval of the Audit Committee. The Audit Committee reviews these requests and advises management if the Audit Committee approves the engagement of the independent auditors. On a periodic basis, management reports to the Audit

 

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Committee regarding the actual spending for such projects and services compared to the approved amounts. The Audit Committee may also delegate the ability to preapprove audit and permitted non-audit services to a subcommittee consisting of one or more members, provided that any such preapprovals are reported on at the next Audit Committee meeting.

Recommendation of the Board of Directors

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE RATIFICATION OF DELOITTE & TOUCHE LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 2020.

 

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REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

The Audit Committee selects and retains an independent registered public accounting firm as the Company’s independent auditor and assists the Board in overseeing (1) the integrity of the Company’s financial statements, (2) the independent auditor’s qualifications and independence, (3) the performance of the Company’s internal audit function and independent auditor, and (4) the compliance by the Company with legal and regulatory requirements related to financial affairs and reporting. The Board of Directors has adopted a written charter for the Audit Committee that addresses the responsibilities of the Audit Committee. This charter is available on the “Investors” page of our website at www.fico.com.

While the Audit Committee has the responsibilities and powers set forth in its charter, it is not the duty of the Audit Committee to plan or conduct audits or to determine that the Company’s financial statements and disclosures are complete and accurate and are in accordance with generally accepted accounting principles and applicable legal and other requirements. These are the responsibilities of management and the independent auditor. Additionally, in performing its oversight function, the Audit Committee necessarily relies on the work and assurances of, and information provided by, management and the independent auditor.

Deloitte & Touche LLP (“Deloitte”) served as the Company’s independent auditor for the fiscal year ended September 30, 2019. In fiscal 2019, the Audit Committee met and held discussions with management and Deloitte on numerous occasions. In fulfilling its oversight responsibilities, the Audit Committee reviewed and discussed with management and Deloitte the Company’s quarterly consolidated financial statements prior to the filing of each Quarterly Report on Form 10-Q and the audited consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended September 30, 2019. The Audit Committee discussed with Deloitte matters required to be discussed by the applicable Public Company Accounting Oversight Board standards. Deloitte also provided to the Audit Committee the written disclosures required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee concerning independence, and the Audit Committee discussed with Deloitte the firm’s independence and tenure.

Based upon the Audit Committee’s discussions with management and the independent auditor, and the Audit Committee’s review of the representations of management and the report of the independent auditor to the Audit Committee, the Audit Committee recommended to the Board of Directors that the audited consolidated financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2019, as filed with the SEC.

Submitted by the Audit Committee:

James D. Kirsner, Chair

Marc F. McMorris

David A. Rey

 

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CERTAIN RELATIONSHIPS AND RELATED PERSONS TRANSACTIONS

We maintain a written policy for the approval of any related person transactions. A “Related Person,” for purposes of our policy, means:

 

   

Any person who is, or at any time since the beginning of our last fiscal year was, a director or executive officer or a nominee for director;

 

   

Any person known to be the beneficial owner of more than 5% of our common stock; or

 

   

Any immediate family member of the foregoing persons.

“Immediate family members” include children, stepchildren, parents, stepparents, spouses, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, brothers- and sisters-in-law and any other person (other than a tenant or employee) sharing the household of one of these individuals.

Under the Related Persons Transaction Policy, any transaction, arrangement or relationship in which the Company (including any of its subsidiaries) is or will be a participant and in which a Related Person has a direct or indirect interest (a “Related Persons Transaction”) must be reviewed by the Audit Committee, except that the following transactions, arrangements or relationships are exempt under the policy:

 

   

Payment of compensation by the Company to a director or executive officer of the Company for such person’s service to the Company in that capacity;

 

   

Transactions available to all employees or all stockholders of the Company on the same terms; and

 

   

Transactions that, when aggregated with the amount of all other transactions between the Company and the Related Person or any entity in which the Related Person has an interest, involve less than $120,000 in a fiscal year.

In determining whether to approve a Related Persons Transaction, the Audit Committee will consider the following:

 

   

Whether the terms are fair to the Company;

 

   

Whether the transaction is material to the Company;

 

   

The importance of the Related Persons Transaction to the Related Person;

 

   

The role the Related Person has played in arranging the Related Persons Transaction;

 

   

The structure of the Related Persons Transaction; and

 

   

The interests of all Related Persons in the Related Persons Transaction.

We will only enter into a Related Persons Transaction if the Audit Committee determines that the Related Persons Transaction is beneficial to the Company, and the terms of the Related Persons Transaction are fair to the Company. No Related Persons Transactions occurred during fiscal 2019.

 

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CORPORATE GOVERNANCE

Board Leadership Structure

The Board of Directors does not have a policy with respect to the separation of the offices of Chairman of the Board and Chief Executive Officer. The Board of Directors believes that it is in the best interest of the Company for the Board of Directors to make a determination on this matter when it appoints a new Chief Executive Officer or Chairman. The Board of Directors has determined that, currently, the most effective leadership structure is to have a separate Chairman of the Board, a position held by Mr. Kelly since February 2016 (and previously held by Mr. Battle from 2002 to February 2016), and Chief Executive Officer, a position held by Mr. Lansing since January 2012, as it provides us the best access to the judgments and experience of both individuals while providing a mechanism for the Board’s independent oversight of management. As a result, the Chairman presides over the meetings of the Board of Directors and the stockholders, and the Chief Executive Officer is allowed more time to focus energies on the management of the Company’s business.

Board Risk Oversight Role

Our management is responsible for identifying the various risks facing the Company, formulating risk management policies and procedures, and managing the Company’s risk exposures. Our Board of Directors’ responsibility is to monitor the Company’s risk management processes by informing itself concerning our material risks and evaluating whether management has reasonable controls in place to address the material risks. The Audit Committee of the Board of Directors has been monitoring management’s responsibility in the area of risk oversight. Accordingly, our internal risk management team regularly reports to the Audit Committee on our major risk exposures and the steps management has taken to monitor and control such exposures, including our risk assessment and risk management policies. The Audit Committee, in turn, reports on the matters discussed at the committee level to the full Board of Directors.

Attendance at Board Meetings

During fiscal 2019, the Board of Directors met five times. Each director attended at least 75% of the aggregate of the total number of meetings of the Board of Directors and the total number of meetings held by all committees of the Board on which such director served.

All Board members are expected to attend our Annual Meeting. All directors serving on the Board at the time attended the 2019 Annual Meeting.

Our Corporate Governance Guidelines provide that independent directors will meet in executive session without the Chief Executive Officer or other management present at each regular Board meeting. Braden R. Kelly, the Chairman of the Board, is independent and presides at executive sessions held in accordance with our Corporate Governance Guidelines.

Annual Board Self-Evaluations

The Board of Directors and committees conduct annual self-evaluations to assess the qualifications, attributes, skills and experience represented on the Board and to determine whether the Board and its committees are functioning effectively.

Board Committees

Our Board has three standing committees: Audit; Leadership Development and Compensation; and Governance, Nominating and Executive. All of the members of the committees are independent directors under the applicable SEC rules and NYSE listing standards. Each committee’s charter expressly provides that the committee has the sole discretion to retain, compensate, and terminate its advisors. Current copies of the charters of the three committees are available on the “Investors” page of our website at www.fico.com. The following sets forth membership of each of our committees as of January 15, 2020.

 

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Audit Committee

       

Primary Responsibilities:

2019 Meetings: 8

James D. Kirsner (Chair)

Marc F. McMorris

David A. Rey

     

Assists the Board in overseeing the integrity of our financial statements;

 

     

Oversees the qualifications and independence of our independent auditor;

 

     

Oversees performance of our internal audit function and independent auditor;

 

     

Oversees our Company’s compliance with legal and regulatory requirements related to financial affairs and reporting;

 

     

Appoints, retains, compensates, and replaces the independent auditor; and

 

     

Reviews the audited financial statements with management and the independent auditor, and on an annual basis it provides an Audit Committee Report wherein it states that it recommends to the Board that the audited financial statements be included in our Annual Report on Form 10-K.

      Independence:
     

Each member of the Audit Committee is independent as defined in Rule 10A-3 adopted pursuant to the Sarbanes-Oxley Act of 2002 and in the NYSE listing rules; and

     

The Board determined that all members of the Audit Committee are “audit committee financial experts” under the SEC regulations and financially literate under NYSE listing rules.

Leadership Development and
Compensation Committee

       

Primary Responsibilities:

2019 Meetings: 6

A. George Battle (Chair)

Braden R. Kelly

Eva Manolis

Joanna Rees

     

Overall oversight responsibility for the directors’ and executive officers’ compensation plans and the compensation policies and programs of the Company;

 

     

Reviews and approves the level and terms of the executive officers’ annual and long-term compensation;

 

     

Administers the 2012 LTIP, as well as makes recommendations to the Board of Directors regarding the adoption of other incentive plans;

 

     

Makes recommendations to the Governance, Nominating and Executive Committee with respect to the form and amount of director compensation, and, jointly with the Governance, Nominating and Executive Committee, recommends changes in director compensation to the Board; and

 

     

Monitors compliance by directors and officers with the Company’s stock ownership guidelines.

      Independence:
     

Each member of the Leadership Development and Compensation Committee is independent as required by the NYSE listing rules.

 

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Governance, Nominating and Executive
Committee

       

Primary Responsibilities:

2019 Meetings: 4

Braden R. Kelly (Chair)

A. George Battle

James D. Kirsner

     

Reviews annually with the Board the composition (e.g., skills, experience, diversity, age) of the Board, the requisite skills and characteristics of new Board members, and the performance and continued tenure of incumbent Board members;

 

     

Seeks individuals qualified to become Board members for recommendation to the Board;

     

Develops and recommends to the Board the criteria for identifying and evaluating director candidates, and recommends candidates for election or reelection to the Board;

     

Establishes the agenda for each Board meeting in cooperation with the CEO and appropriate senior management;

     

Recommends the membership of the Audit and Leadership Development and Compensation Committees;

     

Reviews and assesses the adequacy of the Corporate Governance Guidelines and recommends any proposed changes to the Board for approval;

     

Receives recommendations of the Leadership Development and Compensation Committee with respect to the form and amount of director compensation, and, jointly with the Leadership Development and Compensation Committee, recommends changes in director compensation to the Board;

     

Takes action between meetings, subject to defined limits, with respect to investment, budget, and capital and exploratory expenditure matters arising in the normal course of the Company’s business; and

     

Takes action between meetings, subject to defined limits, to sell, lease, pledge, mortgage or otherwise dispose of property or assets of the Company.

      Independence:
     

Each member of the Governance, Nominating and Executive Committee is independent as required by the NYSE listing rules.

 

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DIRECTOR COMPENSATION PROGRAMS

Non-Employee Director Compensation

The following compensation components are paid to our non-employee directors:

 

   

Annual retainer fees;

 

   

An equity grant upon initial election to the Board; and

 

   

Annual equity grants.

Our Program is as described below. For a description of our compensation program in effect prior to this date, see last year’s proxy statement.

Under the Program, each non-employee director was entitled to receive annual retainer fees in the amounts set forth below and was paid in cash quarterly in arrears during their annual term commencing upon their election or re-election at each Annual Meeting of Stockholders. Such amounts will be pro-rated for appointments made to the Board of Directors, Chair of the standing Board committee or Chairman of the Board between Annual Meetings.

 

  

 

Annual retainer fee payable to all non-employee directors

   $ 60,000  
   

Additional annual retainer fee payable to Chairs of the Board’s Audit Committee, Leadership Development and Compensation Committee and Governance, Nominating and Executive Committee

   $ 25,000  
   

Additional annual retainer fee payable to Independent Chairman of the Board

   $ 120,000  
   

Additional annual retainer fee payable to non-Chair members of the Audit Committee and Leadership Development and Compensation Committee

   $ 15,000  

The stock price used for purposes of all calculations made under the Program equaled the average closing price of a share of the Company’s stock for the trading days within the 30-calendar-day period that ended on the eleventh calendar day before the date of grant.

Each non-employee director had the right, prior to the Annual Meeting, to elect to receive some or all of these annual retainer fees in the form of fully vested nonqualified stock options instead of cash. A director who elected to receive some or all of these annual retainer fees in the form of a stock option received an option to purchase a number of shares equal to the amount of the retainer or portion of the retainer being converted divided by the Black Scholes value of an option.

Upon initial election to the Board, each non-employee director was entitled to receive a number of nonqualified stock options subject to three-year ratable vesting equal to $460,000 divided by the Black Scholes value of a nonqualified stock option. The director was able to elect to convert either 50% or 100% of these stock options to restricted stock units subject to three-year ratable vesting. The number of restricted stock units was determined by dividing the aggregate Black Scholes value of the nonqualified stock options being exchanged by the value of a restricted stock unit.

Annual equity grants made to non-employee directors who were re-elected at the 2019 Annual Meeting of Stockholders after serving on the Board at least since the previous Annual Meeting were in the form of stock options subject to one-year cliff vesting equal to $230,000 divided by the Black Scholes value of a nonqualified stock option, and each committee chair received an additional annual grant in the form of stock options subject to one-year cliff vesting equal to $30,000 divided by the Black Scholes value of a nonqualified stock option. Each director was able to elect to convert either 50% or 100% of these stock options to restricted stock units subject to one-year cliff vesting. The number of restricted stock units was determined by dividing the aggregate Black Scholes value of the nonqualified stock options being exchanged by the value of a restricted stock unit. Equity awards granted upon an Annual Meeting that are subject to vesting will vest upon the dates of successive Annual Meetings.

 

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Changes for Fiscal 2020

Our Leadership Development and Compensation Committee and Governance, Nominating and Executive Committee have approved changes to our director compensation program for fiscal 2020, effective as of the Annual Meeting, pursuant to which the additional annual cash retainer fee for the person serving as the Chairman will be decreased from $120,000 to $100,000 and continue to be in addition to the annual cash retainer fee which will now be labeled the “base annual cash retainer”. The annual retainers for all other directors and for committee members are expected to remain unchanged for fiscal 2020.

Director Stock Ownership Guidelines

Our previous policy required non-employee directors to hold 10,000 shares within five years of beginning service on the Board. On December 5, 2019, upon recommendation of the Leadership Development and Compensation Committee and the Governance, Nominating and Executive Committee, the Board determined to change the director stock ownership guidelines so that the policy will require non-employee directors to hold seven times the base annual retainer fee in share value to be owned within five years of initial election or appointment. All of the directors currently meet the stock ownership guidelines or are making acceptable progress to their applicable level. The recent changes in our policy were designed to broaden the pool of potential candidates by reducing the risk of economic barriers to joining the Board.

Director and Officer Liability Insurance Policies

Directors are covered under our director and officer liability insurance policies for claims alleged in connection with their service as directors. We have entered into indemnification agreements with all of our directors agreeing to indemnify them to the fullest extent permitted by law for claims alleged in connection with their service as directors.

 

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DIRECTOR COMPENSATION FOR FISCAL 2019

The table below summarizes the compensation paid by the Company to each non-employee director for the fiscal year ended September 30, 2019.

 

Name

   Fees
Earned or
Paid in
Cash ($)(1)
    Stock
Awards
($)(9), (10)
     Option
Awards
($)(9), (11)
     Non-Equity
Incentive Plan
Compensation
($)
     Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)
     All Other
Compensation
($)
     Total
($)
 

A. George Battle

     127,500 (2)             285,111                             412,611  

Braden R. Kelly

     162,500 (3)      283,258                                    445,758  

James D. Kirsner

     85,000 (4)      283,258                                    368,258  

Eva Manolis

     106,250 (5)                                         105,250  

Marc F. McMorris

     37,500 (6)      125,397        126,084                             288,981  

Joanna Rees

     75,000 (7)      125,397        126,084                             326,481  

David A. Rey

     57,500 (8)             252,168                             309,668  

 

(1) 

All fees under this column represent fees paid to the directors under the Compensation Program for Non-Employee Directors adopted December 8, 2016 (the “Program”) (described below). The Program anticipates fees commencing with the directors’ election year (February/March to February/March) whereby the compensation reported in this table is that paid during our fiscal year (October through September). Fees that are paid in cash are paid quarterly in arrears. Fees that, at election of the director, are paid in stock options are paid in one annual grant upon the director’s election to the Board. As a result, when a director’s election with respect to receiving fees in cash or stock options changes from one year to the next, the director’s compensation disclosed in this column differs from the annual fees described under “Non-Employee Director Compensation” above. Messrs. Battle, Kelly, McMorris, and Rey, and Ms. Manolis made election changes during fiscal 2019.

 

(2) 

Includes the $42,500 annual retainer and committee chair retainers paid quarterly in the first and second quarter of fiscal 2019 and the $85,000 annual board retainer and committee chair retainers for the Leadership Development and Compensation Committee payable upon his re-election foregone by Mr. Battle to instead receive 1,180 stock options. The amount recognized for financial statement reporting purposes in fiscal 2019 with respect to such options, which was $93,220, is excluded from the “Option Awards” column.

 

(3) 

Mr. Kelly’s “Fees Earned or Paid in Cash” represent the $162,500 annual board and committee retainers, annual independent chairman of the board retainer and committee chair retainers for the Governance, Nominating and Executive Committee paid quarterly upon his re-election of which $105,000 was foregone by Mr. Kelly to instead receive 1,457 stock options. The amount recognized for financial statement reporting purposes in fiscal 2019 with respect to such options, which was $115,103, is excluded from the “Option Awards” column.

 

(4) 

Represents the $85,000 annual board retainer and committee chair retainers for the Audit Committee paid quarterly to Mr. Kirsner during fiscal 2019.

 

(5)

Includes the $31,250 annual retainer and committee retainers paid quarterly in the first and second quarter of fiscal 2019 and the $75,000 annual board and committee fee retainers payable upon her re-election foregone by Ms. Manolis to instead receive 1,041 stock options. The amount recognized for financial statement reporting purposes in fiscal 2019 which respect to such options, which was $82,239, is excluded from the “Option Awards” column.

 

(6) 

Represents the annual board and committee retainers paid quarterly to Mr. McMorris in the third and fourth quarter of fiscal 2019.

 

(7) 

Ms. Rees’s “Fees Earned or Paid in Cash” represent the $75,000 annual board and committee retainers payable upon her re-election foregone by Ms. Rees to instead receive 1,041 stock options. The amount recog-

 

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nized for financial statement reporting purposes in fiscal 2019 with respect to such options, which was $82,239, is excluded from the “Option Awards” column.

 

(8) 

Represents the $57,500 annual board and committee retainers paid quarterly to Mr. Rey during fiscal 2019.

 

(9) 

The amounts in this column represent the aggregate grant date fair value of each award computed in accordance with FASB ASC Topic 718. For information on the assumptions used to calculate the value of the awards, refer to Note 13 of the Company’s Consolidated Financial Statements in the Annual Report on Form 10-K for the fiscal year ended September 30, 2019, as filed with the SEC.

 

(10) 

As of September 30, 2019, the restricted stock unit awards outstanding for each director are as follows: Mr. Battle — 0; Mr. Kelly — 1,143; Mr. Kirsner — 1,143; Ms. Manolis — 0; Mr. McMorris — 506; Ms. Rees — 506; Mr. Rey — 0.

 

(11) 

As of September 30, 2019, the option awards outstanding for each director are as follows: Mr. Battle — 16,664; Mr. Kelly — 46,807; Mr. Kirsner — 17,501; Ms. Manolis — 8,733; Mr. McMorris — 16,664; Ms. Rees — 32,193; Mr. Rey — 51,153.

 

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Overview of Company Performance in Fiscal 2019

During fiscal 2019, our growth initiatives continued to generate significant free cash flow. We utilized our cash to enhance stockholder value through investments in long-term growth initiatives, acquisition of relevant technologies and products that strengthen our portfolio and competitive position, and funding of our stock repurchase programs.

We continued to transform our business from on-premise to recurring revenue associated with our cloud-based solutions in our Applications and Decision Management Software segments. Our continued product innovation provides growth opportunities with customers that can benefit from the affordability and simplicity of these solutions. The majority of our software solutions are now available through both the FICO® Analytic Cloud and AWS. During fiscal 2019, our cloud bookings accounted for 39% of our total bookings, compared to 35% during fiscal 2018.

For our Scores segment, our industry leading business-to-business FICO® Scores have achieved a multi-year expansion in the growing U.S. consumer market. We have launched numerous new FICO® Score-based products, and continue to grow our partnership with Experian, a leading global information services provider. This partnership provides consumers the FICO® Score that lenders most commonly use in evaluating credit when determining applicant eligibility for new credit cards, car loans, mortgages or other lines of credit. The FICO® Score Open Access program, which allows our participating clients to provide their customers with a free FICO® Score along with content to help them understand the FICO® Score their lender uses, has more than 290 million consumer accounts with access to their free FICO® Scores. We continue to pursue additional partners to distribute FICO® Scores with their product offerings sold directly to consumers. During fiscal 2019, we launched the new UltraFICO Score, a score based on consumer contributed data, which empowers consumers to engage and have more control in the credit scoring process.

We continue to enhance stockholder value by returning cash to stockholders through our stock repurchase program. During fiscal 2019, we repurchased approximately 0.9 million shares at a total repurchase price of $228.9 million. As of September 30, 2019, we had $220.3 million remaining under our current stock repurchase program.

Fiscal 2019 was also a good year from the perspective of our stockholders, with continued strong returns illustrated by the chart below for the past three fiscal years.

FICO vs. Russell 3000 3-Year Indexed Total Stockholder Return

(10/1/16 through 10/1/19)

 

 

LOGO

 

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Overview of Fiscal 2019 Executive Compensation Program

As administered by our Leadership Development and Compensation Committee (the “Committee”), our executive compensation program seeks to closely link the financial interests of our executive officers with those of our stockholders. The Committee uses the following guidelines in our executive compensation program to help achieve this overarching goal.

 

Emphasis on Pay for Performance

     

Base salaries are adjusted infrequently and, accordingly, the base salaries for our incumbent executive officers remained flat in fiscal 2019;

 

     

Variable short-term cash incentive compensation plan funding is based upon Company performance, with individual awards linked closely to individual performance; and

     

Emphasis on long-term incentive compensation opportunities to align our executive officers’ interests with those of our stockholders, with two-thirds of their target long-term incentive compensation value weighted towards performance-based equity vehicles, the value of which depends on meeting the Company’s financial performance targets and our stock price performance.

Quality Pay Practices and Policies

     

Only “double-trigger” accelerated vesting or payment for equity awards upon a change in control of the Company;

 

     

Executive stock ownership guidelines that encourage ownership and further align our executive officers’ interests with those of our stockholders;

     

Prohibition on hedging of Company common stock;

     

A compensation recovery, or “clawback,” policy pertaining to both cash and equity incentive-based compensation;

     

Mandatory minimum vesting period of one year for equity awards;

     

Annual compensation peer group review with appropriate updates to ensure valid comparisons;

     

No tax “gross-ups” allowed except with respect to relocation benefits and required spousal travel; and

     

Independent compensation consultant engaged by the Committee that does not provide any other services to the Company.

In making compensation decisions at the outset of fiscal 2019 and throughout the year, the Committee continued to reinforce the link between Company performance and executive compensation.

The target level of short-term cash incentive awards for each executive officer, expressed as a percentage of annual base salary, remained unchanged in fiscal 2019. At the beginning of the fiscal year, our Board of Directors approved an Adjusted Revenue target of $1,125 million and an Adjusted EBITDA target of $342.5 million. These performance measures were selected by the Committee to determine funding of the fiscal 2019 cash incentive pools and to drive sustainable top-line and bottom-line growth, balancing both short-term and longer-term considerations. Our fiscal 2019 results of $1,160.1 million in Adjusted Revenue and $366.9 million in Adjusted EBITDA exceeded target, resulting in funding under both the Broad-Based and Management Incentive Plans at 125% of budgeted target. “Adjusted Revenue” and “Adjusted EBITDA” are defined on page 43 of this proxy statement. In selecting these two financial measures, both of which are used to determine short-term cash incentive funding and Performance Share Unit earnings, the Committee took into account the fact that the Company is making significant investments in technology infrastructure, solution innovation and distribution which tend to sacrifice short-term performance on certain other metrics (e.g., earnings per share) in favor of enabling

 

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longer-term stockholder value creation. The Committee believes that these performance measures best balance the delivery of steady growth against the investments the Company makes. Further, using one-year performance periods for short-term cash incentive plan funding, as well as the earning of Performance Share Units subject to multi-year vesting, allows the Committee to reward performance for a time period over which the Company has better visibility. Setting goals over a longer term is difficult because of the complexity and evolving nature of the business problems addressed by our solutions and would hinder an alignment of our performance measures with our Company goals.

To align our executive officers’ interests with the creation of stockholder value, long-term equity incentive compensation represents a substantial portion of their target total direct compensation opportunities, and we have continued to maintain a diverse mix of equity award types which favor those that are performance-based instead of simply time-based. This mix of long-term incentive vehicles helps ensure that our executive compensation program operates effectively across a wide variety of business scenarios.

Long-term equity incentive awards granted to our executive officers in fiscal 2019 were granted in December 2018 as part of the Company’s annual year-end performance review and compensation planning process. Two-thirds of the annual long-term incentive awards were performance-based, with only one-third time-based. Specifically, the Committee granted one-third of the target annual long-term award value to our executive officers in the form of Performance Share Units (“PSUs”), which were designed to reward the achievement of pre-established annual Adjusted Revenue and Adjusted EBITDA goals. Based on our actual performance with respect to these measures, 200% of the target PSUs granted in fiscal 2019 were earned. The Committee granted another one-third of the target annual long-term award value in the form of Market Share Units (“MSUs”). MSUs are earned based on our total stockholder return relative to the Russell 3000 index over performance periods of one, two and three years. Based on our one-year total stockholder return from December 1, 2018 to November 30, 2019, 200% of the target awards for the first performance period of the fiscal 2019 MSUs were earned. Based on our two-year total stockholder return from December 1, 2017 to November 30, 2019, 200% of the target awards for the second performance period of the fiscal 2018 MSUs were earned. Based on our three-year stockholder return from December 1, 2016 to November 30, 2019, 200% of the target awards for the third performance period of the fiscal 2017 MSUs were earned, less those units earned in the first and second periods.

Our strong linkage of pay and performance is illustrated in the chart below. The dollar amounts shown for the target total direct compensation figures reflect the grant date value of equity awards. The dollar amounts shown for the realized total direct compensation figures reflect fiscal 2019 realized PSUs at 200% of targeted earnings and fiscal 2019 MSUs at 200% of the target awards for the first performance period, with earnings for the second and third performance periods reflected at target.

Target v. Realized Compensation for Named Executive Officers in FY19

 

 

LOGO

 

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Preview of Fiscal 2020 Compensation Program

The Committee’s decisions made at the outset of fiscal 2020 reflect a continuation of the philosophy employed during fiscal 2019. Specifically, our emphasis on long-term equity incentives continues and the long-term incentive program continues to reflect a strong emphasis on performance-based vehicles. As described more fully below, and as was the case in fiscal 2019, two-thirds of the value of the annual equity awards made to our executive officers in fiscal 2020 were made in the form of performance-based vehicles.

Named Executive Officers

Our named executive officers for fiscal 2019 consist of the following persons:

 

   

William Lansing, our Chief Executive Officer,

 

   

Michael McLaughlin, our Executive Vice President and Chief Financial Officer,

 

   

James Wehmann, our Executive Vice President, Scores,

 

   

Wayne Huyard, our Executive Vice President, Sales, Services and Marketing,

 

   

Claus Moldt, our Executive Vice President and Chief Technology Officer,

 

   

Michael Pung, our Former Executive Vice President and Chief Financial Officer who retired from this position effective as of August 3, 2019, and

 

   

Stuart Wells, our Former Executive Vice President and Chief Technology Officer who resigned from this position on August 21, 2019.

Compensation Arrangements Relating to Fiscal 2019 Management Changes

Effective August 3, 2019, Michael I. McLaughlin began serving as our Executive Vice President and Chief Financial Officer, replacing Michael Pung. Effective August 21, 2019, Claus Moldt began serving as our Executive Vice President and Chief Technology Officer, replacing Stuart C. Wells. Both Mr. Pung and Dr. Wells continued to provide service to the Company until December 31, 2019 pursuant to transition agreements described below.

In connection with their respective appointments, Mr. McLaughlin and Mr. Moldt each entered into a Letter Agreement with the Company stating that he is (1) entitled to receive an annual base salary of $400,000 in the case of Mr. McLaughlin, and $500,000 in the case of Mr. Moldt, such salaries being subject to upward adjustment as determined by the Committee, and (2) eligible to receive an annual cash incentive award of 0% to 125% of annual base salary pursuant to the Company’s Management Incentive Plan. Mr. McLaughlin and Mr. Moldt also received initial awards of RSUs with a grant date fair value of approximately $5,000,000 and $2,000,000, respectively, that will vest annually over four years, and each will be eligible for annual equity grants as determined by the Committee. In determining the compensation packages for Mr. McLaughlin and Mr. Moldt the Committee elected to provide them with the same market competitive compensation amounts that were provided to their predecessors, which include both the initial awards and the December 10, 2019 LTI awards.

The transition agreements with Mr. Pung and Dr. Wells were designed to ensure smooth transitions, providing that they would continue serving as employees until December 31, 2019 and in exchange would continue to receive their current base salaries and participate in employee benefit plans and programs, including the Management Incentive Plan, through that date. They would no longer be eligible to receive additional incentive stock awards, however.

Determination of Compensation

Committee Process

Members of executive management participate in the Committee’s meetings at the Committee’s request. Management’s role is to contribute input and analysis, which the Committee considers in making its decisions.

 

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The Committee is not bound by management’s recommendations, but the Committee relies on the insights of our CEO and Chief Human Resources Officer in determining compensation for our executive officers, other than our CEO. The Committee also consults with its external compensation consultant during its review of executive officer compensation. Prior to making decisions on executive compensation, the Committee refers to comprehensive statements and reports prepared by its compensation consultant and management that reflect the amount and elements of each executive officer’s total direct compensation relative to competitive market practices.

The Committee conducts an annual performance review of our CEO in connection with the determination of his compensation. As part of this process, one or more Committee members and/or the Chairman of the Board meet with each senior executive to discuss our CEO’s performance using a structured interview approach. In addition, each Board member completes a written evaluation of our CEO and submits it to the Committee. Based on these interviews and written evaluations, as well as on its own determinations regarding our CEO’s performance, the Committee prepares a final performance review for our CEO. The Committee then submits a recommendation for our CEO’s compensation to the Board for discussion. Following such discussion, the Committee finalizes its determination of our CEO’s compensation and informs our CEO of such determination, together with the final performance review.

Compensation Peer Group

In connection with our fiscal 2019 executive compensation program, the Committee reviewed summary reports prepared by its compensation consultant and by management reflecting current and proposed base salary, short-term cash incentive and equity award levels for our executive officers. Each element was analyzed relative to the Company’s compensation peer group. The peer group consisted of 20 companies that were selected as being similar in size to the Company and operating in the application software, data processing and outsourced services, research and consulting services and communication equipment sub-industries within the Global Industry Classification Standard (“GICS”) taxonomy.

The 20 peer companies that were included in the analysis referenced by the Committee when it set compensation for fiscal 2019 were as follows:

 

ACI Worldwide

  

Manhattan Associates

ANSYS

  

MicroStrategy

Blackbaud

  

MSCI

Broadridge Financial Solutions

  

Nuance Communications

Cadence Design Systems

  

Pegasystems

CoreLogic

  

PTC

CSG Systems International

  

Splunk

Equifax

  

TransUnion

FactSet Research Systems

  

Verint Systems

Jack Henry & Associates

  

Verisk Analytics

The composition of the compensation peer group is reviewed annually at a minimum, with adjustments made that the Committee, with the assistance of its compensation consultant, believes are appropriate to maintain comparability within the employment marketplace and to reflect any mergers or acquisitions or significant size changes among the subject companies.

 

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Specific information with respect to the Company’s relative position follows, using values available at the time the compensation levels were being determined in November 2018:

 

    

Revenue

($ in millions)

   

Market Capitalization     

($ in millions)     

 

Gross Profit

($ in millions)

   

Net Income

($ in millions)

 

75th percentile of peer group

    $1,994         $15,554     $437           $378      

50th percentile of peer group

    $1,361         $10,288     $209           $145      

25th percentile of peer group

    $   960         $  3,974     $  97           $  30      

Company

    $1,006         $  6,750     $197           $132      

Percentile rank

    27%       45%     49%       49%  

The Committee considered the peer group information in addition to company and individual performance when setting the compensation levels for our executive officers for fiscal 2019. The Committee does not benchmark total compensation or individual elements of compensation to particular percentiles but aims to create competitive pay packages that reflect the Company’s performance and that are generally intended to deliver above market median compensation if long-term equity incentives pay out at or above target based on challenging required levels of performance.

Use of Compensation Consultant

The Committee retains an external compensation consultant to assist it in analyzing our executive compensation program and assessing market levels of compensation. For fiscal 2019, the Committee engaged Compensia, Inc. to provide competitive practice and market compensation data, advice regarding the design of compensation programs for our executive officers and non-employee directors, input regarding specific compensation actions for our executive officers, analysis of the composition of our compensation peer group, and analysis concerning the structure of and any necessary amendments to our 2012 LTIP.

Compensation Consultant Conflict of Interest Analysis

The Committee has considered the relationships that the compensation consultant it engaged in fiscal 2019 has had with the Company, the members of the Committee and the Company’s executive officers, as well as the policies that the consultant has in place to maintain its independence and objectivity, and has determined that no conflicts of interest arose from the work performed by such consultant.

Stockholder Advisory Vote on Named Executive Officer Compensation

At our last Annual Meeting of Stockholders held on February 28, 2019, we asked our stockholders to approve, by advisory vote, the compensation of our named executive officers, as disclosed in the Compensation Discussion and Analysis, the compensation tables, and the related disclosures contained in our proxy statement for that Annual Meeting. The proposal was approved by our stockholders with approximately 95.0% of the votes cast being “for” approval (or 94.8%, including abstentions). The Committee continues to evaluate and adjust the Company’s compensation policies and practices as it deems appropriate to advance the best interests of the Company and its stockholders, and the Company engages in periodic discussions with certain of our largest stockholders to obtain feedback on our compensation policies and practices. In light of the high approval rate of our executive compensation program, policies and practices by our stockholders at our last Annual Meeting, the Committee has largely maintained the existing compensation program, policies and practices during fiscal 2019.

 

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Elements of Compensation

The fiscal 2019 executive compensation program consisted of three principal elements: (1) base salary; (2) short-term cash incentives; and (3) long-term equity incentives in the form of performance share units (“PSUs”), market share units (“MSUs”) and restricted stock units (“RSUs”).

 

Compensation Element

       

Purpose and Philosophy

Base Salary

     

Base salary provides executive officers with financial stability and predictable cash flow.

     

Individual base salaries are determined by evaluating the executive officer’s role within the Company, experience, performance, and potential for development, as well as the base salaries of comparable roles within the peer group companies and the broader marketplace.

Short-Term Cash Incentives

     

Our short-term cash incentive plan rewards the achievement of annual Company and individual performance goals.

     

Target cash incentive payment amounts are expressed as a percentage of base salary determined with reference to the peer group companies and the broader marketplace.

     

Participants may earn between zero and 250% of their cash incentive award targets, depending both upon Company and individual performance.

Long-Term Equity Incentives

     

Long-term equity incentives directly link a significant portion of each executive officer’s target total direct compensation to the market value of our common stock, while promoting retention through multi-year vesting and performance periods.

     

PSUs are earned based upon the extent to which annual Company financial targets are achieved with as few as zero and as many as 200% of the target PSUs eligible to be earned. Earned units are then subject to multi-year vesting, promoting continued linkage to the market price of our common stock while also promoting retention.

     

MSUs are earned based on our relative total stockholder return measured over one-year, two-year and three-year performance periods with as few as zero and as many as 200% of the target MSUs eligible to be earned.

     

RSUs represent a more stable equity-based compensation vehicle, ensuring linkage to the stock price performance of our common stock while promoting retention over a multi-year vesting period.

 

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Base Salary in Fiscal 2019

None of our named executive officers received an increase in base salary as part of the Company’s annual year-end performance review and compensation process in November 2018. This conservative approach reflects the Committee’s continued commitment to incentive compensation elements directly linked to the achievement of our target financial goals and the creation of stockholder value.

 

Named Executive Officer    Fiscal 2019
Base Salary
     Fiscal 2018
Base Salary
 

William Lansing

   $ 750,000      $ 750,000  

Michael McLaughlin

   $ 400,000        N/A  

James Wehmann

   $ 500,000      $ 500,000  

Wayne Huyard

   $ 500,000      $ 500,000  

Claus Moldt

   $ 500,000 (1)       N/A  

Michael Pung

   $ 400,000      $ 400,000  

Stuart Wells

   $ 500,000      $ 500,000  

 

(1) 

Mr. Moldt’s base salary was increased from $375,000 to $500,000 effective August 21, 2019 in conjunction with his promotion to Executive Vice President and Chief Technology Officer.

Short-Term Cash Incentives in Fiscal 2019

We offer a short-term incentive opportunity in the form of cash incentive awards to our executive officers. For fiscal 2019, these incentive awards were paid from a single, centralized pool that supported short-term cash incentive payments to our executive officers under our Management Incentive Plan and to other eligible employees under our Broad-Based Incentive Plan. The Committee established a formula to determine a maximum amount that may be paid to each of our named executive officers under the Management Incentive Plan. The Committee then had the discretion to pay amounts to our named executive officers under the Management Incentive Plan that were less than the maximum amounts.

In fiscal 2019, the Committee determined our named executive officers’ cash incentive payments using the framework set forth below (which was the same for our named executive officers as for all other participants in the Management Incentive Plan and Broad-Based Incentive Plan):

 

     

  Company Budget and Performance Factor

   =     

A value ranging from 0 to 125%, which was equal to the amount of the budgeted level of bonus pool funding in the fiscal year’s operating plan divided by the aggregate amount of plan participants’ target-level awards multiplied by the extent to which the Company Adjusted Revenue and Adjusted EBITDA targets were achieved. Fiscal year 2019 = 125%.

     

  Participant Performance Factor

   =     

A value ranging from 0 to 200%, reflecting the extent to which individual participant performance goals were achieved.

     

  Participant Target %

   =     

The percentage of each participant’s annual base salary that represents his or her target cash incentive payment amount.

As an illustrative example, a participant with an annual base salary of $500,000, a Participant Target % of 50% of base salary, and a Participant Performance Factor of 100% would have earned $312,500 for fiscal 2019 based on our Company Budget and Performance Factor of 125% (compared to a target payment of $250,000).

The Committee establishes the size of the cash incentive pool by determining the Company Budget and Performance Factor, which is equal to the amount of the budgeted level of bonus pool funding in the fiscal

 

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year’s operating plan divided by the aggregate amount of plan participants’ target-level awards multiplied by the extent to which Adjusted Revenue and Adjusted EBITDA targets are achieved. “Adjusted Revenue” means the Company’s GAAP Revenue as adjusted to remove the impact of revenues related to acquisitions or events deemed by the Committee to have been out of management’s control and occurring in the measurement year. “Adjusted EBITDA” means earnings before interest, taxes, depreciation, and amortization (“EBITDA”) as adjusted for stock-based compensation expense, restructuring and acquisition-related charges, and other items reflected in Company’s quarterly earnings releases. The threshold, target and maximum performance levels for each performance measure, along with the related Company Budget and Performance Factor, for fiscal 2019 were as follows:

 

Financial Metric
(Weighting)
  Threshold
Funding Level
       Targeted
Funding Level
       Maximum
Funding Level
  Actual
Performance

Adjusted Revenue (50%)

  $1,060.0
million
  $1,080.0
million
  $1,125.0
million
  $1,135.0

million

  $1,145.0
million
  $1,160.1
million

Adjusted EBITDA (50%)

  $294.6
million
  $321.4
million
  $342.5
million
  $344.0

million

  $347.0
million
  $366.9
million

Company Budget and Performance Factor

  25%   50%   100%   112.5%   125%   125%

In accordance with this calculation, a Company Budget and Performance Factor of 125% was applied to the cash incentive pool and uniformly affected payments made to all participants in the Management Incentive Plan and Broad-Based Incentive Plan. This fiscal 2019 Company Budget and Performance Factor was slightly higher than in fiscal 2018, when above-target Company performance yielded a multiplier of 121%.

The Participant Performance Factor is a function of the extent to which individual performance goals are achieved. These goals can include Company-wide measures as well as business unit metrics and goals that are highly specific to the functions over which the individual has primary responsibility. Our CEO’s performance goals were established by the Committee after considering input from each non-employee director, and our CEO’s individual annual performance evaluation was completed by the Committee. Individual performance goals for our executive officers other than our CEO were established by our CEO, and annual performance evaluations for these executive officers were completed by our CEO and discussed with the Committee. If an executive officer receives the lowest performance rating on a three-point scale (“Improvement Needed”), his Participant Performance Factor and his resulting cash incentive payment will generally be reduced to zero. Conversely, if an executive officer receives the highest overall performance rating (“Outstanding”), his Participant Performance Factor may be as high as 200%. Distribution guidelines applicable to these performance ratings ensure that participants in the short-term cash incentive program are not all rated on the high or low end of the scale, but are instead distributed above and below the target levels. The Committee may exercise discretion to make adjustments within the performance scale.

 

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The Participant Performance Factor values for our named executive officers for fiscal 2019, along with the key factors considered by the Committee and our CEO, as applicable, in making these determinations, were as follows:

 

Named Executive
Officer
  Participant
Performance
Factor
  Key Factors

William Lansing

  128%  

•   set and oversaw implementation of our overarching business strategy

•   sustained focus on top talent acquisition, motivation and retention

Michael McLaughlin

  113%  

•   effective onboarding to the EVP-CFO role coupled with early, important contributions on deal margin analysis

James Wehmann

  120%  

•   oversaw strong revenue growth in the Scores business

•   leveraged partner relationships to open up new Scores growth opportunities

Wayne Huyard

  120%  

•   grew global sales capacity

•   expanded reach in existing markets and won business in new markets

•   delivered strong fiscal 2019 financial results, particularly involving cloud-based bookings

Claus Moldt

  112%  

•   strong, ongoing execution of our cloud first strategy

•   effectively transitioned into the EVP-CTO role leveraging strong collaboration and change management approach

Michael Pung

  100%  

•   effectively transitioned EVP-CFO responsibilities to successor while ensuring key business process continuity and maintenance of controls

Stuart Wells

  96%  

•   effectively transitioned EVP-CTO responsibilities to successor while maintaining focus on strategic technology execution and client deliverables

The Participant Target % for each participant in the Management Incentive Plan is based on the Company’s desire to continue to emphasize long-term incentives and the Committee’s review of market-competitive short-term compensation levels for executives in comparable roles at the peer group companies. As provided in their respective employment agreements, Mr. Lansing’s Participant Target % is 100% of his annual base salary, and the other named executive officers each have a Participant Target % of 50% of their annual base salary.

The combined effect of these inputs led to the following payments for the named executive officers under the Management Incentive Plan for fiscal 2019 performance, shown along with the target payment levels:

 

Named Executive Officer   Target Payout
for Fiscal 2019
    Amount Attributable
to Company
Performance Factor
    Participant
Performance Factor
    Actual Payout
for Fiscal 2019
 

William Lansing

  $ 750,000     $ 937,500       128   $ 1,200,000  

Michael McLaughlin(1)

  $ 31,781     $ 39,726       113   $ 45,000  

James Wehmann

  $ 250,000     $ 312,500       120   $ 375,000  

Wayne Huyard

  $ 250,000     $ 312,500       120   $ 375,000  

Claus Moldt

  $ 250,000     $ 312,500       112   $ 350,000  

Michael Pung

  $ 200,000     $ 250,000       100   $ 250,000  

Stuart Wells

  $ 250,000     $ 312,500       96   $ 300,000  

Totals

  $ 1,981,781     $ 2,477,226           $ 2,895,000  

 

(1) 

Mr. McLaughlin’s target and actual payouts were pro-rated for his partial fiscal year of employment.

 

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Long-Term Equity Incentives in Fiscal 2019

The third key element of our executive compensation program for fiscal 2019 was long-term equity incentives in the form of equity awards. This element of compensation is used to drive achievement of the Company’s financial targets while linking compensation to the market value of our common stock. The Company has chosen to emphasize long-term equity incentives in our executive compensation program to help to ensure alignment with our stockholders over time.

In determining the value of annual equity awards for fiscal 2019, the Committee considered an analysis of competitive market data prepared by its compensation consultant and described above under “Determination of Compensation — Compensation Peer Group,” the individual performance of each executive officer, the need to reinforce positive levels of collaboration and teamwork across members of the executive team, and our retention objectives.

The proportion of each type of equity award granted in fiscal 2019 is broken down as follows:

 

Performance Share Units
1/3
   Market Share Units
1/3
   Restricted Stock Units
1/3

Performance Share Units. For fiscal 2019, PSUs represented one-third of the target annual equity awards granted in December 2018 to our executive officers. The PSUs granted in fiscal 2019 were earned on the basis of a one-year performance period but any earned shares vest over the three years following the date of grant. The Committee used a one-year performance period because market uncertainties made it difficult to accurately forecast our Adjusted Revenue and Adjusted EBITDA beyond that point. The Committee believes the complexity of our major products, along with the complexity of our major customers, yields a very long selling cycle, which in turn contributes significant uncertainty into our revenue stream and resulting EBITDA. Using a one-year performance period allows the Committee to reward performance for a time period over which the Company has better visibility instead of creating goals over a longer term that are more likely to be problematic. In addition, requiring that any earned shares vest over an additional two years creates long-term alignment with our stockholders and satisfies our retention objectives.

The maximum number of PSUs that could have been earned over the fiscal 2019 performance period by each named executive officer was specified in the applicable award agreement. In each case, the named executive officer could earn up to 200% of the target number of PSUs if the Company’s GAAP Revenue for fiscal 2019, equaled or exceeded the base amount of $1,015 million. The Committee retained discretion to determine a lesser number of PSUs that would be earned and established the following earnings matrix when the awards were granted to inform its exercise of this negative discretion:

 

Financial Metric

(Weighting)

  Threshold
Performance
           Target
Performance
           Maximum
Performance
 

Adjusted Revenue (50%)

  $ 1,060.0 million     $ 1,080.0 million     $ 1,125.0 million     $ 1,135.0 million     $ 1,145.0 million  

Adjusted EBITDA (50%)

  $ 294.6 million     $ 321.4 million     $ 342.5 million     $ 344.0 million     $ 347.0 million  

PSUs Earned (as percentage of target)

    25%       50%       100%       150%       200%  

Based on the Company’s above-target performance of $1,160.1 million of Adjusted Revenue and $366.9 million of Adjusted EBITDA in fiscal 2019, and using the above matrix as a guide, the Committee applied a multiplier of 200% to the target number of PSUs.

 

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The target number of PSUs and the number of PSUs earned by each named executive officer for fiscal 2019 performance that were settled for shares of our common stock are as follows:

 

Named Executive Officer    Target Number
of PSUs
Granted for
Fiscal 2019
     Actual Number
of PSUs
Earned for
Fiscal 2019
 

William Lansing

     16,215        32,430  

Michael McLaughlin

     N/A        N/A  

James Wehmann

     5,300        10,600  

Wayne Huyard

     5,300        10,600  

Claus Moldt

     N/A        N/A  

Michael Pung

     4,417        8,834  

Stuart Wells

     5,300        10,600  

One-third of earned shares were paid following the end of fiscal 2019 and two-thirds will vest over the next two fiscal years provided the named executive officer remains with the Company as of each vesting date or vesting of the PSUs continues pursuant to the terms of the applicable award agreement.

Market Share Units. For fiscal 2019, MSUs represented one-third of the target annual equity awards granted in December 2018 to our executive officers. The MSUs granted in fiscal 2019 (as well as those granted in fiscal 2018 and fiscal 2017) are earned based on the Company’s total stockholder return relative to the Russell 3000 index over performance periods of one, two and three years. The Committee decided to measure performance over a total of three years to integrate a longer, multi-year performance period into the Company’s equity compensation program.

The number of MSUs earned by a named executive officer in each of the one- and two-year performance periods is determined by taking one-third of the target units in the applicable award agreement multiplied by the relative return factor for the relevant performance period. The number of MSUs earned by a named executive officer in the three-year performance period is determined by taking the total number of the target units in the applicable award agreement multiplied by the relative return factor for the relevant performance period, and then subtracting any shares of our common stock earned in the one-year and two-year performance periods from the result. The total number of shares earned in the one-year and two-year periods is not adjusted if the three-year calculation, less shares earned in prior periods, is a negative number. The relative return factor for each performance period is calculated as follows:

 

Relative TSR Performance (Fiscal 2017, 2018 and 2019)    Relative Return Factor

+33.33% or greater

   200%

+16.67%

   150%

0%

   100%

-12.5%

   50%

-25% or less

   0%

Generally, the Company’s relative TSR performance is calculated by taking the difference between our total stockholder return minus the Russell 3000 index’s total stockholder return for the relevant performance period. Importantly, the MSU earnings slope for below-target performance is steeper than the slope for above-target performance, meaning that the penalty for under-performance is greater than the premium for over-performance.

Based on our total stockholder return of 62.74% for fiscal 2019, 200% of the MSUs granted in fiscal 2019 were earned at the conclusion of the first performance period and settled for shares of our common stock. Based on our total stockholder return of 116.23% for fiscal 2018 and fiscal 2019, 200% of the MSUs granted in fiscal 2018 were earned at the conclusion of the second performance period and settled for shares of our common stock. Finally, based on our total stockholder return of 172.67% for fiscal 2017, fiscal 2018 and fiscal 2019,

 

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200% of the MSUs granted in fiscal 2017 were earned at the conclusion of the third performance period and settled for shares of our common stock. The target number of MSUs and the number of shares of our common stock earned by each named executive officer for each of the three performance periods completed at the end of fiscal 2019 are as follows:

 

Named Executive Officer   

Target Number

of FY19 MSUs

Subject to One-Year
Performance

    

Actual Number

of MSUs

Earned

 

William Lansing

     5,405        10,810  

Michael McLaughlin

     N/A        N/A  

James Wehmann

     1,767        3,534  

Wayne Huyard

     1,767        3,534  

Claus Moldt

     N/A        N/A  

Michael Pung

     1,473        2,946  

Stuart Wells

     1,767        3,534  
     
Named Executive Officer   

Target Number

of FY18 MSUs

Subject to Two-Year
Performance

    

Actual Number

of MSUs

Earned

 

William Lansing

     6,716        13,430  

Michael McLaughlin

     N/A        N/A  

James Wehmann

     1,830        3,658  

Wayne Huyard

     1,830        3,658  

Claus Moldt

     N/A        N/A  

Michael Pung

     1,574        3,146  

Stuart Wells

     1,830        3,658  
     
Named Executive Officer   

Target Number

of Total FY17
MSUs

    

Actual Number

of MSUs

Earned(1)

 

William Lansing

     22,561        21,208  

Michael McLaughlin

     N/A        N/A  

James Wehmann

     7,268        6,831  

Wayne Huyard

     7,268        6,831  

Claus Moldt

     N/A        N/A  

Michael Pung

     6,250        5,875  

Stuart Wells

     7,268        6,831  

 

(1) 

The actual number of MSUs granted in fiscal 2017 and earned in fiscal 2019 was calculated by multiplying the total number of target units by the relative return factor, then subtracting the fiscal 2017 MSUs earned at the conclusion of the first and second performance periods, respectively.

Restricted Stock Units. For fiscal 2019, RSUs represented the final one-third of the target annual equity awards granted in December 2018 to our executive officers. The RSUs granted in fiscal 2019 provide a link to our stock price performance, as well as promote our retention objectives over a multi-year vesting period. Generally, the RSUs granted by the Committee vest in four equal annual installments beginning on the first anniversary of the grant date.

As in prior fiscal years, the Committee permitted our executive officers to exchange up to 100% of their annual time-vested RSUs for non-qualified stock options (“NQSOs”) on an economically equivalent basis, while

 

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maintaining the existing four-year annual vesting requirement. In connection with the retention of this flexibility, which was initially implemented in fiscal 2015, the Committee determined that NQSOs provide attractive leverage to the recipient and permit the holder to determine when taxable income events occur via a decision to exercise their NQSOs. In fiscal 2019, Mr. Lansing was the only named executive officer who elected to receive a NQSO in place of an RSU award. One additional executive officer elected to receive a NQSO in place of an RSU award.

In the event that a named executive officer was to make such an election, the ratio constituting an economically equivalent basis would be determined as follows:

 

     

  Value of One “Whole” Share

   =     

Accounting value determined based upon the average closing market price of our common stock during the 30 calendar days ending 11 days before the grant date

     

  Value of One “Option” Share

   =     

Black-Scholes accounting value based upon the average closing market price of our common stock during the 30 calendar days ending 11 days before the grant date

     

  Exchange Ratio for RSUs to NQSOs

   =     

Accounting value of one “whole” share divided by Black-Scholes accounting value of one “option” share

In fiscal 2019, the value of one “whole” share was determined to be $188.7019, while the value of one “option” share was determined to be $56.5610. The resulting ratio was 3.3363 “option” shares for each “whole” share, meaning our executive officers could receive a NQSO for that number of shares equal to 3.3363 multiplied by the number of shares that would be subject to their RSU for fiscal 2019.

Evolution of Long-Term Equity Incentive Program

The following charts depict the evolution of our long-term equity incentive program over the last several years to increasingly emphasize performance-based vehicles over those based solely on continued service with the Company. The values reflected (i) assume that all executive officers elected to convert the maximum allowable portion of their annual stock option grants from fiscal 2011 through fiscal 2013 to RSUs, which was the typical pattern, and (ii) depicts PSUs and MSUs at target level. The fiscal 2014–2019 chart reflects RSUs, although our executive officers may have elected to convert those RSUs to stock options on an economically equivalent basis, as described above. The fiscal 2013 chart reflects the annual grants made to our named executive officers other than our CEO, who received an additional 70,000 stock options that were not convertible into RSUs and are not reflected in the chart.

 

 

LOGO

 

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Retirement Arrangements

We offer a Section 401(k) plan for all eligible employees. Under this program, our executive officers (like all of our eligible employees) can receive a Company matching contribution on amounts they contribute to the Section 401(k) plan as follows: 100% match of the first 3% of eligible compensation contributed by the executive officer, followed by a 50% match of the next 2% of eligible compensation contributed by the executive officer. Our executive retirement and savings plan allows our vice presidents and more senior executive officers to defer up to 25% of their base salary and 75% of their short-term cash incentive awards into an investment account. Amounts in this account are payable upon certain employment termination events as specified in the plan.

In November 2018, the Committee approved the inclusion of retirement provisions in the award agreements for the equity awards granted to our executive officers beginning in December 2018. Such provisions allow for continued vesting of outstanding equity awards upon an executive officer’s retirement provided that certain age and service requirements have been met. In order to qualify for continued vesting, the executive officer must provide at least one year’s notice of his or her retirement and must also be available to provide service to the Company, if requested, during the continued vesting period. In addition, during the continued vesting period, the executive officer may not become employed by another entity or organization. The Committee approved the inclusion of the retirement provisions in order to enhance retention of the current executive officers, to improve the executive transition process by ensuring sufficient time to plan for a successor and to ensure continued support from the former executive officer following retirement.

Other Compensation Arrangements

Our executive officers participate in our general employee benefit plans and programs, including health and dental benefits, on the same terms as all of our other full-time employees. We also pay the premiums for group life, accidental death and dismemberment, and business travel accident insurance for all eligible employees, including our executive officers, in a coverage amount based upon their base salary.

Post-Employment Compensation Arrangements

Each of our current named executive officers is party to a Letter Agreement that, among other things, provides for payments and benefits in the event of termination of employment by the Company without cause or by the executive officer for good reason, and a Management Agreement that provides for payments and benefits in the event of such a termination of employment in connection with a change in control of the Company. These agreements are described in detail later in this proxy statement.

The Committee believes that these severance and change-in-control arrangements are meaningful recruitment and retention devices, are important components in a competitive compensation package for our named executive officers, and will mitigate concerns that the executive officers may have regarding their continued employment prior to or following a change in control of the Company, thereby allowing them to focus their undivided attention on advancing the interests of the Company and its stockholders. The change-in-control arrangements are “double-trigger” (that is, they require both a change in control of the Company and a termination of employment without cause or by the executive officer for good reason within 24 months of the change in control) and the named executive officers are not eligible to receive tax payments or gross-ups in connection with any change-in-control arrangement.

As noted above, in fiscal 2019 we entered into transition agreements with Mr. Pung and Dr. Wells in connection with their retirement and resignation, respectively.

Equity Award Grant Processes

Equity awards granted to our named executive officers in fiscal 2019 were granted under the 2012 LTIP. Equity awards for all executive officers are approved by the Committee. The Committee has delegated authority to our CEO to approve the granting of equity awards to employees who are not executive officers, subject to

 

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certain parameters approved by the Committee. The exercise price of stock options is set at fair market value of our common stock on the date of grant, with annual equity awards generally granted by the Committee on a pre-determined day in December of each fiscal year.

Executive Stock Ownership Guidelines

Our Board of Directors has adopted stock ownership guidelines for our executive officers. Our CEO is required to own at least 100,000 shares of our common stock, and our Executive Vice Presidents are required to own shares valued at least five times their annual base salary. The guidelines provide that executive officers should achieve the stated guidelines within five years of appointment. As of the end of fiscal 2019, all of our executive officers had met or exceeded their required stock ownership level.

Executive Officer Incentive Compensation Recovery Policy

Our Board of Directors has adopted an Executive Officer Incentive Compensation Recovery Policy that governs cash and equity incentive-based compensation received by our executive officers, including our named executive officers. Under this policy, the Company will, in the appropriate circumstances as determined by the Committee and to the extent permitted by applicable law, require reimbursement or forfeiture of such incentive-based compensation from an executive officer in the event that the Company materially restates its consolidated financial statements due to material non-compliance with applicable financial reporting requirements if such executive officer engaged in fraud or intentional misconduct that was a significant contributing factor to the restatement. In each such instance, the Company will seek to recover or cancel the amount by which such executive officer’s incentive-based compensation that was granted, vested or earned during the preceding three-year period exceeds the amount that would have been granted, vested or earned based on the restated financial results, net of taxes paid or payable by the executive officer with respect to the recovered compensation. The Committee will consider relevant facts and circumstances in determining whether to require reimbursement, cancellation or recovery of such incentive-based compensation.

No Hedging

Under the terms of our insider trading policy, the members of the Board of Directors, officers and employees may not buy or sell puts or calls on Company stock, trade options on any of the stock exchanges or futures exchanges relating to Company stock, enter into equity swaps, prepaid variable forward contracts, collars or exchange funds involving Company stock and other transactions that are designed to hedge or offset decreases in the price of Company stock.

Tax Matters

Section 162(m) of the Code, as in effect prior to the enactment of the Tax Cuts and Jobs Act of 2017 (the “Tax Cuts Act”) in December 2017, generally disallowed a tax deduction to public companies for compensation of more than $1 million paid in any taxable year to each “covered employee,” consisting of the CEO and the three other highest paid executive officers employed at the end of the year (other than the CFO). Amounts that qualified as “performance-based compensation” were exempt from this deduction limitation if the company met specified requirements set forth in the Code and applicable Treasury regulations. As a general matter, in making its previous compensation decisions with respect to our named executive officers, the Committee was mindful of the benefit to the Company of the full deductibility of compensation, while believing that it should maintain flexibility in compensating the Company’s executive officers in a manner that could best promote our corporate objectives.

The Tax Cuts Act retained the $1 million deduction limit, but repealed the “performance-based compensation” exemption from the deduction limit and expanded the definition of “covered employees,” effective for taxable years beginning after December 31, 2017. Consequently, compensation paid in fiscal 2019 and later years to our named executive officers in excess of $1 million will not be deductible unless it qualifies for transitional relief applicable to certain binding, written performance-based compensation arrangements that were in place as of November 2, 2017.

 

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Leadership Development and Compensation Committee Report

The Committee has discussed and reviewed the “Compensation Discussion and Analysis” with management. Based upon this review and discussion, the Committee recommended to the Board of Directors that the “Compensation Discussion and Analysis” be included in this proxy statement and incorporated by reference in our Annual Report on Form 10-K.

Submitted by the Leadership Development and Compensation Committee:

A. George Battle, Chair

Braden R. Kelly

Eva Manolis

Joanna Rees

Leadership Development and Compensation Committee Interlocks and Insider Participation

No member of the Leadership Development and Compensation Committee serves or has served as an officer of the Company. No executive officer serves, or in the past has served, as a member of the Board of Directors or compensation committee of any entity that has any of its executive officers serving as a member of our Board of Directors or the Leadership Development and Compensation Committee.

Compensation Policies and Practices in Relation to Risk Management

The Company’s management and the Leadership Development and Compensation Committee are committed to continually assessing the structure of the Company’s compensation programs in the context of recognized best practices. Total compensation consists of a mix of fixed and variable elements, and among our executive officers a significant portion of their target total direct compensation comes in the form of long-term equity incentives that are earned over several years. The stock ownership guidelines in place for our executive officers also work to align their long-term interests with those of our stockholders.

Our short-term cash incentive program applicable to both our executive officers and other employees is structured to reward achievement of diverse goals, some of which are tied to Company-wide performance and some of which are tied to business unit performance, but all of which are designed to benefit the Company and our stockholders on a long-term basis. In addition, the Leadership Development and Compensation Committee retains discretion to adjust awards under the short-term cash incentive program if a payout determined under the formula is not appropriate in the circumstances, and award maximums or “caps” are in place to prevent windfalls. Finally, our system of internal controls places a strong focus on avoiding undue financial risk through rigorous review processes.

In light of the risk-limiting features of our compensation policies and practices, the Company has concluded that any risks arising from its compensation policies and practices for its employees are not reasonably likely to have a material adverse effect on the Company.

 

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SUMMARY COMPENSATION TABLE

The following table summarizes all compensation earned in fiscal 2019, 2018 and 2017 by our named executive officers.

 

Name and Principal Position

  Fiscal
Year
    Salary
($)
    Bonus
($)
    Stock
Awards
($)(1)(2)
    Option
Awards
($)
    Non-Equity
Incentive
Plan
($)(3)
    Change in
Pension Value
and Non-
Qualified
Deferred
Compensation
Earnings
($)
    All Other
Compensation
($)(4)
    Total
($)
 

William Lansing

    2019       750,000             6,352,443       2,993,617       1,200,000             49,197       11,345,257  

Chief Executive Officer

    2018       750,000             10,255,714             1,200,000             41,767       12,247,481  
    2017       750,000             8,637,629             1,200,000             41,831       10,629,460  

Michael McLaughlin

    2019       53,846             5,077,041             45,000             197       5,176,084  

Executive Vice President and
Chief Financial Officer

                 

Wayne Huyard

    2019       500,000             3,057,111             375,000             21,245       3,953,356  

Executive Vice President, Sales,
Services and Marketing

    2018       500,000             2,793,612             375,000             23,684       3,692,296  
    2017       500,000             2,782,602             375,000             29,871       3,687,473  

Claus Moldt

    2019       387,115             2,980,935             350,000             11,454       3,729,504  

Executive Vice President and
Chief Technology Officer

                 

James Wehmann

    2019       500,000             3,057,111             375,000             11,945       3,944,056  

Executive Vice President, Scores

    2018       500,000             2,793,612             375,000             11,070       3,679,682  
    2017       500,000             2,782,602             375,000             10,485       3,668,087  

Michael Pung

    2019       400,000             2,547,785             250,000             42,181       3,239,966  

Former Executive Vice President
and Chief Financial Officer(5)

    2018       400,000             2,402,667             260,000             20,552       3,083,219  
    2017       400,000             2,392,854             260,000             26,845       3,079,699  

Stuart Wells

    2019       500,000             3,057,111             300,000             11,246       3,868,357  

Former Executive Vice President
and Chief Technology Officer(6)

    2018       500,000             2,793,612             375,000             11,070       3,679,682  
    2017       500,000             2,782,602             375,000             25,182       3,682,784  

 

(1) 

The amounts in the “Stock Awards” columns represent the aggregate grant date fair value of each award granted during the fiscal year, computed in accordance with FASB ASC Topic 718, and do not reflect whether the named executive officer has actually realized a financial benefit from the award. For information on the assumptions used to calculate the value of the awards, refer to Note 13 of the Company’s Consolidated Financial Statements in the Annual Report on Form 10-K for the fiscal year ended September 30, 2019, as filed with the SEC.

 

(2) 

Stock Awards include the grant date fair value of time-based RSU awards, the PSU and MSU awards granted December 10, 2018, August 5, 2019 and August 21, 2019 under the 2012 LTIP.

 

  

The PSUs were tied to the achievement of certain performance goals during fiscal 2019, and the named executive officer must be an employee on the vesting dates of December 10th of 2019, 2020 and 2021 in order to realize the earned PSU value. The values included in the table for the PSUs are at target value, representing the probable outcome of the performance conditions as calculated at the time of grant. The maximum value of the award on the grant date, assuming the highest level of performance conditions achieved, would be $6,001,172 vs. target of $3,000,586 for Mr. Lansing; $1,961,530 vs. target of $980,765 for Mr. Huyard; $1,961,530 vs. target of $980,765 for Mr. Wehmann; $1,634,732 vs. target of $817,366 for Mr. Pung; and $1,961,530 vs. target of $980,765 for Dr. Wells. The named executive officers earned 200% of their respective target award, resulting in 32,430 units for Mr. Lansing, 10,600 units for Mr. Huyard, 10,600 units for Mr. Wehmann, 8,834 units for Mr. Pung, and 10,600 units for Dr. Wells.

 

  

The MSUs were tied to the achievement of certain performance goals over three performance periods ending on November 30, 2019, 2020 and 2021. The named executive officers must be employed on the vesting dates of

 

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December 10th of 2019, 2020 and 2021 in order to realize the earned MSU value. The values included in the table for the MSUs are at target value, representing the probable outcome of the performance conditions as calculated at the time of grant. The maximum value of the award on the grant date, assuming the highest level of performance conditions achieved, would be $6,703,714 vs. target of $3,351,857 for Mr. Lansing; $2,191,162 vs. target of $1,095,581 for Mr. Huyard; $2,191,162 vs. target of $1,095,581 for Mr. Wehmann; $1,826,106 vs. target of $913,053 for Mr. Pung; and $2,191,162 vs. target of $1,095,581 for Dr. Wells. The named executive officers earned 200% of their respective target award for the first performance period ending on November 30, 2019, resulting in 10,810 units for Mr. Lansing, 3,534 units for Mr. Huyard, 3,534 units for Mr. Wehmann, 2,946 units for Mr. Pung and 3,534 units for Dr. Wells.

 

(3) 

Represents amounts paid in the first quarter of fiscal 2020 based on performance during fiscal 2019 under our Management Incentive Plan.

 

(4) 

The amounts shown for fiscal 2019 are detailed in the supplemental table below entitled “All Other Compensation Table.”

 

(5)

Ceased serving as an Executive Officer effective August 3, 2019.

 

(6) 

Ceased serving as an Executive Officer effective August 21, 2019.

All Other Compensation Table

 

Elements of All Other Compensation

   William
Lansing
    Michael
McLaughlin
     Wayne
Huyard
     Claus
Moldt
     James
Wehmann
     Michael
Pung
    Stuart
Wells
 

401(k) Match($)(1)

     11,200                     11,208        11,000        11,000       11,000  

Life Insurance Premium($)(2)

     369       197        246        246        246        197       246  

Spousal Travel(3)

     10,359              11,287               355        6,651        

Tax Gross Ups($)(4)

     11,519              9,712               344        16,313        

Other($)

     15,750 (5)                                  8,020 (6)       

Total($)

     49,197       197        21,245        14,454        11,945        42,181       11,246  

 

(1) 

Represents the aggregate value of the Company’s cash contribution under the FICO 401(k) Plan during fiscal 2019.

 

(2) 

Represents the aggregate incremental cost for the named executive officer’s basic life insurance premium, which is offered to all employees at one times current salary.

 

(3) 

Represents amounts spent on commercial aircraft by the named executive officers’ spouses who were expected by the Company to attend certain Company events.

 

(4) 

Represents gross-up payments to offset imputed income for the cost of spousal travel. Company policy allows gross-ups only for required spousal travel and Company-paid relocation costs, when applicable.

 

(5) 

Represents tax preparation fees incurred by Mr. Lansing, as provided in his Letter Agreement.

 

(6) 

Represents a retirement gift awarded to Mr. Pung.

 

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GRANTS OF PLAN-BASED AWARDS FOR FISCAL 2019

The following table summarizes grants of plan-based compensation awards made during fiscal 2019 to our named executive officers.

 

                                              All Other
Stock
Awards:
Number
of
Shares
of Stock
or Units
(#)
    All Other
Option
Awards:
Number
of
Securities
Underlying
Options
(#)
    Exercise
or Base
Price of
Option
Awards
($/SH)
    Grant
Date Fair
Value of
Stock
and
Option
Awards
($)(7)
 

Name

  Grant
Date
    Estimated Possible Payouts
Under Non-Equity Incentive
Plan Awards(1)
    Estimated Future Payouts
Under Equity Incentive
Plan Awards
 
  Threshold
($)
    Target
($)
    Maximum
($)
    Threshold
(#)
    Target
(#)
    Maximum
(#)
 

William Lansing

      0       750,000       1,875,000                
    12/10/2018             0 (3)      16,215 (3)      32,430 (3)            3,351,803  
    12/10/2018             0 (4)      16,215 (4)      32,430 (4)            3,000,586  
    12/10/2018                     54,095 (6)      185.05       2,993,617  

Michael McLaughlin

      0       31,781 (2)      79,453 (2)               
    08/05/2019                   14,992 (5)          5,077,041  

Wayne Huyard

      0       250,000       625,000                
    12/10/2018             0 (3)      5,300 (3)      10,600 (3)            1,095,563  
    12/10/2018             0 (4)      5,300 (4)      10,600 (4)            980,765  
    12/10/2018                   5,300 (5)          980,765  

Claus Moldt

      0       250,000       625,000                
    12/10/2018                   5,300 (5)          980,765  
    08/21/2019                   5,720 (5)          2,000,170  

James Wehmann

      0       250,000       625,000                
    12/10/2018             0 (3)      5,300 (3)      10,600 (3)            1,095,563  
    12/10/2018             0 (4)      5,300 (4)      10,600 (4)            980,765  
    12/10/2018                   5,300 (5)          980,765  

Michael Pung

      0       200,000       500,000                
    12/10/2018             0 (3)      4,417 (3)      8,834 (3)            913,038  
    12/10/2018             0 (4)      4,417 (4)      8,834 (4)            817,366  
    12/10/2018                   4,417 (5)          817,366  

Stuart Wells

      0       250,000       625,000                
    12/10/2018             0 (3)      5,300 (3)      10,600 (3)            1,095,563  
    12/10/2018             0 (4)      5,300 (4)      10,600 (4)            980,765  
    12/10/2018                   5,300 (5)          980,765  

 

(1) 

The amounts shown in these columns represent the estimated threshold (or minimum), target, and maximum possible cash incentive awards for each of the named executive officers. Under our Management Incentive Plan, Mr. Lansing’s target amount is equal to 100% of his base salary and the target amount for each of the other named executive officers is equal to 50% of his base salary. The maximum amount in each case equals 2.5 times the target amount, which would result if the Company Performance Factor were 125% and the Participant Performance Factor were 200%. Additional detail regarding the determination of cash incentives to executives for fiscal 2019 is included above under “Compensation Discussion and Analysis.” Actual payments are set forth in the “Summary Compensation Table” above.

 

(2) 

The amount shown is prorated to Mr. McLaughlin’s hire date of August 3, 2019.

 

(3) 

Amounts shown reflect MSUs that were granted under our 2012 LTIP and were subject to the achievement of specific performance goals related to the Company’s total stockholder return relative to the Russell 3000 index over performance periods of one, two and three years, approved by the Leadership Development and Compensation Committee. On December 6, 2019, the Leadership Development and Compensation Committee certified that for all named executive officers, 200% of the target awards for the first performance period were earned for that tranche of awards eligible to vest on December 10, 2019. The remaining portion of the target awards may be earned subject to achievement of specific performance goals for the two and three year performance periods and then subsequently vest subject to the named executive officers’ continued Service as a Service Provider (as defined in the 2012 LTIP) through December 10, 2020 and December 10, 2021 respectively. These awards do not pay dividend equivalents.

 

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(4) 

Amounts shown reflect PSUs that were granted under our 2012 LTIP and were subject to the achievement of specific performance goals related to revenue and net income metrics approved by the Leadership Development and Compensation Committee. For all named executive officers, 200% of the target awards were earned, one-third of the earned units vested on December 10, 2019 and the remaining two-thirds are scheduled to vest in annual installments beginning December 10, 2020 (subject to the named executive officers’ continued Service as a Service Provider (as defined in the 2012 LTIP)). These awards do not pay dividend equivalents.

 

(5) 

Reflects RSUs that were granted under our 2012 LTIP which vest in four equal increments on the first four anniversaries of the grant date subject to the named executive officers’ continued Service as a Service Provider (as defined in the 2012 LTIP). These awards do not pay dividend equivalents.

 

(6) 

Reflects Stock Options that were granted under our 2012 LTIP which vest in four equal increments on the first four anniversaries of the grant date subject to the named executive officers’ continued Service as a Service Provider (as defined in the 2012 LTIP).

 

(7) 

Represents the grant date fair value of each Stock Option, MSU, PSU, or RSU, as applicable, computed in accordance with FASB ASC Topic 718. The values included in the table for the MSU and PSUs are at target value, representing the probable outcome of the performance conditions as calculated at the time of grant.

Letter Agreements

The Company is a party to Letter Agreements with each of the named executive officers. The material provisions of such Letter Agreements related to the executive officers’ ongoing compensation arrangements are described below.

William Lansing

For each full fiscal year of the Company during the term of his Letter Agreement, Mr. Lansing will be eligible to receive a cash incentive award with a target value equal to 100% of his annual base salary at the rate in effect at the end of such fiscal year, pursuant to the Company’s Management Incentive Plan and the terms and conditions established by the Leadership Development and Compensation Committee from time to time.

If Mr. Lansing’s employment is terminated by the Company without Cause or if he voluntarily resigns for Good Reason (both as defined below) prior to the expiration of the term of the Letter Agreement, Mr. Lansing will be entitled to the following severance pay and benefits pursuant to the Letter Agreement: (i) a cash payment in an amount equal to two times the sum of (a) his annual base salary in effect on the last day of his employment (but in no event less than $675,000), plus (b) the annual cash incentive payment last paid to him before the termination of his employment, such cash payment to be made in a lump sum on the 70th day following Mr. Lansing’s separation from service, and (ii) continuation of certain benefits pursuant to COBRA for 18 months. Mr. Lansing’s receipt of severance pay and benefits would be conditioned on his execution of a release of claims against the Company, his compliance with the terms of any agreements in effect between him and the Company, his cooperation in the transition of his duties, and his agreement not to disparage the Company.

Mr. Lansing’s Letter Agreement also provides that the Company will reimburse him annually up to $25,000 related to financial planning and/or personal income tax preparation and accounting services.

Other Named Executive Officers

For each full fiscal year of the Company during the term of each executive officer’s Letter Agreement, the executive officer will be eligible to receive a cash incentive award with a target equal to 50% of his annual base salary at the rate in effect at the end of such fiscal year, pursuant to the Company’s Management Incentive Plan and the terms and conditions established by the Leadership Development and Compensation Committee from time to time.

If an executive officer’s employment is terminated by the Company without Cause or if he voluntarily resigns for Good Reason (both as defined below) prior to the expiration of the term of his Letter Agreement, he

 

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will be entitled to the following severance pay and benefits pursuant to the Letter Agreement: (1) a cash payment in an amount equal to one times the sum of (a) his annual base salary in effect on the last day of his employment, plus (b) the annual cash incentive payment last paid to him before the termination of his employment, such cash payment to be made in a lump sum on the 70th day following his separation from service (subject to certain exceptions), and (2) continuation of certain benefits pursuant to COBRA for 12 months. The executive officer’s receipt of severance pay and benefits would be conditioned on his release of claims against the Company, his compliance with the terms of any agreements in effect between him and the Company, his cooperation in the transition of his duties, and his agreement not to disparage the Company.

Definitions

In all of the Letter Agreements, “Cause” generally means a good faith determination by the Company of one or more of the following: (i) commission by the executive officer of a felony, (ii) an intentional act of fraud or material dishonesty connected with the executive officer’s employment with the Company or otherwise likely to cause the Company material harm, (iii) the executive officer’s willful failure or refusal to perform in all material respects his duties, or (iv) a material breach by the executive officer of the Company’s policies or codes of conduct or of another written agreement between the Company and the executive officer.

In Mr. Lansing’s Letter Agreement, “Good Reason” generally means that one of the following conditions occurs without his consent and the Company does not cure the condition after receiving notice of it: (i) a material diminution in Mr. Lansing’s status or position as Chief Executive Officer, (ii) a requirement that Mr. Lansing relocate to an office located more than 50 miles away from his current office location, (iii) a material breach by the Company of the terms of the Letter Agreement, or (iv) a failure by the Company to obtain agreement from any successor to assume the Letter Agreement.

In the other named executive officers’ Letter Agreements, “Good Reason” generally means that one of the following conditions occurs without the executive officer’s consent and the Company does not cure the condition after receiving notice of it: (i) a material reduction in the executive officer’s base salary, (ii) a material reduction in the executive officer’s annual cash incentive target expressed as a percentage of base salary, (iii) a requirement that the executive officer relocate to an office located more than 50 miles away from his current office location, (iv) a material breach by the Company of the terms of the Letter Agreement, or (v) a failure by the Company to obtain agreement from any successor to assume the Letter Agreement.

 

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OUTSTANDING EQUITY AWARDS AT FISCAL 2019 YEAR END

 

Name

                                      Stock Awards  
 

 

Option Awards

    Grant
Date
    Number
of
Shares
or
Units
of Stock
That
Have
Not
Vested
(#)
    Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)(1)
    Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights
That
Have
Not
Vested
(#)
    Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested
($)(1)
 
  Grant
Date
    Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
    Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
    Equity
Incentive
Plan Awards:
Number
of Securities
Underlying
Unexercised
Unearned
Options
(#)
    Option
Exercise
Price
($)
    Option
Expiration
Date
 

William Lansing

    12/13/2012       32,000                   41.89       12/12/2019       12/08/2015       5,121 (3)      1,554,326              
    12/08/2014       85,386                   72.06       12/07/2021       12/08/2016       11,280 (3)      3,423,706              
    12/08/2014       97,193                   72.06       12/07/2021       12/08/2016       13,208 (4)      4,008,892       21,208 (7)      6,437,052  
    12/10/2018             54,095 (2)      54,095       185.05       12/09/2025       12/08/2017       15,110 (3)      4,586,187              
                                        12/08/2017       26,862 (5)      8,153,154       28,139 (8)      8,540,749  
                                        12/10/2018       32,430 (6)      9,843,154       8,108 (9)      2,460,788  

Michael Mclaughlin.

                                        08/05/2019       14,992 (3)      4,550,372              

Wayne Huyard

                                        12/08/2015       2,100 (3)      637,392              
                                        12/08/2016       3,634 (3)      1,102,992              
                                        12/08/2016       4,255 (4)      1,291,478       6,831 (7)      2,073,345  
                                        12/08/2017       4,116 (3)      1,249,288              
                                        12/08/2017       7,317 (5)      2,220,856       7,664 (8)      2,326,177  
                                        12/10/2018       5,300 (3)      1,608,656              
                                        12/10/2018       10,600 (6)      3,217,312       2,650 (9)      804,328  

Claus Moldt

                                        03/28/2016       5,000 (3)      1,517,600              
                                        12/08/2016       1,744 (3)      529,339              
                                        12/08/2017       4,938 (3)      1,498,782              
                                        12/10/2018       5,300 (3)      1,608,656              
                                        08/21/2019       5,720 (3)      1,736,134              

James Wehmann

                                        12/08/2015       2,151 (3)      652,872              
                                        12/08/2016       3,634 (3)      1,102,992              
                                        12/08/2016       4,255 (4)      1,291,478       6,831 (7)      2,073,345  
                                        12/08/2017       4,116 (3)      1,249,288              
                                        12/08/2017       7,317 (5)      2,220,856       7,664 (8)      2,326,177  
                                        12/10/2018       5,300 (3)      1,608,656              
                                        12/10/2018       10,600 (6)      3,217,312       2,650 (9)      804,328  

Michael Pung

                                        12/08/2015       1,644 (3)      498,987              
                                        12/08/2016       3,124 (3)      948,196              
                                        12/08/2016       3,659 (4)      1,110,580       5,875 (7)      1,783,180  
                                        12/08/2017       3,540 (3)      1,074,461              
                                        12/08/2017       6,293 (5)      1,910,051       6,592 (8)      2,000,804  
                                        12/10/2018       4,417 (3)      1,340,648              
                                        12/10/2018       8,834 (6)      2,681,296       2,209 (9)      670,324  

Stuart Wells

    12/13/2012       22,500                   41.89       12/12/2019       12/08/2015       1,711 (3)      519,323              
    12/08/2014       8,252                   72.06       12/07/2021       12/08/2016       3,634 (3)      1,102,992              
    12/08/2014       12,149                   72.06       12/07/2021       12/08/2016       4,255 (4)      1,291,478       6,831 (7)      2,073,345  
                                        12/08/2017       4,116 (3)      1,249,288              
                                        12/08/2017       7,317 (5)      2,220,856       7,664 (8)      2,326,177  
                                        12/10/2018       5,300 (3)      1,608,656              
                                        12/10/2018       10,600 (6)      3,217,312       2,650 (9)      804,328  

 

(1) 

The market value of stock awards that have not vested was determined by multiplying the closing market price of the Company’s common stock on September 30, 2019 ($303.52) by the number of stock awards.

 

(2) 

These stock options vest in four equal increments on the first four anniversaries of the grant date, subject to the named executive officer’s continued employment.

 

(3) 

These RSUs vest in shares in four equal increments on the first four anniversaries of the grant date, subject to the named executive officer’s continued employment.

 

(4) 

These earned PSUs vest in shares in three equal increments on the 8th of December in 2017, 2018, and 2019, subject to the named executive officer’s continued employment.

 

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(5) 

These earned PSUs vest in shares in three equal increments on the 8th of December in 2018, 2019, and 2020, subject to the named executive officer’s continued employment.

 

(6) 

These earned PSUs vest in shares in three equal increments on the 10th of December in 2019, 2020, and 2021, subject to the named executive officer’s continued employment.

(7) 

These MSUs are earned upon achievement of performance goals related to the Company’s total stockholder return relative to the Russell 3000 index over performance periods of one, two and three years and then vest on the 8th of December in 2017, 2018, and 2019, subject to the named executive officer’s continued employment.

 

(8) 

These MSUs are earned upon achievement of performance goals related to the Company’s total stockholder return relative to the Russell 3000 index over performance periods of one, two and three years and then vest on the 8th of December in 2018, 2019, and 2020, subject to the named executive officer’s continued employment.

 

(9)

These MSUs are earned upon achievement of performance goals related to the Company’s total stockholder return relative to the Russell 3000 index over performance periods of one, two and three years and then vest on the 10th of December in 2019, 2020, and 2021, subject to the named executive officer’s continued employment.

FISCAL 2019 OPTION EXERCISES AND STOCK VESTED

 

     Option Awards             Stock Awards  

Name

   Number of
Shares
Acquired
on Exercise
(#)
     Value
Realized
on Exercise
($)(1)
            Number of
Shares Acquired
on Vesting
(#)
     Value Realized
On Vesting
($)(2)
 
 

William Lansing

     64,000        18,634,053             95,974        17,506,617  
 

Michael McLaughlin

     0        0             0        0  
 

Wayne Huyard

     0        0             42,162        7,788,170  
 

Claus Moldt

     0        0             7,529        1,794,257  
 

James Wehmann

     100,981        14,031,172             32,476        5,923,947  
 

Michael Pung

     39,484        9,973,821             26,663        4,863,598  
 

Stuart Wells

     40,000        6,082,903             32,542        5,935,986  

 

(1) 

Equal to the number of shares acquired on exercise multiplied by the difference between the market price of a share of the Company’s common stock on the date of exercise and the exercise price of the options.

 

(2) 

Equal to the number of shares vested multiplied by the closing price of a share of the Company’s common stock on the date of vesting.

NON-QUALIFIED DEFERRED COMPENSATION FOR FISCAL 2019

 

Name

   Executive
Contributions in
Last FY
($)(1)
     Registrant
Contributions in
Last FY
($)
     Aggregate Earnings
in Last FY
($)(2)
     Aggregate
Withdrawals/
Distributions
($)
     Aggregate Balance
at Last FYE
($)
 

William Lansing

                   26,861               758,883 (3) 

Michael McLaughlin

                                  

Wayne Huyard

                                  

Claus Moldt

     3,358               323               11,348 (3) 

James Wehmann

     218,750               24,856               787,474 (4) 

Michael Pung

                                  

Stuart Wells

                                  

 

(1) 

The amount reported in this column was reported in the fiscal 2019 Summary Compensation Table as part of the individual’s compensation.

 

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(2) 

The amount reported in this column was not reported in the Summary Compensation Table as part of the individual’s compensation for the most recent fiscal year because none of the earnings are considered to be “above market” or “preferential.”

 

(3) 

Of the amounts shown in this column, the following amounts were previously reported as compensation in Salary column of the Summary Compensation Table: $0.00 for fiscal 2018.

 

(4) 

Of the amounts shown in this column, the following amount was previously reported as compensation in Salary column of the Summary Compensation Table: $223,557 for fiscal 2018.

This plan is intended for a select group of employees of the Company who are in the highest salary band. Employees can defer up to 25% of base salary and up to 75% of incentive award compensation into the plan. These elections are irrevocable and stay in place for the entire calendar year. The Company does not make any employer contributions to this plan, and employees are always 100% vested in their contributions. Employees make their own investment election decisions from a select group of investment choices designated by the Company.

Participating employees also make an irrevocable election for distributions from the plan at retirement. If they terminate employment prior to retirement, then participating employees will receive their distribution on the first day of the seventh calendar month following separation from service due to any reason.

 

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POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

The information below describes the compensation that would become payable under existing plans and arrangements if a named executive officer’s employment terminates under certain circumstances or if a change in control of the Company occurs.

Executive Officer Management Agreements

Each of our executive officers is a party to a Management Agreement, as amended (the “Management Agreement”), with the Company. The Management Agreements are for a fixed term with automatic one-year extensions. Except in the case of Mr. Lansing, if during the term of the Management Agreements a change of control Event occurs, and if the executive officer’s employment is terminated within 60 days before or two years following the Event due to an involuntary termination by the Company without Cause or for Good Reason by the executive (as defined below), the executive will be entitled to the following pay and benefits: (i) a cash payment in an amount equal to one times the sum of (a) his annual base salary in effect on the last day of his employment, plus (b) the annual cash incentive payment last paid to him before the termination of his employment, such cash payment to be made in a lump sum on the 70th day following his separation from service (subject to certain exceptions), and (ii) continuation of certain benefits pursuant to COBRA for 12 months. In addition, all of such officer’s unvested stock options, restricted stock units and performance share units will vest in full, subject to certain limitations specified in the Management Agreement. The officer’s receipt of these severance amounts is conditioned on the officer’s delivery of a release of claims and agreement not to solicit Company employees for one year following termination of employment.

Mr. Lansing’s Management Agreement provides for the same general non-economic provisions described above. In the case of a qualifying termination of employment in connection with or following a change of control Event, Mr. Lansing’s severance will be in the amount of three times the sum of base salary and the incentive payment for the prior fiscal year, calculated in the same manner described above, and he is entitled to 18 months of continued benefits pursuant to COBRA.

In all of the Management Agreements, an “Event” generally means (i) the acquisition by a person of 30% or more the shares of our Company’s common stock, (ii) continuing directors no longer represent a majority of the members of the Board, (iii) the consummation of a reorganization, merger or consolidation of the Company or a statutory share exchange unless immediately following such transaction, all or substantially all of the persons who were the beneficial owners of the Company’s stock before the transaction own more than 70% of the common stock of the resulting corporation, or (iv) approval by the Company’s stockholders of a complete liquidation or dissolution or the sale of all or substantially all of the Company’s assets unless the sale is made to a corporation more than 70% of whose shares are held by persons who were the beneficial owners of the Company’s stock before the transaction.

In all of the Management Agreements, “Cause” generally means (i) willful and gross neglect by the executive officer of his duties, or (ii) a felony committed by the executive officer that is substantially detrimental to the Company.

In all of the Management Agreements, “Good Reason” generally means that one of the following conditions occurs without the executive officer’s consent and the Company does not cure the condition after receiving notice of it: (i) a material reduction in the executive officer’s authority, duty or responsibilities, (ii) a material reduction in the executive officer’s annual base salary or target incentive, (iii) a material reduction in the aggregate benefits the executive officer enjoys under the Company’s wellness and compensatory programs, (iv) a requirement that the executive officer relocate to an office located more than 50 miles away from his current office location, or (v) a failure by the Company to obtain agreement from any successor to assume the Letter Agreement.

If an executive officer receives any payment or benefit under his management agreement following termination of employment, he will not be entitled to receive severance benefits under his Letter Agreement.

 

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Severance Arrangements

See the description of the named executive officers’ Letter Agreements above for information about severance pay and benefits.

Equity Awards

Under the stock option and RSU agreements entered into pursuant to the Company’s 1992 Long-term Incentive Plan (the “1992 LTIP”), those equity awards will vest in full upon an award recipient’s death or disability. The 2012 LTIP also provides for full vesting of equity awards granted under that plan, including stock options and RSUs, in the event of a recipient’s death or disability. In addition, the award agreements for the PSUs granted to executive officers under the 2012 LTIP provide that 50% of the number of units subject to those awards will vest upon the death or disability of the award recipient or upon a change in control in which the Company does not survive as an operating company or only survives as a subsidiary of another entity; if the death or disability or change in control occurs during the performance period, the target number of units will be deemed earned and will vest in full, and if the death or disability or change in control occurs after the units have been earned but before they are fully vested, the number of earned units will vest in full.

The award agreements for the MSUs granted to executive officers under the 2012 LTIP provide that upon a change in control in which the Company does not survive as an operating company or only survives as a subsidiary of another entity (i) each performance period is truncated to end on the day of such change in control; (ii) the units earned at the end of each adjusted performance period are calculated with a modified calculation of the relative return factor; (iii) a portion of these adjusted period earned units vest immediately (determined by multiplying the adjusted period earned units by a fraction, the numerator of which is the number of days in the adjusted performance period and the denominator of which is the days in the performance period before adjustment); and (iv) the unvested units after the previous calculation will vest monthly. Furthermore, if the award recipient is terminated for reasons other than Cause all unvested units described in the preceding sentence will vest in full. Except upon an award recipient’s death or disability after the final performance period in the applicable award agreement for an MSU (where only earned units will vest in full), all units will vest in full upon an award recipient’s death or disability.

Insurance Benefits

All FICO employees are covered under our Short and Long Term Disability Policies. For the first six months of a disability, the employee receives 60% of base salary under the Short Term Disability Policy. After six months of disability, the employee becomes eligible to receive 50% of base salary (up to a maximum of $14,000 per month) under the Long Term Disability Policy. These payments continue for the first five years as long as the employee cannot perform the essential functions of his or her own occupation. If after five years the employee is still unable to perform the essential functions of his or her own occupation, he or she can receive benefits until he or she reaches the age of 65. Supplemental disability insurance can also be purchased by employees to increase the percentage of base salary to which they are entitled under the policies.

All employees are also covered by a Company-provided life insurance policy, which provides for the lump sum payment of one times the employee’s base salary in the event of death, or two times base salary in the event of accidental death. Additional amounts may be payable under a Company-provided business travel accident insurance policy.

Estimated Payments That Would Have Been Made to the Named Executive Officers

The tables below quantify the estimated payments and benefits that would have been provided to our named executive officers in connection with the termination of their employment under the circumstances indicated. In all cases, the information assumes that the triggering event occurred on the last day of fiscal 2019, and the price per share of our common stock is the closing market price on September 30, 2019 (which was $303.52). Benefits payable under our Short and Long Term Disability Policies and Company-provided life insurance policy are not reflected in the following tables.

 

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William Lansing

 

Payment or Benefit

  Voluntary
Termination
by NEO
($)
    Termination
by Us for
Cause
($)
    Termination
by Us
Without
Cause or by
NEO with
Good
Reason
($)
    Termination
by Us
Without
Cause in
Connection
with a
Change in
Control or
by the NEO
with Good
Reason in
Connection
with a
Change in
Control
($)
    Retirement
($)
    Disability
($)
    Death
($)
 

Value of Cash Severance(1)

                3,900,000       5,850,000                    

Value of Benefits(2)

                30,967       30,967                    

Market Value of Accelerated Stock Option Awards(3)

                      6,408,635             6,408,635       6,408,635  

Market Value of Accelerated Restricted Stock Unit Awards(4)

                      9,564,219             9,564,219       9,564,219  

Market Value of Accelerated Performance Share Unit Awards(5)

                      22,005,200             22,005,200       22,005,200  

Market Value of Accelerated Market Share Unit Awards(6)

                      11,280,624             11,280,624       11,280,624  

Total

                3,930,967       55,139,645             49,258,678       49,258,678  

 

(1) 

Pursuant to Mr. Lansing’s Letter Agreement, he is entitled to a lump sum payment equal to two times the sum of his current base salary plus the annual incentive award last paid to him if his employment is terminated by the Company without cause or by him for good reason. Mr. Lansing’s Management Agreement provides for the same payments in the event his employment is terminated by the Company without cause or by Mr. Lansing for good reason within 60 days before or two years following a change in control, except that the lump sum payment is calculated as three times the sum of his base salary plus annual incentive award.

 

(2) 

Pursuant to Mr. Lansing’s Letter Agreement, the Company is obligated to provide benefits to Mr. Lansing at existing levels for 18 months post-termination if his employment is terminated by the Company without cause or by Mr. Lansing for good reason. Mr. Lansing’s Management Agreement provides for the same benefits in the event his employment is terminated by the Company without cause or by Mr. Lansing for good reason within 60 days before or two years following a change in control. The amounts shown represent the total cost of COBRA premiums for continuing such benefits over the applicable time period.

 

(3) 

The amounts shown represent the in-the-money value of unexercisable stock options that would immediately become exercisable upon the applicable triggering event, based on the Company’s closing stock price on September 30, 2019, of $303.52. Mr. Lansing’s Management Agreement provides for such acceleration upon a termination of employment in connection with a change in control, and the terms of the equity awards provide for such acceleration upon death or disability.

 

(4) 

The amounts shown represent the restricted stock units that would immediately vest upon the applicable triggering event, based on the Company’s closing stock price on September 30, 2019, of $303.52. Mr. Lansing’s Management Agreement provides for such acceleration upon a termination of employment in connection with a change in control, and the terms of the equity awards provide for such acceleration upon death or disability.

 

(5) 

The amounts shown represent the earned performance share units that would immediately vest upon the applicable triggering event, based on the Company’s closing stock price on September 30, 2019, of $303.52.

 

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Mr. Lansing’s Management Agreement and the terms of the equity award provide for such acceleration upon a termination of employment in connection with a change in control, and the terms of the equity award provides for such acceleration upon death or disability.

 

(6) 

The amounts shown represent the unearned market share units that would immediately be earned and vest upon the applicable triggering event, based on the Company’s closing stock price on September 30, 2019, of $303.52 and a relative total stockholder return performance of 0% in the adjusted performance period. The terms of the equity award provide for such acceleration upon a termination of employment for reasons other than Cause in connection with a change in control, and the terms of the equity award provides for such acceleration upon death or disability.

Michael McLaughlin

 

Payment or Benefit

  Voluntary
Termination
by NEO
($)
    Termination
by Us For
Cause
($)
    Termination
by Us
Without
Cause or by
NEO with
Good
Reason
($)
    Termination
by Us
Without
Cause
in Connection
with a
Change in
Control or
by the NEO
with Good
Reason
in Connection
with a
Change in
Control
($)
    Retirement
($)
    Disability
($)
    Death
($)
 

Value of Cash Severance(1)

                600,000       600,000                    

Value of Benefits(2)

                23,190       23,190                    

Market Value of Accelerated Stock Option Awards(3)

                                         

Market Value of Accelerated Restricted Stock Unit Awards(4)

                      4,550,372             4,550,372       4,550,372  

Market Value of Accelerated Performance Share Unit Awards(5)

                                         

Market Value of Accelerated Market Share Unit Awards(6)

                                         

Total

                623,190       5,173,562             4,550,372       4,550,372  

 

(1) 

Pursuant to Mr. McLaughlin’s Letter Agreement, he is entitled to a lump sum payment equal to one times the sum of his current base salary plus the annual incentive award last paid to him (unless the event takes place in fiscal year 2020, in which case the incentive award shall be one times the actual amount received for the fiscal year or $200,000, whichever is greater) if his employment is terminated by the Company without cause or by Mr. McLaughlin for good reason. Mr. McLaughlin’s Management Agreement provides for the same payments in the event his employment is terminated by the Company without cause or by Mr. McLaughlin for good reason within 60 days before or two years following a change in control.

 

(2) 

Pursuant to Mr. McLaughlin’s Letter Agreement, the Company is obligated to provide benefits to Mr. McLaughlin at existing levels for 12 months post-termination if his employment is terminated by the Company without cause or by Mr. McLaughlin for good reason. Mr. McLaughlin’s Management Agreement provides for the same benefits in the event his employment is terminated by the Company without cause or by Mr. McLaughlin for good reason within 60 days before or two years following a change in control. The amounts shown represent the total cost of COBRA premiums for continuing such benefits over the applicable time period.

 

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(3) 

Mr. McLaughlin currently does not have any stock options that would accelerate.

 

(4) 

The amounts shown represent the restricted stock units that would immediately vest upon the applicable triggering event, based on the Company’s closing stock price on September 30, 2019, of $303.52. Mr. McLaughlin’s Management Agreement provides for such acceleration upon a termination of employment in connection with a change in control, and the terms of the equity awards provide for such acceleration upon death or disability.

 

(5) 

Mr. McLaughlin currently does not have any performance share units that would accelerate.

 

(6) 

Mr. McLaughlin currently does not have any market share units that would accelerate.

Wayne Huyard

 

Payment or Benefit

  Voluntary
Termination
by NEO
($)
    Termination
by Us For
Cause
($)
    Termination
by Us
Without
Cause or by
NEO with
Good
Reason
($)
    Termination
by Us
Without
Cause
in Connection
with a
Change in
Control or
by the NEO
with Good
Reason
in Connection
with a
Change in
Control
($)
    Retirement
($)
    Disability
($)
    Death
($)
 

Value of Cash Severance(1)

                875,000       875,000                    

Value of Benefits(2)

                23,247       23,247                    

Market Value of Accelerated Stock Option Awards(3)

                                         

Market Value of Accelerated Restricted Stock Unit Awards(4)

                      4,598,328             4,598,328       4,598,328  

Market Value of Accelerated Performance Share Unit Awards(5)

                      6,729,646             6,729,646       6,729,646  

Market Value of Accelerated Market Share Unit Awards(6)

                      3,454,057             3,454,057       3,454,057  

Total

                898,247       15,680,278             14,782,031       14,782,031  

 

(1) 

Pursuant to Mr. Huyard’s Letter Agreement, he is entitled to a lump sum payment equal to one times the sum of his current base salary plus the annual incentive award last paid to him if his employment is terminated by the Company without cause or by Mr. Huyard for good reason. Mr. Huyard’s Management Agreement provides for the same payments in the event his employment is terminated by the Company without cause or by Mr. Huyard for good reason within 60 days before or two years following a change in control.

 

(2) 

Pursuant to Mr. Huyard’s Letter Agreement, the Company is obligated to provide benefits to Mr. Huyard at existing levels for 12 months post-termination if his employment is terminated by the Company without cause or by Mr. Huyard for good reason. Mr. Huyard’s Management Agreement provides for the same benefits in the event his employment is terminated by the Company without cause or by Mr. Huyard for good reason within 60 days before or two years following a change in control. The amounts shown represent the total cost of COBRA premiums for continuing such benefits over the applicable time period.

 

(3) 

Mr. Huyard currently does not have any stock options that would accelerate.

 

(4) 

The amounts shown represent the restricted stock units that would immediately vest upon the applicable triggering event, based on the Company’s closing stock price on September 30, 2019, of $303.52. Mr. Huyard’s

 

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Management Agreement provides for such acceleration upon a termination of employment in connection with a change in control, and the terms of the equity awards provide for such acceleration upon death or disability.

 

(5) 

The amounts shown represent the earned performance share units that would immediately vest upon the applicable triggering event, based on the Company’s closing stock price on September 30, 2019, of $303.52. Mr. Huyard’s Management Agreement and the terms of the equity award provide for such acceleration upon a termination of employment in connection with a change in control, and the terms of the equity award provides for such acceleration upon death or disability.

 

(6) 

The amounts shown represent the unearned market share units that would immediately be earned and vest upon the applicable triggering event, based on the Company’s closing stock price on September 30, 2019, of $303.52 and a relative total stockholder return performance of 0% in the adjusted performance period. The terms of the equity award provide for such acceleration upon a termination of employment for reasons other than Cause in connection with a change in control, and the terms of the equity award provides for such acceleration upon death or disability.

Claus Moldt

 

Payment or Benefit

  Voluntary
Termination
by NEO
($)
    Termination
by Us For
Cause
($)
    Termination
by Us
Without
Cause or by
NEO with
Good
Reason
($)
    Termination
by Us
Without
Cause
in Connection
with a
Change in
Control or
by the NEO
with Good
Reason
in Connection
with a
Change in
Control
($)
    Retirement
($)
    Disability
($)
    Death
($)
 

Value of Cash Severance(1)

                850,000       850,000                    

Value of Benefits(2)

                8,042       8,042                    

Market Value of Accelerated Stock Option Awards(3)

                                         

Market Value of Accelerated Restricted Stock Unit Awards(4)

                      6,890,511             6,890,511       6,890,511  

Market Value of Accelerated
Performance Share Unit Awards(5)

                                         

Market Value of Accelerated
Market Share Unit Awards(6)

                                         

Total

                858,042       7,748,553             6,890,511       6,890,511  

 

(1) 

Pursuant to Mr. Moldt’s Letter Agreement, he is entitled to a lump sum payment equal to one times the sum of his current base salary plus the annual incentive award last paid to him if his employment is terminated by the Company without cause or by Mr. Moldt for good reason. Mr. Moldt’s Management Agreement provides for the same payments in the event his employment is terminated by the Company without cause or by Mr. Moldt for good reason within 60 days before or two years following a change in control.

 

(2) 

Pursuant to Mr. Moldt’s Letter Agreement, the Company is obligated to provide benefits to Mr. Moldt at existing levels for 12 months post-termination if his employment is terminated by the Company without cause or by Mr. Moldt for good reason. Mr. Moldt’s Management Agreement provides for the same benefits in the event his employment is terminated by the Company without cause or by Mr. Moldt for good reason within 60 days before or two years following a change in control. The amounts shown represent the total cost of COBRA premiums for continuing such benefits over the applicable time period.

 

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(3) 

Mr. Moldt currently does not have any stock options that would accelerate.

 

(4) 

The amounts shown represent the restricted stock units that would immediately vest upon the applicable triggering event, based on the Company’s closing stock price on September 30, 2019, of $303.52. Mr. Moldt’s Management Agreement provides for such acceleration upon a termination of employment in connection with a change in control, and the terms of the equity awards provide for such acceleration upon death or disability.

 

(5) 

Mr. Moldt currently does not have any performance share units that would accelerate.

 

(6) 

Mr. Moldt currently does not have any market share units that would accelerate.

James Wehmann

 

Payment or Benefit

  Voluntary
Termination
by NEO
($)
    Termination
by Us For
Cause
($)
    Termination
by Us
Without
Cause or by
the NEO
with Good
Reason
($)
    Termination
by Us
Without
Cause
in Connection
with a
Change in
Control or
by the NEO
with Good
Reason
in Connection
with a
Change in
Control
($)
    Retirement
($)
    Disability
($)
    Death
($)
 

Value of Cash Severance(1)

                875,000       875,000                    

Value of Benefits(2)

                23,409       23,409                    

Market Value of Accelerated Stock Option Awards(3)

                                         

Market Value of Accelerated Restricted Stock Unit Awards(4)

                      4,613,808             4,613,808       4,613,808  

Market Value of Accelerated
Performance Share Unit Awards(5)

                      6,729,646             6,729,646       6,729,646  

Market Value of Accelerated
Market Share Unit Awards(6)

                      3,454,057             3,454,057       3,454,057  

Total

                898,409       15,695,920             14,797,511       14,797,511  

 

(1) 

Pursuant to Mr. Wehmann’s Letter Agreement, he is entitled to a lump sum payment equal to one times the sum of his current base salary plus the annual incentive award last paid to him if his employment is terminated by the Company without cause or by Mr. Wehmann for good reason. Mr. Wehmann’s Management Agreement provides for the same payments in the event his employment is terminated by the Company without cause or by Mr. Wehmann for good reason within 60 days before or two years following a change in control.

 

(2) 

Pursuant to Mr. Wehmann’s Letter Agreement, the Company is obligated to provide benefits to Mr. Wehmann at existing levels for 12 months post-termination if his employment is terminated by the Company without cause or by Mr. Wehmann for good reason. Mr. Wehmann’s Management Agreement provides for the same benefits in the event his employment is terminated by the Company without cause or by Mr. Wehmann for good reason within 60 days before or two years following a change in control. The amounts shown represent the total cost of COBRA premiums for continuing such benefits over the applicable time period.

 

(3) 

Mr. Wehmann currently does not have any stock options that would accelerate.

 

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(4) 

The amounts shown represent the restricted stock units that would immediately vest upon the applicable triggering event, based on the Company’s closing stock price on September 30, 2019, of $303.52. Mr. Wehmann’s Management Agreement provides for such acceleration upon a termination of employment in connection with a change in control, and the terms of the equity awards provide for such acceleration upon death or disability.

 

(5) 

The amounts shown represent the earned performance share units that would immediately vest upon the applicable triggering event, based on the Company’s closing stock price on September 30, 2019, of $303.52. Mr. Wehmann’s Management Agreement and the terms of the equity award provide for such acceleration upon a termination of employment in connection with a change in control, and the terms of the equity award provides for such acceleration upon death or disability.

 

(6) 

The amounts shown represent the unearned market share units that would immediately be earned and vest upon the applicable triggering event, based on the Company’s closing stock price on September 30, 2019, of $303.52 and a relative total stockholder return performance of 0% in the adjusted performance period. The terms of the equity award provide for such acceleration upon a termination of employment for reasons other than Cause in connection with a change in control, and the terms of the equity award provides for such acceleration upon death or disability.

Michael Pung

 

Payment or Benefit

  Voluntary
Termination
by NEO
($)
    Termination
by Us For
Cause
($)
    Termination
by Us
Without
Cause or by
NEO with
Good
Reason
($)
    Termination
by Us
Without
Cause
in Connection
with a
Change in
Control or
by the NEO
with Good
Reason
in Connection
with a
Change in
Control
($)
    Retirement
($)
    Disability
($)
    Death
($)
 

Value of Cash Severance(1)

                650,000       650,000                    

Value of Benefits(2)

                13,788       13,788                    

Market Value of Accelerated Stock Option Awards(3)

                                         

Market Value of Accelerated Restricted Stock Unit Awards(4)

                      3,862,292             3,862,292       3,862,292  

Market Value of Accelerated
Performance Share Unit Awards(5)

                      5,701,927             5,701,927       5,701,927  

Market Value of Accelerated
Market Share Unit Awards(6)

                      2,927,754             2,927,754       2,927,754  

Total

                663,788       13,155,761             12,491,973       12,491,973  

 

(1) 

Pursuant to Mr. Pung’s Letter Agreement, he is entitled to a lump sum payment equal to one times the sum of his current base salary plus the annual incentive award last paid to him if his employment is terminated by the Company without cause or by Mr. Pung for good reason. Mr. Pung’s Management Agreement provides for the same payments in the event his employment is terminated by the Company without cause or by Mr. Pung for good reason within 60 days before or two years following a change in control.

 

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(2) 

Pursuant to Mr. Pung’s Letter Agreement, the Company is obligated to provide benefits to Mr. Pung at existing levels for 12 months post-termination if his employment is terminated by the Company without cause or by Mr. Pung for good reason. Mr. Pung’s Management Agreement provides for the same benefits in the event his employment is terminated by the Company without cause or by Mr. Pung for good reason within 60 days before or two years following a change in control. The amounts shown represent the total cost of COBRA premiums for continuing such benefits over the applicable time period.

 

(3) 

Mr. Pung currently does not have any stock options that would accelerate.

 

(4) 

The amounts shown represent the restricted stock units that would immediately vest upon the applicable triggering event, based on the Company’s closing stock price on September 30, 2019, of $303.52. Mr. Pung’s Management Agreement provides for such acceleration upon a termination of employment in connection with a change in control, and the terms of the equity awards provide for such acceleration upon death or disability.

 

(5) 

The amounts shown represent the earned performance share units that would immediately vest upon the applicable triggering event, based on the Company’s closing stock price on September 30, 2019, of $303.52. Mr. Pung’s Management Agreement and the terms of the equity award provide for such acceleration upon a termination of employment in connection with a change in control, and the terms of the equity award provides for such acceleration upon death or disability.

 

(6) 

The amounts shown represent the unearned market share units that would immediately be earned and vest upon the applicable triggering event, based on the Company’s closing stock price on September 30, 2019, of $303.52 and a relative total stockholder return performance of 0% in the adjusted performance period. The terms of the equity award provide for such acceleration upon a termination of employment for reasons other than Cause in connection with a change in control, and the terms of the equity award provides for such acceleration upon death or disability.

Stuart Wells

 

Payment or Benefit

  Voluntary
Termination
by NEO
($)
    Termination
by Us For
Cause
($)
    Termination
by Us
Without
Cause or by
NEO with
Good
Reason
($)
    Termination
by Us
Without
Cause
in Connection
with a
Change in
Control or
by the NEO
with Good
Reason
in Connection
with a
Change in
Control
($)
    Retirement
($)
    Disability
($)
    Death
($)
 

Value of Cash Severance(1)

                800,000       800,000                    

Value of Benefits(2)

                7,728       7,728                    

Market Value of Accelerated Stock Option Awards(3)

                                         

Market Value of Accelerated Restricted Stock Unit Awards(4)

                      4,480,259             4,480,259       4,480,259  

Market Value of Accelerated
Performance Share Unit Awards(5)

                      6,729,646             6,729,646       6,729,646  

Market Value of Accelerated
Market Share Unit Awards(6)

                      3,454,057             3,454,057       3,454,057  

Total

                807,728       15,471,690             14,663,962       14,663,962  

 

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(1) 

Pursuant to Dr. Wells’ Letter Agreement, he is entitled to a lump sum payment equal to one times the sum of his current base salary plus the annual incentive award last paid to him if his employment is terminated by the Company without cause or by Dr. Wells for good reason. Dr. Wells’ Management Agreement provides for the same payments in the event his employment is terminated by the Company without cause or by Dr. Wells for good reason within 60 days before or two years following a change in control.

 

(2) 

Pursuant to Dr. Wells’ Letter Agreement, the Company is obligated to provide benefits to Dr. Wells at existing levels for 12 months post-termination if his employment is terminated by the Company without cause or by Dr. Wells for good reason. Dr. Wells’ Management Agreement provides for the same benefits in the event his employment is terminated by the Company without cause or by Dr. Wells for good reason within 60 days before or two years following a change in control. The amounts shown represent the total cost of COBRA premiums for continuing such benefits over the applicable time period.

 

(3) 

Dr. Wells currently does not have any stock options that would accelerate.

 

(4) 

The amounts shown represent the restricted stock units that would immediately vest upon the applicable triggering event, based on the Company’s closing stock price on September 30, 2019, of $303.52. Dr. Wells’ Management Agreement provides for such acceleration upon a termination of employment in connection with a change in control, and the terms of the equity awards provide for such acceleration upon death or disability.

 

(5) 

The amounts shown represent the earned performance share units that would immediately vest upon the applicable triggering event, based on the Company’s closing stock price on September 30, 2019, of $303.52. Dr. Wells’ Management Agreement and the terms of the equity award provide for such acceleration upon a termination of employment in connection with a change in control, and the terms of the equity award provides for such acceleration upon death or disability.

 

(6) 

The amounts shown represent the unearned market share units that would immediately be earned and vest upon the applicable triggering event, based on the Company’s closing stock price on September 30, 2019, of $303.52 and a relative total stockholder return performance of 0% in the adjusted performance period. The terms of the equity award provide for such acceleration upon a termination of employment for reasons other than Cause in connection with a change in control, and the terms of the equity award provides for such acceleration upon death or disability.

EQUITY COMPENSATION PLAN INFORMATION

 

Plan Category

   Number of
Securities to be
Issued upon
Exercise of
Outstanding
Options
and Rights
    Weighted Average
Exercise Price of
Outstanding
Options and Rights
    Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
 

Equity compensation plans approved by security holders

     1,915,123 (1)      73.89 (2)      5,259,396 (3) 

Equity compensation plans not approved by security holders

                  

Total

     1,915,123 (1)      73.89 (2)      5,259,396 (3) 

 

(1) 

This amount represents the shares of Company common stock that may be issued upon the exercise of stock options or the vesting of restricted stock units, performance share units and market share units granted under the 1992 LTIP and the 2012 LTIP that were outstanding as of September 30, 2019.

 

(2) 

The weighted-average exercise price set forth in this column is calculated excluding outstanding restricted stock unit and performance share unit awards, since recipients are not required to pay an exercise price to receive the shares subject to these awards.

 

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(3) 

This amount includes (a) 4,259,396 shares available for future issuance under the 2012 LTIP as of September 30, 2019 and (b) 1,000,000 shares available for issuance under the Company’s 2019 Employee Stock Purchase Plan (“ESPP”) as of September 30, 2019. There are no shares available for future issuance under the 1992 LTIP, which expired in February 2012.

 

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CEO PAY RATIO

As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of Regulation S-K, we are providing the following information about the relationship of the annual total compensation of our employees and the annual total compensation of our Chief Executive Officer, William Lansing (our “CEO”):

For fiscal 2019:

 

   

the median of the annual total compensation of our employees was $93,278;

 

   

the annual total compensation of our CEO was $11,345,257; and

 

   

the ratio of the annual total compensation of our CEO to the median of the annual total compensation of our employees was 122 to 1. This ratio is a reasonable estimate calculated in a manner consistent with SEC rules.

We identified the employee with compensation at the median of the annual total compensation of all our employees using the following methodology:

 

   

In determining our employee population, we considered the 4,018 individuals, excluding our CEO, who were employed by us and our consolidated subsidiaries on August 31, 2019, whether employed on a full-time, part-time, seasonal or temporary basis. We did not include any contractors or other non-employee workers in our employee population.

 

   

To identify our median employee, we chose to use a consistently-applied compensation measure, which we selected as annual base salary rate plus target annual bonus and actual sales incentive commissions paid and the grant-date fair value of long-term incentives granted for the 12-month period ending August 31, 2019. For simplicity, we calculated annual base salary using a reasonable estimate of hours worked during the period covered for part-time employees and actual salary paid for our full-time employees.

 

   

For employees paid other than in U.S. dollars, we converted their compensation to U.S. dollars using the applicable exchange rates in effect on August 31, 2019.

 

   

For permanent employees hired during fiscal 2019, we annualized their salary or base pay as if they had been employed for the entire 12-month measurement period. We did not make any cost-of-living adjustment.

Using this methodology, we identified the individual at the median of our employee population, who was a Solution Consulting Lead Consultant based in Birmingham, England. We then calculated the annual total compensation for this individual using the same methodology we used to calculate the amount reported for our CEO in the “Total” column of the Fiscal 2019 Summary Compensation Table as set forth in this proxy statement.

As disclosed in the Fiscal 2019 Summary Compensation Table, the annual total compensation for our CEO was $11,345,257.

Because SEC rules for identifying the median of the annual total compensation of all employees allow companies to adopt a variety of methodologies, apply certain exclusions, and make reasonable estimates and assumptions that reflect their employee population and compensation practices, the pay ratio reported by other companies may not be comparable to our pay ratio, as other companies have different employee populations and compensation practices and may have used different methodologies, exclusions, estimates, and assumptions in calculating their pay ratios.

 

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HELPFUL INFORMATION AND ONLINE RESOURCES

Why did I receive this proxy statement?

The Board of Directors is soliciting your proxy to vote at the Annual Meeting of Stockholders (“Annual Meeting”) to be held on March 4, 2020, because you were a stockholder of Fair Isaac Corporation (“FICO,” “the Company,” “we,” “our,” “us”) at the close of business on January 6, 2020, the record date, and are entitled to vote at the meeting.

This proxy statement, the proxy card and the Annual Report on Form 10-K (the “Proxy Material”) are being mailed to stockholders beginning on or about January 28, 2020. The proxy statement summarizes the information you need to know to vote at the Annual Meeting. You do not need to attend the Annual Meeting to vote your shares.

What is the difference between holding shares as a stockholder of record and as a beneficial owner?

If your shares are registered directly in your name with our transfer agent, Computershare, you are considered the “stockholder of record” with respect to those shares. We sent the Proxy Material directly to you. You have the right to vote these shares directly.

If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the “beneficial owner” of shares held in street name. In this case, the Proxy Material has been forwarded to you by your broker, bank or nominee who is considered the stockholder of record with respect to those shares. As the beneficial owner, you have the right to direct your broker, bank or nominee how to vote your shares by using the voting instruction card included in the mailing or by following their instructions for voting by telephone or the internet.

What am I voting on and how does the Board recommend that I vote?

 

  1.

Election of nine directors: Braden R. Kelly, Fabiola R. Arredondo, A. George Battle, James D. Kirsner, William J. Lansing, Eva Manolis, Marc F. McMorris, Joanna Rees, and David A. Rey;

 

  2.

Approval of the amendment to the 2012 Long-Term Incentive Plan;

 

  3.

Approval of the advisory (non-binding) resolution relating to the named executive officer compensation as disclosed in this proxy statement;

 

  4.

Ratification of the appointment of Deloitte & Touche LLP (“Deloitte”) as our independent registered public accounting firm for the fiscal year ending September 30, 2020; and

 

  5.

Any other such business as may properly come before the meeting or any adjournment thereof.

The Board recommends a vote FOR each of the nominees to the Board of Directors, FOR the approval of the amendment to the 2012 Long-Term Incentive Plan, FOR the approval of the advisory (non-binding) resolution relating to the named executive officer compensation as disclosed in this proxy statement, and FOR the ratification of Deloitte’s appointment as independent registered public accounting firm for the fiscal year ending September 30, 2020.

What is the voting requirement to elect the directors (Proposal 1)?

To be elected, the number of votes cast “FOR” a director nominee must exceed the number of votes cast “AGAINST” that nominee. The Company requires that all nominees submit an irrevocable letter of resignation as a condition to being named as a nominee, which resignation will be effective if (i) the nominee fails to receive a sufficient number of votes to be elected and (ii) the Board accepts such resignation. Cumulative voting for the election of directors is not permitted. Abstentions will not be counted “FOR” or “AGAINST” a nominee. Your broker or other nominee does not have discretionary authority to vote your shares on the election of directors, so any shares you hold in street name will not be cast if your broker, bank, trust or other nominee does not

 

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receive voting instructions from you. Therefore, broker non-votes will not be counted “FOR” or “AGAINST” a nominee. All votes will be tabulated by the inspector of election appointed for the Annual Meeting, who will tabulate affirmative votes, negative votes, abstentions and broker non-votes.

What is the voting requirement to approve the amendment to the 2012 Long-Term Incentive Plan (Proposal 2)?

The affirmative vote of a majority of the shares present or represented by proxy and entitled to vote on this proposal at the Annual Meeting is necessary to approve the amendment to the 2012 Long-Term Incentive Plan. Abstentions will be counted toward a quorum and have the effect of negative votes with respect to this proposal. Your broker or other nominee does not have discretionary authority to vote your shares on the proposal, so any shares you hold in street name will not be cast if your broker, bank, trust or other nominee does not receive voting instructions from you. Therefore, broker non-votes will not be counted “FOR,” “AGAINST” or “ABSTAIN.” All votes will be tabulated by the inspector of election appointed for the Annual Meeting, who will tabulate affirmative votes, negative votes, abstentions and broker non-votes.

What is the voting requirement for advisory approval of the named executive officer compensation as disclosed in this proxy statement (Proposal 3)?

The affirmative vote of a majority of the shares present or represented by proxy and entitled to vote on this proposal at the Annual Meeting is necessary for advisory approval of the named executive officer compensation as disclosed in this proxy statement. Because your vote on executive compensation is advisory, it will not be binding upon the Company or the Board of Directors. However, the Leadership Development and Compensation Committee will take into account the outcome of the vote when considering future executive officer compensation programs. Abstentions will be counted toward a quorum and have the effect of negative votes with respect to this proposal. Your broker or other nominee does not have discretionary authority to vote your shares on compensation-related proposals, so any shares you hold in street name will not be cast if your broker, bank, trust or other nominee does not receive voting instructions from you. Therefore, broker non-votes will not be counted “FOR” or “AGAINST” approval. All votes will be tabulated by the inspector of election appointed for the Annual Meeting, who will tabulate affirmative votes, negative votes, abstentions and broker non-votes.

What is the voting requirement to ratify the appointment of Deloitte (Proposal 4)?

The affirmative vote of a majority of the shares present or represented by proxy and entitled to vote at the Annual Meeting is necessary to ratify the appointment of Deloitte as our independent auditors for the fiscal year ending September 30, 2020. Abstentions will be counted toward a quorum and have the effect of negative votes with respect to this proposal. In the event that a broker indicates on a proxy that it does not have discretionary authority to vote certain shares on a particular matter, such broker non-votes will also be counted toward a quorum and will have the same effect as negative votes. All votes will be tabulated by the inspector of election appointed for the Annual Meeting, who will tabulate affirmative votes, negative votes, abstentions and broker non-votes.

What if other business is properly brought before the Annual Meeting for stockholder action?

The Board knows of no other matters to be presented for stockholder action at the Annual Meeting. However, if other matters are properly brought before the Annual Meeting, the persons named as proxies in the accompanying proxy card will have discretion with respect to how to vote the shares represented by them.

How many votes do I have?

You are entitled to one vote for each share of common stock that you hold for each nominee for director and for each other matter presented for a vote at the Annual Meeting. There is no cumulative voting.

 

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What can I do if I change my mind after I vote my shares?

If you are a stockholder of record, you may revoke your proxy at any time before it is voted at the Annual Meeting by:

 

   

Sending written notice of revocation to the Corporate Secretary of FICO;

 

   

Submitting a new proxy by telephone, internet or paper ballot after the date of the revoked proxy; or

 

   

Attending the Annual Meeting and voting in person.

If you are a beneficial owner of shares, you may submit new voting instructions by contacting your broker, bank or nominee. You may also vote in person at the Annual Meeting if you obtain a legal proxy as described in the answer to the previous question.

Who will count the vote?

Representatives of Broadridge Financial Solutions, Inc. will tabulate the votes and act as the inspector of election.

What shares are included on the proxy card?

The shares on your proxy card represent shares you own.

Is my vote confidential?

Any proxy, ballot or other voting material