UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

SCHEDULE 14A

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE

SECURITIES EXCHANGE ACT OF 1934

(AMENDMENT NO.     )

 

 

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AVALARA, INC.

(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

 

(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)

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Seattle, Washington

April 28, 2020

Dear Shareholders:

You are cordially invited to attend the Avalara, Inc. 2020 annual meeting of shareholders on June 11, 2020 at 10:00 a.m. (Pacific Time). Due to the public health impact of the COVID-19 outbreak, the meeting will be held in a virtual meeting format only, conducted by live webcast accessible at the following website address: https://web.lumiagm.com/238702773. Our Board of Directors has fixed the close of business on April 14, 2020 as the record date for determining those holders of our common stock entitled to notice of and to vote at the 2020 annual meeting of shareholders and any adjournments or postponements thereof.

The Notice of 2020 Annual Meeting of Shareholders and Proxy Statement, both of which accompany this letter, provide details regarding the business to be conducted at the 2020 annual meeting, including proposals for the election of Class II directors nominated by our Board (Proposal No. 1), advisory approval of the 2019 compensation of our named executive officers (Proposal No. 2), preferred frequency of the advisory approvals of the compensation of our named executive officers (Proposal No. 3), and ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2020 (Proposal No. 4).

Our Board recommends that you vote FOR each director nominee named in the accompanying proxy statement under Proposal No. 1, FOR each of Proposals No. 2 and No. 4, and every ONE YEAR for Proposal No. 3.

Your vote is very important. Please vote your shares promptly, whether or not you expect to attend the virtual annual meeting. You may vote by internet or, if you requested printed proxy materials, by mailing a proxy or voting instruction card. If you attend the virtual meeting, you may vote electronically if you wish, even if you previously submitted your vote. If your shares are held through a broker, bank, trustee, or other nominee and you wish to attend the virtual meeting, you must obtain a legal proxy issued in your name from your broker, bank, trustee, or other nominee.

On behalf of our Board, thank you for your continued investment in Avalara.

Sincerely,

 

Scott McFarlane

Chairman and Chief Executive Officer

 

255 South King Street, Suite 1800

Seattle, WA 98104

Notice of 2020 Annual Meeting of Shareholders

The 2020 Annual Meeting of Shareholders of Avalara, Inc. (the “Annual Meeting”) will be held as a virtual meeting only, accessible at https://web.lumiagm.com/238702773, on June 11, 2020 at 10:00 a.m. (Pacific Time) for the following purposes:

 

1.		To elect three Class II directors nominated by our Board of Directors to serve until the annual meeting of shareholders to be held in 2023, or the earlier to occur of such director’s death, disqualification, resignation, or removal as a Class II director or the appointment of such director’s successor;
2.		To approve on an advisory basis the compensation of our named executive officers;
3.		To approve on an advisory basis whether an advisory vote on the compensation of our named executive officers should occur every one, two, or three years;
4.		To ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2020; and
5.		To transact such other business as may properly come before the Annual Meeting.

Only shareholders of record of our common stock on the record date, which is the close of business on April 14, 2020, will be entitled to notice of and to vote at the Annual Meeting and any adjournments or postponements thereof.

In accordance with Securities and Exchange Commission rules, we are sending a Notice of Internet Availability of Proxy Materials on or about April 28, 2020, and are providing access to our proxy materials over the internet on or before that date, to the holders of record of our common stock as of the close of business on the record date.

You will not be able to attend the Annual Meeting physically. The Annual Meeting will be a completely virtual meeting, which will be conducted through a webcast. Record holders of our common stock and persons holding proxies from such shareholders will be able to participate in, vote online, and submit questions electronically during the Annual Meeting by visiting the website listed above. To participate in the Annual Meeting, you will need the 16-digit control number included on your Notice of Internet Availability of the Proxy Materials, proxy card, or voting instruction card. If you plan to participate in the Annual Meeting, please see the instructions for accessing the Annual Meeting on page 55 of the accompanying proxy statement.

By order of the Board of Directors,

 

Alesia Pinney

Executive Vice President, General Counsel, and Secretary

Seattle, Washington

April 28, 2020

Important Notice Regarding the Availability of Proxy Materials

for the Shareholder Meeting to be Held on June 11, 2020

The accompanying Avalara, Inc. Proxy Statement and the 2019 Annual Report of Avalara, Inc. are available at
http://www.astproxyportal.com/ast/22225

 

Proxy Summary

This proxy summary highlights information contained elsewhere in this proxy statement. This summary does not contain all of the information that you should consider, and you should read the entire proxy statement before voting. For more complete information regarding Avalara’s performance in 2019, you should review our annual report on Form 10-K for the fiscal year ended December 31, 2019.

Virtually Attend and Vote at Annual Meeting

 

Meeting Date		Time		Meeting Website Address		Record Date
June 11, 2020		10:00 a.m. (Pacific Time)		https://web.lumiagm.com/238702773		April 14, 2020

Voting Matters and Board Recommendations

 

Proposal		Subject Matter		Board Recommendation
Proposal 1		Election of Directors		FOR each nominee
Proposal 2		Advisory Vote to Approve Named Executive Officer Compensation		FOR
Proposal 3		Advisory Vote on the Frequency of the Advisory Vote to Approve Named Executive Officer Compensation		Every ONE YEAR
Proposal 4		Ratification of Appointment of Independent Registered Public Accounting Firm		FOR

Voting Methods in Advance of the Annual Meeting

Your vote is important. Even if you plan to virtually attend the 2020 annual meeting, please vote right away using one of the following voting methods. Make sure to have your proxy card or voting instruction card in hand and follow the instructions.

 

		Online				By Mail
Visit the website listed on your proxy card or voting instruction card				Sign, date and return your proxy card or voting instruction card in the enclosed envelope

 

 

i

About Avalara, Inc.

Avalara’s motto is “Tax compliance done right.” The rise of digital commerce and international trade, coupled with constantly shifting taxation and reporting obligations imposed by the global patchwork of local, regional, state, and national taxing authorities, has created a tremendously complex and onerous compliance burden for businesses of all sizes. Avalara’s mission is to provide solutions for this challenge, allowing companies to focus on their core operations. We provide a leading suite of cloud-based solutions designed to improve accuracy and efficiency by automating the processes of determining taxability, identifying applicable tax rates, determining and collecting taxes, preparing and filing returns, remitting taxes, maintaining tax records, and managing compliance documents. Our vision is to be the global cloud compliance platform.

Highly Qualified Class II Director Nominees

The Board of Directors (the “Board”) currently consists of ten members serving three-year staggered terms. Three directors are to be elected at the annual meeting, each to serve until the 2023 annual meeting of shareholders or the earlier to occur of such director’s death, disqualification, resignation, or removal as a Class II director or the appointment of such director’s successor. Justin Sadrian, a current Class II director, is not seeking reelection and his term will expire immediately prior to the Annual Meeting. At that time, the size of the Board will be reduced to nine directors. The Board has re-nominated the following Class II directors for new three-year terms:

 

Name

Age

Director Since

Independent

Committee Memberships

Primary Occupation

Public Company Boards

William Ingram

63

January 2020

No

None

Recently retired CFO of Avalara

Revolution Lighting Technologies, Inc.

Brian Sharples

59

April 2020

Yes

Compensation and Leadership Development; Nominating and Corporate Governance

Serial entrepreneur, angel investor, and advisor

Yelp Inc.; GoDaddy, Inc.; Ally Financial Inc.

Chelsea Stoner

46

June 2012

Yes

Audit; Nominating and Corporate Governance

General Partner at Battery Ventures

 

 

ii

Key Principles of 2019 Named Executive Officer Compensation Program

See “Compensation Discussion and Analysis” for key compensation matters for 2019, including more detail on the following:

 

✓   What we do		û    What we don’t do
✓ Independent Compensation and Leadership Development Committee   ✓ Independent compensation advisor   ✓ Evaluate benchmarking data; annually review peer group   ✓ Use a pay-for-performance philosophy   ✓ Reasonable severance   ✓ Change in control double-trigger for employment agreements   ✓ Maintain stock ownership guidelines   ✓ Annual succession planning   ✓ Annual executive compensation review of risk and risk mitigation   ✓ Regularly review share utilization		û     No guaranteed bonuses, except new hire inducements   û     No pension/defined benefit, supplemental executive retirement, or nonqualified deferred compensation plans   û     No tax reimbursements, except for certain perquisites and benefits   û     No repricing or replacement of underwater stock options   û     No hedging and very limited pledging permitted

Independent Director Leadership and Balanced Governance Practices

We are committed to good corporate governance appropriate to the company and our shareholders. Highlights include:

 

✓

Eight independent directors out of ten directors (and seven directors out of nine after Mr. Sadrian’s departure)

 

✓

Fully independent Board committees with key oversight role

 

✓

Independent Lead Director with meaningful authority

 

✓

Board gender diversity with four female directors, two of whom are chairs of Board committees

 

✓

Average director age of 57, with reasonable tenure

 

✓

No director overboarding

 

✓

Annual Board and committee performance evaluations

 

✓

Active Board and Committee oversight of operations, strategy, and material risks

 

✓

No dual class voting stock

 

✓

No poison pill

 

✓

Robust governance policies

 

 

iii

Table of Contents

 

PROPOSAL NO. 1: ELECTION OF CLASS II DIRECTORS			2
NOMINATIONS PROCESS AND DIRECTOR QUALIFICATIONS			3
Sources of Director Nominations			3
Highly Qualified and Experienced Board			3
Specific Qualifications, Attributes, Skills and Experience Regarding Our Nominees and Directors			4
Biographies			5
CORPORATE GOVERNANCE STANDARDS AND DIRECTOR INDEPENDENCE			7
Corporate Governance Guidelines – Key Principles of our Board			7
Code of Business Conduct and Ethics – Establishing Our Company’s Culture of Compliance			7
Board Leadership Through Partnership of Executive Board Chairperson and Lead Independent Director			7
The Fundamental Role of Risk Oversight by our Board and Committees			7
Dedicated Board and Committee Members - Meetings and Attendance			9
Lead Independent Director Presides Over Non-Employee Director Meetings			9
Stakeholder Communications with Directors			9
Substantial Majority of Directors Determined Independent			9
BOARD COMMITTEES			11
Audit Committee			11
Compensation and Leadership Development Committee			12
Nominating and Corporate Governance Committee			12
DIRECTOR COMPENSATION			14
EXECUTIVE OFFICERS			17
COMPENSATION DISCUSSION AND ANALYSIS			18
Executive Summary			18
Executive Compensation Philosophy and Objectives			21
Historical Transition from Private to Public Company Compensation Program			22
2019 Compensation-Setting Process			22
Compensation Elements			25
Reasonable Severance and Change in Control Benefits			31
Other Compensation Policies Supporting Shareholder Alignment			32
Tax and Accounting Implications			33
Compensation Risk Assessment			34
Non-GAAP Financial Information			34
REPORT OF THE COMPENSATION AND LEADERSHIP DEVELOPMENT COMMITTEE			35
NAMED EXECUTIVE OFFICER COMPENSATION TABLES			36
Summary Compensation Table for Fiscal 2019			36
Grants of Plan Based Awards Table for 2019			38
Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table			39
Outstanding Equity Awards as of December 31, 2019			40
Option Exercises and Stock Vested in 2019			41
Potential Payments Upon Termination or Change in Control			41
EQUITY COMPENSATION PLAN INFORMATION			46
PROPOSAL NO. 2: ADVISORY VOTE ON NAMED EXECUTIVE OFFICER COMPENSATION			47
PROPOSAL NO. 3: ADVISORY VOTE ON THE FREQUENCY OF THE ADVISORY VOTE ON NAMED EXECUTIVE OFFICER COMPENSATION			48

 

 

iv

REPORT OF THE AUDIT COMMITTEE OF THE BOARD			49
PRINCIPAL SHAREHOLDERS			50
AUDIT COMMITTEE MATTERS			52
Principal Accountant Fees and Services			52
Pre-Approval Policies and Procedures			52
CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS			53
PROPOSAL NO. 4: RATIFICATION OF THE APPOINTMENT OF DELOITTE  & TOUCHE LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2020			54
GENERAL INFORMATION ABOUT THE MEETING			55
ADDITIONAL INFORMATION			59
Shareholder Proposals for the 2021 Annual Meeting of Shareholders			59
Delinquent Section 16(a) Reports			59
Available Information			60
Electronic Delivery of Shareholder Communications			60
TRANSACTION OF OTHER BUSINESS			61

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

v

255 South King Street, Suite 1800

Seattle, WA 98104

 

 

PROXY STATEMENT FOR THE 2020 ANNUAL MEETING OF SHAREHOLDERS

 

 

Information about Solicitation and Voting

This proxy statement is being furnished to the shareholders of Avalara, Inc. (“Avalara,” “we,” “us,” “our,” or the “Company”), a Washington corporation, in connection with the solicitation of proxies by our Board for use at the annual meeting of shareholders to be held as a virtual meeting only, accessible at https://web.lumiagm.com/238702773, on June 11, 2020, at 10:00 a.m. (Pacific Time) (the “Annual Meeting”), and at any adjournments or postponements thereof. At the Annual Meeting, holders of our common stock will be asked to vote upon: (i) the election of three Class II directors nominated by our Board to serve until the annual meeting of shareholders to be held in 2023, or the earlier to occur of such director’s death, disqualification, resignation, or removal as a Class II director or the appointment of such director’s successor; (ii) the advisory approval of the compensation of our named executive officers; (iii) the advisory approval of whether an advisory vote on the compensation of our named executive officers should occur every one, two, or three years; and (iv) the ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2020. We are not aware of any other matters that will be brought before the shareholders for a vote at the Annual Meeting; however, shareholders may be asked to consider and vote upon other business as may properly come before the Annual Meeting or before any adjournments or postponements thereof. If any other matter is appropriately brought before the Annual Meeting, the persons named in the proxy card intend to vote as the Board recommends or, if the Board gives no recommendation, according to their best judgment, to the extent permitted by applicable law.

The Notice of Internet Availability of Proxy Materials and this proxy statement for the Annual Meeting and the accompanying form of proxy were first distributed and made available on the internet to shareholders on or about April 28, 2020. An annual report for the fiscal year ended December 31, 2019 (the “2019 annual report”), is available with this proxy statement and can be accessed by following the instructions in the Notice of Internet Availability of Proxy Materials.

Internet Availability of Proxy Materials

In accordance with U.S. Securities and Exchange Commission (“SEC”) rules, we are using the internet as our primary means of furnishing proxy materials to shareholders. Consequently, most shareholders will not receive paper copies of our proxy materials. We will instead send these shareholders a Notice of Internet Availability of Proxy Materials with instructions for accessing the proxy materials, including this proxy statement and the 2019 annual report, and voting via the internet. The Notice of Internet Availability of Proxy Materials also provides information on how shareholders may vote by mail and includes instructions on how to obtain paper copies of our proxy materials if they so choose. We believe this rule makes the proxy distribution process more efficient and less costly and conserves natural resources.

 

 

1

Proposal No. 1: Election of Class II Directors

As of the date of this proxy statement, our Board consists of ten directors. Our articles of incorporation and bylaws provide for a classified Board, divided into three classes. Based on the criteria noted above, our Board has determined, upon the recommendation of the Nominating and Corporate Governance Committee, to re-nominate three Class II directors, consisting of Mr. Ingram, Mr. Sharples, and Ms. Stoner, for election at the Annual Meeting, each to serve until the annual meeting of shareholders to be held in 2023, or the earlier to occur of such director’s death, disqualification, resignation, or removal as a Class II director or the appointment of such director’s successor. Three of the continuing directors are Class III directors, whose terms will expire at our 2021 annual meeting of shareholders, and three of the continuing directors are Class I directors, whose terms will expire at our 2022 annual meeting of shareholders. Mr. Sadrian, a Class II director as of the date of this proxy statement, is not seeking reelection and his term will expire immediately prior to the Annual Meeting. At that time, the size of the Board will be reduced to nine directors.

The election of the Class II directors will be determined by the three nominees receiving the greatest number of “FOR” votes.

Each of the nominees has consented to be named in this proxy statement and has agreed to serve if elected. In the event that any nominee is unable or declines to serve as a director at the time of the Annual Meeting, the persons named as proxies may vote for a substitute nominee or nominees designated by the affirmative vote of a majority of the present Board. Alternatively, the Board may leave the position vacant or reduce the size of the Board.

There are no family relationships between any of our directors, nominees, or executive officers. There also are no arrangements or understandings between any director, nominee, or executive officer and any other person pursuant to which he or she has been or will be selected as a director and/or executive officer, except as described under “Certain Relationships and Related Person Transactions – Voting Agreement.”

We believe each of the Board’s nominees meets the qualifications, skills, and expertise established by the Board for continuing service on the Board, including regarding areas that are critical to the Company’s strategy and operations. We also believe that such nominees, combined with the qualifications, skills, and expertise of the remaining directors of the Board, will position the Board to continue to serve the best interests of the shareholders and Company.

THE BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR
THE ELECTION OF WILLIAM INGRAM, BRIAN SHARPLES, AND CHELSEA STONER AS CLASS II DIRECTORS.

 

 

2

Nominations Process and Director Qualifications

Sources of Director Nominations

Candidates for nomination to our Board are selected by our Board based on the recommendation of our Nominating and Corporate Governance Committee in accordance with the committee’s charter, our articles of incorporation and bylaws, our Corporate Governance Guidelines, and criteria discussed below. The Nominating and Corporate Governance Committee considers current directors for re-nomination. In addition, the committee may engage consultants or third-party search firms to assist in identifying and evaluating potential nominees. The Nominating and Corporate Governance Committee also will consider candidates recommended by shareholders for nomination by the Company for election as directors. In recommending candidates for nomination, the Nominating and Corporate Governance Committee considers candidates recommended by directors, officers, employees, shareholders, and others, using the same criteria to evaluate all candidates. Non-employee directors and Mr. McFarlane, our Chairman of the Board and Chief Executive Officer, recommended the addition of Mr. Ingram to the Board. Mr. Gilhuly recommended the addition of Mr. Sharples to the Board.

Nominations by shareholders intending to run a director slate in opposition to Company nominees must be submitted in accordance with our bylaws. Please refer to “Additional Information—Shareholder Proposals for the 2021 Annual Meeting of Shareholders.”

Highly Qualified and Experienced Board

With the goal of developing a diverse, experienced, and highly-qualified Board, the Nominating and Corporate Governance Committee is responsible for developing and recommending to our Board the desired qualifications, expertise, and characteristics of members of our Board, including the specific minimum qualifications that the committee believes must be met by a committee-recommended nominee for membership to our Board and any specific qualities or skills that the committee believes are necessary for one or more of the members of our Board to possess.

Evaluations of candidates generally involve a review of background materials, internal discussions, and interviews with selected identified candidates, as appropriate. Candidates for the Board are generally selected based on desired skills and experience in the context of the existing composition of the Board and needs of the Board and its committees at that time, including the requirements of applicable SEC and New York Stock Exchange rules. When considering candidates for nomination, the Nominating and Corporate Governance Committee may take into consideration many factors including, among other things, a candidate’s independence, integrity, skills, financial and other expertise, breadth of experience, knowledge about our business or industry, and ability to devote adequate time and effort to responsibilities of the Board in the context of its existing composition. Directors should possess the highest personal and professional ethics, integrity, and values and be committed to representing the long-term interest of the shareholders.

Although we do not maintain a specific policy with respect to board diversity, we believe that our Board should be a diverse body, and our Nominating and Corporate Governance Committee considers the diversity of its directors and nominees in terms of knowledge, experience, background, skills, expertise, and other demographic factors when considering the nomination of directors and in assessing the performance of our Board and committees during the annual Board and committee evaluation process.

 

 

3

Specific Qualifications, Attributes, Skills and Experience Regarding Our Nominees and Directors

The following table sets forth, as of April 14, 2020, the name and age of each director of the Company and the standing committees of the Board and their members. Messrs. Ingram and McFarlane do not serve on any standing committees:

Class II Directors

 

Name		Age		Class(1)		Audit Committee		Compensation  and Leadership Development Committee(2)		Nominating  and Corporate Governance Committee(3)
William Ingram		63		II
Justin Sadrian(4)		47		II				M		M
Brian Sharples		59		II				M		M
Chelsea Stoner		46		II		M				M

Continuing Directors

 

Name		Age		Class(1)		Audit Committee(5)		Compensation  and Leadership Development Committee(2)		Nominating  and Corporate Governance Committee(3)
Marion Foote		74		III		C
Edward Gilhuly		60		I						C(6)
Scott McFarlane		63		I
Tami Reller		55		I		M		M
Rajeev Singh		51		III				M
Kathleen Zwickert		52		III				C(7)

 

 

M

Member

 

C

Chair

 

(1)

The terms of Class II directors (if elected) will expire at the 2023 annual meeting of shareholders. The terms of Class III directors will expire at the 2021 annual meeting of shareholders. The terms of Class I directors will expire at the 2022 annual meeting of shareholders.

 

(2)

Ms. Reller and Mr. Sharples replaced Mr. Gilhuly and Ms. Stoner as members of the Compensation and Leadership Development Committee effective April 1, 2020. The Compensation and Leadership Development Committee will consist of the remaining four directors upon the expiration of Mr. Sadrian’s term as a director immediately prior to the Annual Meeting.

 

(3)

Mr. Sharples and Ms. Stoner joined the Nominating and Corporate Governance Committee effective April 1, 2020, on which date the size of the committee was increased from two to four directors. The Nominating and Corporate Governance Committee will consist of the remaining three directors upon the expiration of Mr. Sadrian’s term as a director immediately prior to the Annual Meeting.

 

(4)

Mr. Sadrian is not seeking reelection and his term will expire immediately prior to the Annual Meeting.

 

(5)

Benjamin Goux was also a member of the Audit Committee prior to his resignation from the Board on August 2, 2019.

 

(6)

Mr. Gilhuly, previously a member of the Nominating and Corporate Governance Committee, was appointed Chair on October 23, 2019, after the resignation from the Board of his predecessor, Gary Waterman, on August 2, 2019.

 

 

4

(7)

Ms. Zwickert, previously a member of the Compensation and Leadership Development Committee, was appointed Chair on October 23, 2019, upon the appointment of her predecessor, Mr. Singh, as Lead Independent Director.

On October 23, 2019, the Board took action to rebalance the classes of the Board so that the three classes were as nearly equal in number as is practicable. Solely for the purpose of effecting this rebalancing, Justin Sadrian, an existing Class III member of the Board, resigned from the Board and was immediately reappointed to serve as a Class II director.

Biographies

Class II Director Nominees    

William Ingram has served as a member of our Board since January 2020. He previously served as our Chief Financial Officer and Treasurer from December 2015 to March 2020. Prior to joining the Company, he served as Interim Chief Financial Officer of Khan Academy, a provider of online learning resources, from April 2015 to December 2015. Mr. Ingram also held various executive roles at Leap Wireless International, Inc., the parent company of Cricket Wireless, a wireless telecommunications provider, including Executive Vice President and Chief of Strategy from August 2007 to March 2014, and with the acquiring company, AT&T, from March 2014 to January 2015. Mr. Ingram currently serves on the board of directors of Revolution Lighting Technologies, Inc. (OTC: RVLT), a provider of advanced LED lighting. Mr. Ingram holds a B.A. in Economics from Stanford University and an M.B.A. from Harvard Business School. Having served as our Chief Financial Officer and Treasurer for over four years, Mr. Ingram contributes to the Board critical knowledge of our industry, financial reporting and accounting, risk management, and budgeting, as well as experience specific to the Company’s operations, financial performance, and strategy, all of which led our Board to conclude that Mr. Ingram should serve as a director.

Brian Sharples has served as a member of our Board since April 2020. Mr. Sharples is a serial entrepreneur, angel investor, and advisor to technology and e-commerce companies. He most recently served as Chairman of Twyla Inc., an online fine art marketplace that he co-founded, from October 2016 to December 2018. Mr. Sharples previously served as Chief Executive Officer of HomeAway, Inc., a vacation rental marketplace he co-founded, from April 2004 to September 2016, as President from April 2004 to May 2014, and as Chairman from March 2011 to December 2015. He is currently on the board of directors of Yelp Inc. (NYSE: YELP), GoDaddy, Inc. (NYSE: GDDY), and Ally Financial Inc. (NYSE: ALLY) and private companies RVShare and Fexy Media, and previously served as a director of RetailMeNot, Inc., HomeAway, Inc., and Kayak, Inc. Mr. Sharples holds a B.S. in Math and Economics from Colby College and an M.B.A. from the Stanford University Graduate School of Business. Mr. Sharples was selected to serve on our Board because of his senior executive leadership background, technology industry knowledge, and public company experience.

Chelsea Stoner has served as a member of our Board since June 2012. Ms. Stoner has served as a general partner at Battery Ventures, a venture capital firm, since February 2014. Ms. Stoner also served as a partner at Battery Ventures from June 2012 to February 2014 and as a principal from June 2006 to June 2012. Ms. Stoner serves as a director of private companies PageUp, Curve Dental, ClearCare, and WebPT. Ms. Stoner holds a B.S. in Chemical Engineering from Northwestern University and an M.B.A. from The University of Chicago. Ms. Stoner was selected to serve on our Board because of her extensive experience with cloud-based software companies and corporate finance, including service on the audit committees of private company boards.

Continuing Class III Directors –Terms Expiring in 2021

Marion Foote has served as a member of our Board since May 2011. Ms. Foote has served as an independent business advisor since January 2012. Ms. Foote currently serves as a director of multiple private companies in the financial services, life sciences, and technology sectors. Ms. Foote previously served as a director of DLJdirect (now part of E*Trade) and Cascade Financial Corporation/Cascade Bank. Ms. Foote holds a B.A. in Economics from Smith College and an M.B.A. from Harvard Business School. Ms. Foote was selected to serve on our Board because of her significant experience as a director, including service on public company boards and the audit and finance committees of private company boards, her marketing and financial expertise, including service as a senior credit officer, senior vice president and head of specialized financial services, and treasurer, among other roles, her work in customer analytics, and her over four decades of executive experience in financial services and consulting.

 

 

5

Rajeev Singh has served as a member of our Board since March 2017. Since November 2015, Mr. Singh has served as the Chief Executive Officer and a member of the board of directors of Accolade, Inc., an on-demand healthcare concierge for employers, health plans, and health systems. Prior to Accolade, Mr. Singh co-founded Concur Technologies, Inc., a global leader in travel and expense management, and held roles over a period of 20 years, including President, Chief Operating Officer, and member of the board of directors. Mr. Singh currently serves on the boards of directors of Amperity, a private company, and Seattle Children’s Hospital Foundation and previously served as a director of Apptio, Inc. Mr. Singh holds a B.S. in Manufacturing Administration from Western Michigan University. Mr. Singh was selected to serve on our Board because of his extensive experience in building and leading companies, as well as his background in technology innovation and significant operational and strategic expertise.

Kathleen Zwickert has served as a member of our Board since January 2019. Prior to her retirement in April 2017, Ms. Zwickert served as Chief People Officer at NetSuite (now Oracle NetSuite) from August 2013 to April 2017. Ms. Zwickert holds a B.A. in Economics from the University of California, Berkeley. Ms. Zwickert was selected to serve on our Board because of her significant experience with software and SaaS companies, and management experience, especially related to talent management and executive compensation.

Continuing Class I Directors –Terms Expiring in 2022

Edward Gilhuly has served as a member of our Board since March 2011. Mr. Gilhuly has served as a managing partner at Sageview Capital, a private investment firm, since May 2006. Mr. Gilhuly currently serves as a director at private companies Pantheon Systems, Inc., Elastic Path, Exaro Energy III, Demandbase, and MetricStream and also serves on the Board of Trustees of Duke University. Mr. Gilhuly previously served on the boards of directors of GoPro, Inc. (Nasdaq: GPRO) and Envivio, Inc. Mr. Gilhuly holds a B.A. in Economics and History from Duke University and an M.B.A. from Stanford University. Mr. Gilhuly was selected to serve on our Board because of his significant experience as a director of public companies, in corporate management, and in private equity and finance.

Scott McFarlane has served as a member of our Board since May 2004 and as the Chairman of our Board since March 2014. He also has served as our Chief Executive Officer since February 2007 and served as our President from March 2014 to March 2019. Mr. McFarlane served as our Chief Operations Officer from May 2004 to October 2010 and as our Secretary from May 2004 to September 2013. Mr. McFarlane currently serves on the board of directors of Expedition Travel Advisor, a private online travel platform for the adventure travel industry. Mr. McFarlane holds a B.A. in Economics from Claremont McKenna College. Mr. McFarlane was selected to serve on our Board because of the perspective and experience he brings as one of our founders and as our Chief Executive Officer.

Tami Reller has served as a member of our Board since July 2014. Ms. Reller has served as Chief Marketing and Experience Officer of United Healthcare, a health care company, since November 2017. Ms. Reller previously served as Executive Vice President of Optum, Inc., a health-services company, from September 2014 to November 2017, including Chief Marketing Officer from September 2014 to June 2016 and Chief Financial Officer from June 2016 to April 2017. Ms. Reller serves as a director of SPS Commerce, Inc. Ms. Reller holds a B.S. in Mathematics from Minnesota State University Moorhead and an M.B.A. from St. Mary’s College. Ms. Reller was selected to serve on our Board because of her significant experience with software companies and her corporate finance experience, including through a prior Chief Financial Officer position.

 

 

6

Corporate Governance Standards and Director Independence

Corporate Governance Guidelines – Key Principles of our Board

Our Board has adopted Corporate Governance Guidelines that set forth expectations for directors, director independence standards, board committee structure and functions, and other policies for the governance of the Company. Our Corporate Governance Guidelines is posted on our investor relations website, which is located at https://investor.avalara.com, under the heading “Governance.” Our Nominating and Corporate Governance Committee periodically reviews and assesses the adequacy of these guidelines and recommends any proposed changes to the Board for approval.

Code of Business Conduct and Ethics – Establishing Our Company’s Culture of Compliance

Our Board has adopted a Code of Business Conduct and Ethics that applies to all of our employees (including executive officers and officers responsible for financial reporting), consultants, and directors. Our Code of Business Conduct and Ethics is posted on our investor relations website, which is located at https://investor.avalara.com, under the heading “Governance.” We intend to disclose any amendments to the Code of Business Conduct and Ethics, or any waivers of its requirements for executive officers and directors, on our website to the extent required by applicable law and New York Stock Exchange requirements.

Board Leadership Through Partnership of Executive Board Chairperson and Lead Independent Director

In accordance with the Company’s bylaws, our Corporate Governance Guidelines provide that the Board may, in its discretion, elect a Chairperson of the Board from among the members of the Board. The Board has no policy mandating the separation of the offices of the Chairperson of the Board and the Chief Executive Officer and believes that it should maintain flexibility in determining a board leadership structure appropriate for us from time to time. However, our Corporate Governance Guidelines require that our Board appoint an independent Lead Director (the “Lead Independent Director”) whenever the Chairperson of the Board is not an independent director.

Our Board believes that we and our shareholders currently are best served by Scott McFarlane, our Chief Executive Officer, also serving as Chairman of our Board, considering his experience, expertise, knowledge of our business and operations, and strategic vision. As Chairman, Mr. McFarlane presides over meetings of the Board, and holds such other powers and carries out such other duties as are customarily carried out by the chairperson of a board of directors.

In October 2019, our independent directors appointed Rajeev Singh to serve as our Lead Independent Director following the resignation of his predecessor, Gary Waterman. As Lead Independent Director, Mr. Singh presides over periodic meetings and executive sessions of our independent directors, collaborates with the Chairperson on agendas, schedules, and materials for Board meetings, serves as a liaison between our Chairman and the independent directors, and performs such additional duties as our Board may otherwise determine and delegate.

Our Board believes that its independence and oversight of management is maintained effectively through this leadership structure, the composition of our Board, independent Board committees with significant authority and oversight, and sound corporate governance policies and practices.

The Fundamental Role of Risk Oversight by our Board and Committees

Our Board is actively involved in the oversight of our risk management process. Our Board administers this oversight function directly through the Board as a whole, as well as through its standing committees that address risks inherent in their respective areas of oversight. The full Board, or the appropriate committee, receives reports on risks facing

 

 

7

Avalara from our Chief Executive Officer and other management regarding our risk identification, management, and mitigation strategies. In particular:

 

Full Board		●   Monitors and assesses strategic risk exposure, including reputational risks, crisis management, and product quality controls   ●   Reviews and approves management’s annual business plan and budget, strategy, and liquidity plans   ●   Reviews business developments, strategic plans and implementation, and financial results on at least a quarterly basis   ●   Reviews capital spending, financings, and capital market activities   ●   Oversees management succession planning   ●   Holds regularly scheduled executive sessions of independent directors   ●   Has significant interaction with business leaders and access to other key employees   ●   Has focused discussions regarding emerging topics
Audit Committee		●  Oversees our major financial, treasury, audit, and other business risk exposures and the steps our management has taken to monitor and mitigate these exposures   ●   Reviews accounting and financial reporting, and disclosure control and internal control processes   ●   Oversees the internal audit, legal, regulatory, and ethical compliance functions   ●   Consults regularly with our independent registered public accounting firm and internal audit function regarding risk management controls
Compensation and Leadership Development Committee		●   Reviews and approves executive officer compensation   ●   Ensures the alignment of incentive programs with the Company’s business and strategic plans   ●   Reviews whether any of our compensation policies and programs has the potential to encourage excessive risk-taking, and related risk mitigants   ●   Monitors and reviews our risk exposure and risk management policies and procedures dealing with information security matters   ●   Addresses matters related to human capital management for the general employee population
Nominating and Corporate Governance Committee		●  Monitors and reviews our corporate governance structure, policies and procedures, as well as the Board and committee self-assessment process   ●  Oversees director succession planning and refreshment   ●   Oversees director onboarding process and continuing education

 

 

8

Dedicated Board and Committee Members - Meetings and Attendance

During 2019, our Board held six meetings; the Audit Committee held nine meetings; the Compensation and Leadership Development Committee held four meetings; and the Nominating and Corporate Governance Committee held three meetings. Each incumbent director who was on the Board attended at least 75% of the aggregate number of meetings of the Board and the aggregate of all meetings of the committees on which he or she served that were held during the period in which such director served during 2019.

In addition, we encourage directors to attend our annual meetings of shareholders. Four of the ten directors who then served on the Board attended our annual meeting of shareholders in 2019.

Lead Independent Director Presides Over Non-Employee Director Meetings

The non-employee directors meet in regularly scheduled executive sessions without management. Our Lead Independent Director, currently Mr. Singh and previously Mr. Waterman, is the presiding director at these meetings.

Stakeholder Communications with Directors

Shareholders and interested parties who wish to communicate with our Board, non-management members of our Board as a group, a committee of our Board, or a specific member of our Board (including our Chairman or Lead Independent Director, if any) may do so by letters addressed to the attention of our Corporate Secretary.

All communications are reviewed by the Corporate Secretary and provided to the members of our Board as appropriate. Unsolicited items, sales materials, abusive, threatening, or otherwise inappropriate materials, and other routine items and items unrelated to the duties and responsibilities of our Board will not be provided to directors.

The address for these communications is:

Avalara, Inc.

c/o Corporate Secretary

255 South King Street, Suite 1800

Seattle, WA 98104

To submit concerns regarding accounting, internal accounting controls, or auditing matters, shareholders and other interested persons may also call the Company’s toll free, confidential hotline (United States and Canada: 833-440-0009; rest of world: 800-603-2869). Employees may submit such concerns on a confidential and anonymous basis. Communications made through the confidential hotline and certain communications to the Board to the extent relating to accounting, internal accounting controls, or auditing matters will be reviewed by the Audit Committee in accordance with procedures established by the Audit Committee with respect to such matters.

Substantial Majority of Directors Determined Independent

Our common stock is listed on the New York Stock Exchange. The listing rules of the New York Stock Exchange generally require that a majority of the members of a listed company’s board of directors be independent. In addition, the listing rules generally require that, subject to specified exceptions, each member of our Audit, Compensation and Leadership Development, and Nominating and Corporate Governance Committees be independent.

Audit Committee members and Compensation and Leadership Development Committee members also must satisfy additional independence rules established by the SEC and the listing rules of the New York Stock Exchange.

Our Board has reviewed its composition, the composition of its committees, and the independence of each director. Our Board has determined that none of our current directors or directors who served at any time during 2019 has a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a

 

 

9

director and that each is “independent” as that term is defined under the applicable rules and regulations of the SEC and the listing requirements and rules of the New York Stock Exchange, except for Mr. McFarlane by virtue of his position as our Chief Executive Officer; Mr. Ingram, by virtue of his former position as our Chief Financial Officer and Treasurer; and Jared Vogt, during his term of service on the Board, by virtue of his position as our Founder – Special Projects. Accordingly, a majority of our directors are independent, as required under applicable New York Stock Exchange rules. In making this determination, our Board considered the current and prior relationships that each director has or had with us and all other facts and circumstances our Board deemed relevant.

 

 

10

Board Committees

Our Board has established an Audit Committee, a Compensation and Leadership Development Committee, and a Nominating and Corporate Governance Committee. Our Board may establish other committees to facilitate the management of our business from time to time. Each committee reports on its activities to the full Board at regular meetings or otherwise as appropriate.

Our Board has adopted a written charter for each of the Audit Committee, the Compensation and Leadership Development Committee, and the Nominating and Corporate Governance Committee that satisfies applicable rules of the SEC and the listing standards of the New York Stock Exchange. Copies of the charters for each committee are available on our investor relations website, which is located at https://investor.avalara.com, by clicking on “Committee Charters” under the heading “Governance.” The composition and responsibilities of each of the committees of our Board are described below. Members serve on these committees until their resignation or until otherwise determined by our Board.

The three committees are comprised solely of independent directors, as determined by the Board for purposes of the Board service generally and, as applicable, the additional independence rules for service on the Audit Committee and Compensation and Leadership Development Committee.

Audit Committee

Our Audit Committee consists of Marion Foote, Tami Reller, and Chelsea Stoner. The Chair of our Audit Committee is Ms. Foote. Our Board has determined that each of Ms. Foote, Ms. Reller, and Ms. Stoner is an “audit committee financial expert” within the meaning of SEC regulations. Our Board also has determined that each member of our Audit Committee has the requisite financial expertise under the applicable requirements of the New York Stock Exchange. In arriving at this determination, our Board has examined each Audit Committee member’s scope of experience and the nature of their employment history.

The Audit Committee’s primary functions include, among other things, the matters set forth below.

 

●

Sole authority for appointing, compensating, retaining, and overseeing our independent registered public accounting firm

 

●

Approving in advance all audit and non-audit services performed by our independent registered public accounting firm in accordance with applicable law, and the payment of related fees

 

●

Evaluating annually the performance, qualifications, objectivity, and independence of our independent registered public accounting firm and deciding whether to retain its services

 

●

Monitoring the rotation of partners on the engagement team of our independent registered public accounting firm

 

●

Reviewing our annual and quarterly financial statements and reports and discussing the statements and reports with our independent registered public accounting firm and management

 

●

Reviewing, with our independent registered public accounting firm, internal audit team, and management, significant issues that may arise regarding accounting principles and financial statement presentation, as well as matters concerning the design and implementation of our internal control functions

 

●

Reviewing and approving, as appropriate, all related party transactions

 

●

Overseeing management’s establishment and assessment of the effectiveness and adequacy of our internal control structure and procedures for financial reporting

 

●

Establishing procedures for the receipt, retention, and treatment of complaints received by us regarding financial controls, accounting, or auditing matters

 

●

Reviewing and evaluating the performance of the Audit Committee and the adequacy of its charter

 

 

 

11

Compensation and Leadership Development Committee

Our Compensation and Leadership Development Committee consists of Tami Reller, Justin Sadrian, Brian Sharples, Rajeev Singh, and Kathleen Zwickert. The Chair of our Compensation and Leadership Development Committee is Ms. Zwickert. Mr. Sadrian is not seeking reelection to the Board at the Annual Meeting. Upon his departure, the size of the Compensation and Leadership Development Committee will be reduced to the four remaining directors.

The Compensation and Leadership Development Committee’s primary functions include, among other things, the matters set forth below.

 

●

Determining the compensation of our chief executive officer and reviewing and approving corporate performance goals and objectives relevant to such compensation

 

●

Reviewing and approving the compensation of our other executive officers

 

●

Reviewing peer group and other market data to benchmark target annual compensation, compensation programs, and plan design against peer companies

 

●

Making recommendations to our Board regarding the compensation of our directors

 

●

Administering our equity incentive compensation plans and making recommendations to our Board regarding the adoption of and amendments to equity incentive compensation plans

 

●

Approving awards under our equity compensation plans, subject to the procedures and guidelines with respect to such awards as adopted from time to time by our Board

 

●

Monitoring and assessing risks associated with our compensation policies and consulting with our management on such risks

 

●

Reviewing and evaluating the performance of the Compensation and Leadership Development Committee and the adequacy of its charter

The Compensation and Leadership Development Committee reviews and approves all forms of compensation to be provided to the executive officers of the Company, as recommended by the Chief Executive Officer (other than with respect to his own compensation). The Compensation and Leadership Development Committee is not authorized to delegate these duties.

Pursuant to its charter, the Compensation and Leadership Development Committee is authorized, in its sole discretion, to retain a compensation consultant to assist the committee in carrying out its duties. For 2019 compensation, as it has done in prior years, the Compensation and Leadership Development Committee retained Compensia, an independent management consulting firm, to assist the Compensation and Leadership Development Committee in discharging its duties. For 2019 executive compensation, the Compensation and Leadership Development Committee retained Compensia to conduct a compensation analysis for executive officers and other executives, to make recommendations for changes based on our pay philosophy, business objectives, and shareholder expectations, and to support other ad hoc matters throughout the year. Compensia conducted a competitive market analysis that included published national survey sources of similarly sized companies augmented by proxy data of our peer group, consisting of companies with revenues of similar size to the Company or that are in similar lines of business. Compensia did not provide any other services to the Company and only received fees from the Company on behalf of the Compensation and Leadership Development Committee.

Nominating and Corporate Governance Committee

Our Nominating and Corporate Governance Committee consists of Edward Gilhuly, Justin Sadrian, Brian Sharples, and Chelsea Stoner. The Chair of our Nominating and Corporate Governance Committee is Mr. Gilhuly. Mr. Sadrian is not seeking reelection to the Board at the Annual Meeting. Upon his departure, the size of the Nominating and Corporate Governance Committee will be reduced to the three remaining directors.

 

 

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The Nominating and Corporate Governance Committee’s primary functions include, among other things, the matters set forth below.

 

●

Reviewing and recommending to our Board criteria for selecting, and recommending persons to serve as, new members of our Board to fill any vacancies

 

●

Reviewing and recommending nominees for our Board, including whether to re-nominate directors

 

●

Considering any nominations of director candidates or shareholder proposals validly made by our shareholders

 

●

Establishing, coordinating, and reviewing with the Chairperson of the Board criteria for the evaluation of Board and committee performance and oversight of the implementation of such process

 

●

Recommending to our Board committee membership and chairs

 

●

Reviewing and recommending to our Board corporate governance structure, principles, and policies

 

●

Reviewing and monitoring risks associated with information security matters

 

●

Reviewing and evaluating the performance of the Nominating and Corporate Governance Committee and the adequacy of its charter

 

 

 

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Director Compensation

Under our non-employee director compensation policy (the “Director Compensation Policy”) in effect during 2019, each non-employee director is eligible to receive compensation for his or her service consisting of annual cash retainers and equity awards as described below:

 

Retainer		Amount ($)
Board
Cash			32,000
Annual equity retainer			150,000
Committee Chair
Audit			20,000
Compensation and Leadership Development			11,000
Nominating and Corporate Governance			7,500
Committee Member
Audit			7,500
Compensation and Leadership Development			5,000
Nominating and Corporate Governance			3,500
Lead Independent Director			15,000

Our Board may revise the Director Compensation Policy as it deems necessary or appropriate. Our Board revised the Director Compensation Policy effective as of July 25, 2019, to provide for accelerated vesting of non-employee director equity awards in the event of certain terminations of service, as described below.

Cash Compensation

Under the Director Compensation Policy, all non-employee directors are entitled to receive the cash compensation as described above, payable in quarterly installments. We generally reimburse our directors for their reasonable out-of-pocket expenses incurred in attending meetings of our Board and its committees.

Equity Compensation

Under the Director Compensation Policy, on the date of each annual meeting of our shareholders, each non-employee director who is a director immediately following the meeting automatically will be granted an equity award having a value of $150,000 (the “annual director award”). The annual director award is comprised of stock options and restricted stock units (“RSUs”) granted under our 2018 Equity Incentive Plan, as may be amended from time to time (the “2018 Equity Plan”), each having a grant date fair value of approximately 50% of the aggregate value of the annual award (with any resulting fractional shares rounded down to the nearest whole share). The grant date fair value of the stock options and RSUs is calculated in accordance with ASC Topic 718 (based on the valuation methodology we then use to value stock options and RSUs for financial reporting purposes). Each annual award vests and becomes exercisable or payable, as applicable, upon the earlier of the one-year anniversary of the grant date or the day prior to our next annual meeting of shareholders occurring after the grant date, in each case subject to the individual’s continued service through the vesting date, except as permitted below. Each annual award vests and becomes exercisable or payable, as applicable, upon a change in control, as defined in the 2018 Equity Plan.

The per share exercise price for stock options is equal to the closing price of our common stock on the grant date (or if the common stock is not trading on that date, the closing price on the last preceding date on which the common stock was traded). Each stock option expires ten years from the grant date, subject to earlier termination as set forth in the 2018 Equity Plan upon a termination of service.

 

 

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In the event a non-employee director’s service terminates for any reason other than for cause, as defined in the 2018 Equity Plan, prior to the vesting date of an annual award and the non-employee director has served less than five continuous years as a director, the annual award will become vested as to a pro rata portion based on the number of full months of service that has elapsed between the grant date of the annual award and the director’s termination date. In the event a non-employee director’s service terminates for any reason other than for cause on or after five years of continuous service, the annual award will become fully vested. In the event of termination for cause, no portion of the annual award will accelerate in vesting.

In the event that a non-employee director is initially elected or appointed on any date other than the date of an annual meeting of shareholders, the director will, instead, automatically receive the annual award on the date of initial election or appointment, except that the value of the award will be prorated to reflect the number of days that the director will serve based on a period of time commencing on the date of initial election or appointment and ending on the one-year anniversary of the previous annual meeting (the “prorated annual award”). In all other respects, the terms and conditions of the prorated annual award, including the vesting schedule, will be the same as the annual award granted on the previous year’s annual meeting date.

2019 Director Compensation Table

The following table provides information regarding total compensation earned by our directors during the fiscal year ended December 31, 2019. Directors who also are our employees, such as Mr. McFarlane, our Chairman and Chief Executive Officer, receive no additional compensation for their service as directors.

Mr. McFarlane’s executive compensation for 2019 is presented under “Named Executive Officer Compensation Tables – Summary Compensation Table for Fiscal 2019.” Mr. Ingram did not serve as a director during 2019 and, as our Chief Financial Officer in fiscal 2019, his compensation for 2019 is also presented under “Named Executive Officer Compensation Tables – Summary Compensation Table for Fiscal 2019.” Mr. Sharples did not serve as a director during 2019.

 

Name		Cash Fees Earned ($)				Stock Awards(1) ($)				Option Awards(2) ($)				All Other Compensation ($)				Total ($)
Marion Foote			52,000				74,995				70,057				—				197,052
Edward Gilhuly			41,261				74,995				70,057				—				186,313
Benjamin Goux(3)			26,883				74,995				70,057				—				171,935
Tami Reller			39,500				74,995				70,057				—				184,552
Justin Sadrian			40,500				74,995				70,057				—				185,552
Rajeev Singh			44,712				74,995				70,057				—				189,764
Chelsea Stoner			44,500				74,995				70,057				—				189,552
Gary Waterman(3)			32,924				74,995				70,057				—				177,976
Kathleen Zwickert(4)			38,141				140,544				126,524				—				305,209
Director Comp Sub-Total			360,421				740,507				686,979				—				1,787,908
Jared Vogt(5)			—				—				—				1,255,732				1,255,732
Total			360,421				740,507				686,979				1,255,732				3,043,640

 

 

(1)

Amounts in this column represent the aggregate grant date fair value of RSUs granted during the fiscal year, as computed in accordance with ASC Topic 718.

 

(2)

Amounts in this column represent the aggregate grant date fair value of stock options granted during the fiscal year, as computed in accordance with ASC Topic 718, without regard to estimated forfeitures related to service-based vesting conditions.

 

(3)

Represents amounts through their resignations from the Board in August 2019.

 

 

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(4)

Ms. Zwickert joined the Board on January 8, 2019. Amounts reported for stock awards and option awards include her pro rata award for service in 2019 prior to the 2019 annual meeting. Her pro rata RSU and stock option awards were granted on June 19, 2019, in an amount approximating the fair value of the RSUs and stock option awards as of January 8, 2019, her initial appointment date, and were fully vested on the grant date.

 

(5)

Mr. Vogt, who served as a director and Founder—Special Projects, received no additional compensation for his service as a director. Mr. Vogt resigned from the Board in January 2019 and as an employee in February 2019. In connection with the founder transition agreement we executed with Mr. Vogt described in “Certain Relationships and Related Person Transactions – Founder Transition Agreement,” Mr. Vogt (i) was granted an option to purchase 50,000 shares of common stock on March 29, 2019 (aggregate grant date fair value of $1,191,970), which vests in 48 equal monthly installments so long as Mr. Vogt continues to provide services to the Company and (ii) receives a monthly stipend of $5,000 through July 31, 2020, which will thereafter be reduced to $2,500 monthly until the last payment on January 1, 2023. The amount reported under “All Other Compensation” reflects the grant date fair value of the stock option granted pursuant to the founder transition agreement, $55,000 representing the stipend under the founder transition agreement, $8,718 paid to Mr. Vogt as an employee, and $44 in 401(k) plan matching contributions paid until his resignation in February 2019.

As of December 31, 2019, non-employee directors held the following RSUs and stock options: Ms. Foote, 1,032 RSUs and 2,459 stock options; Mr. Gilhuly, 1,032 RSUs and 2,459 stock options; Mr. Goux, 1,032 RSUs; Ms. Reller, 1,032 RSUs and 2,459 stock options; Mr. Sadrian, 1,032 RSUs and 2,459 stock options; Mr. Singh, 1,032 RSUs and 2,459 stock options; Ms. Stoner, 1,032 RSUs and 2,459 stock options; Mr. Vogt, 62,500 stock options; Mr. Waterman, 1,032 RSUs; and Ms. Zwickert, 1,934 RSUs and 4,535 stock options.

Non-Employee Director Equity Ownership Guidelines

Effective July 25, 2019, our Board adopted stock ownership guidelines for our executive officers and non-employee directors which set minimum stock ownership requirements at a total value equal to five times such director’s annual cash retainer for Board service. Non-employee directors are expected to initially satisfy such guidelines within five years from the date of their initial election or appointment to the Board, or by December 31, 2024, for non-employee directors serving on July 25, 2019. As of the record date, all non-employee directors in service were either in compliance with the guidelines or within the compliance period and making appropriate progress.

 

 

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Executive Officers

Our executive officers and their positions and respective ages as of April 14, 2020 are:

 

Name		Age				Position
Scott McFarlane			63			Chairman and Chief Executive Officer
Amit Mathradas			45			President and Chief Operating Officer
Alesia Pinney			56			Executive Vice President, General Counsel, and Secretary
Ross Tennenbaum			41			Chief Financial Officer and Treasurer

Our executive officers and key employees serve at the discretion of the Board. Biographical information for Mr. McFarlane is provided above.

Amit Mathradas has served as our President and Chief Operating Officer since March 4, 2019. Prior to joining Avalara, from November 2015 to March 2019, Mr. Mathradas served as General Manager and Head of North American Small Business at PayPal, a digital payments company, where he led the company’s small business segment, managing teams responsible for acquisition, activation, cross-sell, and retention of small businesses. Prior to PayPal, from September 2013 to October 2015, Mr. Mathradas served as senior vice president and GM of Web.com, an internet services offering, focusing on small businesses. Mr. Mathradas holds a bachelor’s degree from Wittenberg University and an M.B.A. from Northwestern University’s Kellogg School of Management.

Alesia Pinney has served as our General Counsel since April 2013, our Secretary since September 2013, and an Executive Vice President since March 2014. Ms. Pinney currently serves on the board of directors of Sharkbite Games, Inc., a private video game development studio. Ms. Pinney holds a B.A. in Business Administration in Accounting from Seattle University, a Master of Taxation from the University of Denver, College of Law, and a J.D. from Seattle University School of Law.

Ross Tennenbaum has served as our Chief Financial Officer and Treasurer since April 2020 and previously served as executive vice president of strategic initiatives from March 2019 to March 2020. Prior to joining Avalara, Mr. Tennenbaum served as a vice president and later managing director in the technology investment banking division at Goldman Sachs, a financial services firm, from September 2014 to March 2019. Mr. Tennenbaum holds a B.S. with concentrations in Finance and Economics from the University of Florida and an M.B.A. from The Wharton School of the University of Pennsylvania.

 

 

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Compensation Discussion and Analysis

This Compensation Discussion and Analysis provides information about the compensation for the following current and former executive officers in 2019 (our “named executive officers”), including the material elements of our executive compensation program, an overview of our executive compensation philosophy, and how and why our Compensation and Leadership Development Committee made specific compensation decisions for our named executive officers.

Our 2019 named executive officers are:

 

Name		Position
Scott McFarlane(1)		Chairman and Chief Executive Officer
William Ingram(2)		Chief Financial Officer and Treasurer
Amit Mathradas(3)		President and Chief Operating Officer
Alesia Pinney		Executive Vice President, General Counsel, and Secretary
Pascal Van Dooren(4)		Former Executive Vice President and Chief Revenue Officer

 

 

(1)

Mr. McFarlane also served as President until March 4, 2019.

 

(2)

Mr. Ingram was appointed to the Board on January 29, 2020. He retired as Chief Financial Officer and Treasurer of the Company effective March 31, 2020.

 

(3)

Mr. Mathradas was appointed as our President and Chief Operating Officer effective March 4, 2019.

 

(4)

As of February 25, 2019, Mr. Van Dooren was appointed as the Company’s Executive Vice President of International and the Board determined that he was no longer an executive officer of the Company as of such date. Mr. Van Dooren resigned from the Company on October 18, 2019.

Executive Summary

Our Business

Avalara’s motto is “Tax compliance done right.” The rise of digital commerce and international trade, coupled with constantly shifting taxation and reporting obligations imposed by the global patchwork of local, regional, state, and national taxing authorities, has created a tremendously complex and onerous compliance burden for businesses of all sizes. Avalara’s mission is to provide solutions for this challenge, allowing companies to focus on their core operations. We provide a leading suite of cloud-based solutions designed to improve accuracy and efficiency by automating the processes of determining taxability, identifying applicable tax rates, determining and collecting taxes, preparing and filing returns, remitting taxes, maintaining tax records, and managing compliance documents. Our vision is to be the global cloud compliance platform.

2019 Business Results

In 2019, we delivered revenue growth driven by expansion of core customers and strong revenue retention and achieved positive free cash flow during the second half of the fiscal year. Our significant fiscal year 2019 financial highlights include:

 

●

Revenue: Total revenue was $382.4 million.

 

●

Gross Profit: Gross profit was $267.1 million in fiscal year 2019, representing a 70% gross margin.

 

●

Cash: Net cash provided by operating activities was $22.4 million in fiscal year 2019, compared to $3.1 million used by operating activities in fiscal year 2018. Free cash flow was positive $12.2 million, compared to negative $18.5 million in fiscal year 2018. For more information about free cash flow and a reconciliation of free cash flow, a non-GAAP financial measure, to net cash provided by (used in) operating activities, see page 34 of this proxy statement.

 

 

18

We ended 2019 with approximately 11,960 core customers, up from 9,070 at the end of 2018, and our net revenue retention rate averaged 111% for the four quarters of 2019.

We define a core customer as: a unique account identifier in our billing system (multiple companies or divisions within a single consolidated enterprise that each have a separate unique account identifier are each treated as separate customers); that is active as of the measurement date; and for which we have recognized, as of the measurement date, greater than $3,000 in total revenue during the last twelve months.

We calculate our net revenue retention rate by dividing total revenue in a quarter from any billing accounts that generated revenue during the corresponding quarter of the prior year by total revenue in such corresponding quarter from those same billing accounts. This calculation includes changes for these billing accounts, such as additional solutions purchased, changes in pricing and transaction volume, and terminations, but does not reflect revenue for new billing accounts added during the one-year period. Currently, our net revenue retention rate calculation includes only customers with unique account identifiers in our primary U.S. billing systems and does not include customers who subscribe to our solutions through our international subsidiaries or certain legacy billing systems, primarily related to past acquisitions.

2019 Executive Compensation Highlights

In 2019, our first full year as a publicly traded company, we took the following key actions with respect to named executive officer compensation:

 

Peer Group Benchmarking		●  We utilized a formal peer group and other market data to benchmark target annual compensation elements and total target annual compensation generally between the 50th to 75th percentile of such peers   ●   We also used peer group data to benchmark other elements of our executive compensation program
Moderate Changes to Target Cash Compensation		●  Target cash compensation changes were moderate. Base salary changes (ranging from 0% to 14%) primarily related to peer benchmarking, while target bonuses utilized the same percentage of base salary but increased to the extent of any base salary changes   ●   Mr. McFarlane’s base salary increased by $25,000 to $475,000
Pay-for-Performance for Earned Cash Bonus		●  Named executive officers were eligible to earn up to a maximum of 228% of their target annual cash bonus under the 2019 Cash Bonus Plan, including multipliers for outperformance or specific achievements   ●   Earned bonuses for named executive officers ranged from 171% to 173% of their respective target annual cash bonus, including Mr. McFarlane earning 173% of his target annual cash bonus   ●  The 2019 Cash Bonus Plan continued the historical practice of setting performance goals that were reasonably challenging to appropriately incentivize strong performance. Actual bonus payouts for executives in recent years have varied below and above target

 

 

19

Post-IPO Transition to Public Company Equity Award Program		●  2019 reflected an expedited transition to a public company equity program, with significant increases in aggregate grant values to the named executive officers   ●   Mr. McFarlane’s aggregate grant value for 2019 equity awards was $9,604,684, compared to $1,107,000 in 2018, due to retention needs (including the significant lack of equity holding power relative to peer chief executive officers), his individual performance, and to incentivize his continued long-term stewardship of the Company
New Hire – Mr. Mathradas		●  Mr. Mathradas was hired in March 2019 and executed our customary employment agreement for executive officers. In addition to receiving target annual compensation, the employment agreement provided for new hire equity awards (in lieu of participation in the annual equity award program in 2019), a sign-on bonus, and a relocation package
Stock Ownership Guidelines		●  The Compensation and Leadership Development Committee also approved stock ownership guidelines in 2019 for the executive officers and non-employee directors

Executive Compensation Policies and Practices

We seek to maintain sound governance standards consistent with our executive compensation policies and practices. Our Compensation and Leadership Development Committee evaluates our executive compensation program on a regular basis to ensure that it is consistent with our short-term and long-term goals, given the nature of our business and the competitive market in which we compete for executive talent.

 

 

20

✓   What we do		û    What we don’t do
✓ Independent Committee. The Compensation and Leadership Development Committee consists solely of independent directors.   ✓ Independent Compensation Advisor. The Compensation and Leadership Development Committee has engaged an independent compensation consultant.   ✓  Evaluate Benchmarking Data. We benchmark against peer companies, supplemented by other market data, while retaining significant flexibility. We will annually review our peer group.   ✓ Use a Pay-for-Performance Philosophy. 70% of our named executive officers’ target cash bonus is based on objective Company performance measures. Significant stock option awards tie value to stock price appreciation.   ✓ Reasonable Severance. We have reasonable, market competitive severance and change in control benefits.   ✓ Change in Control Double-Trigger for Employment Agreements. Our employment agreements provide change in control benefits only upon certain terminations.   ✓  Maintain Stock Ownership Guidelines. We require all executive officers to maintain minimum stock ownership at significant levels to reinforce management alignment with shareholders.   ✓ Annual Succession Planning. We annually review the retention of executive officers and oversee related succession planning.   ✓ Annual Executive Compensation Review of Risk and Risk Mitigation. Our compensation program mitigates undue risk, including caps on the maximum level of payouts, multiple performance metrics, and board and management processes to identify risk. The Compensation and Leadership Development Committee conducts an annual review of our compensation programs to confirm that they do not encourage excessive or inappropriate risk-taking.   ✓  Regularly Review Share Utilization. Management and the Compensation and Leadership Development Committee regularly evaluate share utilization levels by reviewing the cost and dilutive impact of equity compensation.		û   No Guaranteed Bonuses Generally. We do not provide guaranteed bonuses, except limited inducements for new hires.   û   No Pension/Defined Benefit, Supplemental Executive Retirement, or Nonqualified Deferred Compensation Plans.   û   No Tax Reimbursements, Except Certain Perquisites and Benefits. Except for certain perquisites and benefits, we do not provide any tax reimbursement payments, including related to severance and change in control benefits.   û   No Repricing or Replacement of Underwater Stock Options. The 2018 Equity Plan prohibits the repricing or replacement of underwater stock options.   û   No Hedging and Very Limited Pledging Permitted. We prohibit our employees, including our executive officers, and the non-employee members of our Board from hedging or pledging our securities (subject to a limited pledging exception).

Executive Compensation Philosophy and Objectives

The Compensation and Leadership Development Committee recognizes that our compensation philosophy must address the shared interests and varied focus areas of multiple parties, including employees, the Board, shareholders, and other external parties. Our executive compensation program is designed to achieve the following primary objectives.

 

●

Attract, motivate, and retain highly qualified executive officers committed to our success and future growth

 

●

Reward the achievement of key performance measures that are linked to the Company’s business strategy

 

 

21

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Reinforce alignment of management with the goal of creating long-term shareholder value

 

●

Maintain reasonable internal pay parity, but reward outstanding individual, team, and Company results

The Compensation and Leadership Development Committee seeks to set both individual pay components and total compensation competitively. While market data is reviewed for context, actual pay decisions reflect the Compensation and Leadership Development Committee’s discretion and judgement based on the following factors.

 

●

Scope of role, promotion, impact on organization, individual performance, experience, skills, and criticality

 

●

Company performance on key metrics

 

●

Pay parity considerations across different executives at similar levels, scope, and experience

Historical Transition from Private to Public Company Compensation Program

Pre-IPO

In preparation for the Company’s IPO, the Compensation and Leadership Development Committee began evaluating public company compensation practices with the intent to align target cash compensation around the 50^th percentile of the market as of the IPO. However, actual bonus payouts in years leading up to the IPO were below target, which impacted actual positioning relative to the market. Regarding equity, the Compensation and Leadership Development Committee focused on the annual burn rate and retention, without a particular emphasis on market positioning, and generally granted stock options.

Post-IPO

The Compensation and Leadership Development Committee began the gradual move towards a more focused pay-for-performance program prior to the Company’s IPO in 2018. By reference to a formal peer group of public companies, compensation elements were generally positioned at the 50^th percentile, although certain target compensation was established at higher percentiles for select positions and in recognition of significant performance. Equity awards shifted from solely stock options to a mix of stock options (approximately 30% of target equity awards) and RSUs (approximately 70% of target equity awards) for executives, while providing Mr. McFarlane and Mr. Ingram with an option to elect to receive up to 100% of such awards in the form of stock options.

2019 Compensation-Setting Process

Role of Compensation and Leadership Development Committee

The Compensation and Leadership Development Committee reviews and approves all forms of compensation to be provided to the executive officers of the Company. The Compensation and Leadership Development Committee also has overall responsibility for overseeing our compensation and benefits policies generally, and overseeing and evaluating the compensation plans, policies, and practices applicable to our Chief Executive Officer and other executive officers.

Role of Compensation Consultant

For 2019, the Compensation and Leadership Development Committee retained Compensia, a compensation consulting firm, to continue to serve as its compensation consultant and approved the terms of such engagement. Compensia has been engaged as a compensation consultant since 2013. Among other matters impacting our 2019 compensation program for named executive officers, Compensia assisted in establishing our 2019 peer group, evaluated our compensation philosophy, provided a total direct compensation analysis for executive officers and other senior management based on peer group benchmarking and other market data, made recommendations on inducements for new executives hired, and noted opportunities to make changes to target compensation and compensation programs based on our pay philosophy, business objectives, and shareholder alignment.

 

 

22

Role of Management

In discharging its responsibilities, the Compensation and Leadership Development Committee also works with members of our management, including our Chief Executive Officer. Our management assists the Compensation and Leadership Development Committee by providing information on corporate and individual performance, competitive market data, and management’s perspective and recommendations on compensation matters, including performance metrics and programs generally.

Typically, our Chief Executive Officer will make recommendations to the Compensation and Leadership Development Committee regarding compensation for our executive officers, except with respect to his own compensation. The Compensation and Leadership Development Committee utilizes our Chief Executive Officer in this capacity because he has the most involvement in, and knowledge of, the Company’s business goals, strategies, and performance, the overall effectiveness of the management team, and each person’s individual contribution to the Company’s performance. Other key leaders also provide valuable context for the Company’s human capital management efforts as well as an understanding of peer and general market practices regarding compensation. At the beginning of each year, our Chief Executive Officer reviews the performance of our other executive officers based on such individual’s level of success in accomplishing the business objectives established for him or her for the prior year and their overall performance during that year, as well as potential for advancement, retention needs, and other subjective factors. The Compensation and Leadership Development Committee reviews and discusses these factors and recommendations with our Chief Executive Officer and uses them as one factor in determining and approving the compensation for our executive officers. Our Chief Executive Officer also attends meetings of our Board and the Compensation and Leadership Development Committee at which executive compensation matters are addressed to the extent requested, except with respect to discussions involving his own compensation. Decisions with respect to our Chief Executive Officer’s compensation are made by our Compensation and Leadership Development Committee in executive session.

Use of Comparative Peer Group and Market Data

For purposes of assessing our executive compensation against the competitive market as well as compensation programs, plan design, and total equity utilization, the Compensation and Leadership Development Committee reviews and considers the compensation levels and practices of a select group of peer companies. The 2019 peer group consists of technology companies that are similar to us based on revenue, market capitalization, industry sector, and other relevant factors. The Compensation and Leadership Development Committee intends to review our compensation peer group each year and make adjustments to its composition if warranted. The companies in the 2019 peer group were determined using the following criteria.

 

●

Revenue: approximately 0.4x to 2.5x our last four fiscal quarter revenue as of October 2018 of approximately $238 million (approximately $95 million to $596 million)

 

●

Market Capitalization: approximately 0.33x to 3.0x our market capitalization as of October 2018 of approximately $2.7 billion (approximately $880 million to approximately $8.0 billion)

 

●

Industry Sector: cloud-based software companies (primary focus) and other software companies (secondary focus)

 

●

Other Factors: high revenue growth, high market capitalization to revenue multiple, business-to-business model, located in Pacific Northwest or Silicon Valley, and key financial comparator

 

 

23

In selecting the following 2019 peer group, the Compensation and Leadership Development Committee included companies that resulted in us being near the median of the group, in terms of both revenue and market capitalization.

 

AppFolio		Cornerstone OnDemand		Paylocity Holding		Twilio
Apptio		Coupa Software		PROS Holdings		Workiva
Benefitfocus		Ellie Mae		Q2 Holdings		Zendesk
BlackLine		HubSpot		Smartsheet		Zuora
Bottomline Technologies		Paycom Software		SPS Commerce

The compensation practices of the peer group were the primary guide used by the Compensation and Leadership Development Committee in 2019 to compare the competitiveness of each compensation element and overall compensation levels, as well as other elements of our executive compensation program.

To analyze the compensation practices of our peer group, Compensia provided total direct compensation analysis reports derived from publicly available proxy information and supplemental survey data. This market data was then used as a reference point for the Compensation and Leadership Development Committee to assess our current compensation levels in the course of its deliberations on compensation forms and amounts.

While the Compensation and Leadership Development Committee maintains significant flexibility to respond to evolving business conditions and to determine individual pay, in 2019 the Company generally targeted positioning of the executive compensation program at the 50^th to 75^th percentile for each of base salary, total cash compensation (base salary plus bonus), long-term equity, and total compensation (total cash plus long-term equity). For Mr. McFarlane, long-term equity was targeted at the 75^th percentile, with additional equity grants based on a review of unvested equity value versus the peer group.

Compensation Setting

We review the base salary levels, annual cash bonus opportunities, and long-term equity incentive compensation opportunities of our executive officers and all related performance criteria at the beginning of each year, or more frequently as warranted.

In making decisions about the compensation of our executive officers, the Compensation and Leadership Development Committee uses market data as a reference point and pay is not targeted at specific market percentiles. Rather, the Compensation and Leadership Development Committee relies on its collective experience and knowledge, its past practices, our overall performance, and other considerations it deemed relevant when setting our executives’ compensation. See the factors set forth above under “ —Executive Compensation Philosophy and Objectives.” No single factor is determinative in setting compensation levels, nor is the impact of any individual factor on the determination of pay levels quantifiable. We also consider potential risks in our business when designing and administering our executive compensation program.

 

 

24

Compensation Elements

Key Objectives and Features of Compensation Elements

In 2019, our executive compensation program included base salaries, cash bonuses, and equity compensation in the form of stock options and RSUs. The below table describes how each component is intended to satisfy the primary objectives of our executive compensation program:

 

Element		Type		Compensation Form		Objectives		Key Features
Base Salary		Fixed		Cash		●  Designed to attract and retain highly talented executives by providing fixed compensation amounts that are competitive in the market		●  Initially established pursuant to employment agreement   ●  Reviewed annually   ●  Historically, changes have been limited and based upon peer group benchmarking and discretionary factors
Annual Cash Bonus		Variable		Cash		●  Designed to promote the success of the Company by rewarding executives and eligible employees for outstanding results related to Company strategy, as well as promoting motivation and retention of high performing employees		●  Bonus target as a percentage of base salary, initially established pursuant to employment agreement   ●  70% Company performance metrics (four core financial metrics, weighted equally), and additional performance measures that can increase payout   ●  10% customer metric   ●  20% individual performance metric
Long-Term Equity Incentive  Compensation		Variable				●  Designed to align the long-term interests of our executives and our shareholders, supports retention, and provides motivational value
				RSUs		●  RSUs provide full value to address retention needs		●  Generally, 70% of target equity award, with four-year time-based vesting
				Stock Options		●  Stock options provide focus on upside and further value creation		●  Generally, 30% of target equity award, with four-year time-based vesting

 

 

25

Base Salary

Generally, we establish the initial base salaries of our executive officers through arm’s-length negotiation at the time of hire, taking into account their position, qualifications, experience, prior salary level, and the base salaries of our other executive officers. Thereafter, the Compensation and Leadership Development Committee reviews the base salaries of our executive officers each year as part of its annual compensation review.

In January 2019, the Compensation and Leadership Development Committee conducted its annual review and approved base salary increases for each of our executive officers effective January 1, 2019 (other than Mr. Mathradas, who was hired effective March 4, 2019), to bring their base salaries to levels that were comparable to those of similarly-situated executives at the companies in our 2019 peer group. Mr. McFarlane’s base salary was preliminarily approved in January 2019, subject to further market analysis. Following such analysis, in April 2019, the Compensation and Leadership Development Committee approved the noted increase, retroactive for all of 2019, for retention purposes and based on individual performance. Mr. Mathradas’ base salary was determined in connection with his hiring and the negotiation of his employment agreement.

 

Name		2018 Annual Base Salary ($)				2019 Annual Base Salary ($)				Increase (%)
Scott McFarlane			450,000				475,000				5.3%
William Ingram			330,000				330,000				-
Amit Mathradas			n/a				450,000				n/a
Alesia Pinney			282,768				302,768				7.1%
Pascal Van Dooren			301,232				342,812				13.8%

Annual Cash Bonus – Pay-for-Performance Aligned with Company Strategy

In January 2019, the Compensation and Leadership Development Committee, with input from management, adopted our 2019 annual leadership cash bonus plan (the “2019 Cash Bonus Plan”), which was designed to promote the success of the Company by rewarding executives and eligible employees for outstanding business results, as well as promoting retention of high performing employees. A significant portion of the 2019 Cash Bonus Plan was based on our actual achievement against pre-established target levels for corporate performance measures. The annual cash bonus payment is determined by multiplying the dollar amount of the target bonus by the percentage earned.

For purposes of the 2019 Cash Bonus Plan, target annual cash bonus opportunities were set as a percentage of each participant’s base salary. In January 2019, the Compensation and Leadership Development Committee reviewed the target annual cash bonus opportunities of our executive officers, taking into consideration the recommendations of our Chief Executive Officer (except with respect to his own target annual cash bonus opportunity) as well as other factors described under “ —Executive Compensation Philosophy and Objectives” above. Following this review, the Compensation and Leadership Development Committee decided to maintain the target annual cash bonus opportunities of our executive officers at their 2018 levels, except for Mr. Van Dooren, whose target annual cash bonus opportunity as a percentage of base salary decreased from 85% to 70%. However, the dollar amount of the bonus targets increased for executive officers to the extent base salaries were increased, as described above.

 

 

26

The 2019 target annual cash bonus opportunities for our named executive officers were:

 

Name		2019 Target Annual Cash Bonus Opportunity (% of base salary)				2019 Target Annual Cash Bonus Opportunity ($)
Scott McFarlane			100				475,000
William Ingram			60				198,000
Amit Mathradas			80				360,000	(1)
Alesia Pinney			45				136,246
Pascal Van Dooren			70				239,968

 

 

(1)

The target annual cash bonus opportunity for Mr. Mathradas is calculated pro rata based on his date of initial appointment.

Corporate Performance Measures

The Company used four financial performance metrics, weighted equally, to measure corporate performance under the 2019 Cash Bonus Plan, including new bookings (defined as an estimate of the 12-month value of new signed contracts), revenue, operating cash flow, and a metric reflecting the cost of acquiring new revenue (addressing sales and marketing efficiency). Collectively, these four components comprise 70% of the total target performance bonus. The Compensation and Leadership Development Committee believes that these metrics provide good incentives to achieve, and are strong indicators of our successful execution of, our annual operating plan.

Achievement of target level for a financial performance metric results in 100% funding for the portion of the cash bonus attributable to such financial performance metric. Threshold and maximum performance for a financial metric results in a bonus funding percentage on a sliding scale between 25% and 200%, respectively, for the portion of the cash bonus attributable to such financial performance metric. In January 2019, our Compensation and Leadership Development Committee set the payout levels for each of the 2019 financial performance metrics for purposes of the 2019 Cash Bonus Plan, as set forth below. With all threshold levels representing an improvement on 2018 actual performance, the Compensation and Leadership Development Committee considered the target performance levels challenging but achievable.

The payout levels percentages for each of the 2019 financial performance metrics were:

 

2019 Financial Performance Metrics ($ in 000s)
Metric		25% (threshold)				50%				75%				100% (target)				150%				200% (maximum)				Weight
New Bookings		$	86,000			$	88,000			$	91,000			$	94,000			$	101,000			$	109,000				1/4
Revenue		$	320,000			$	325,000			$	332,000			$	342,000			$	355,000			$	375,000				1/4
Operating Cash Flow		$	2,000			$	5,000			$	10,000			$	15,000			$	25,000			$	35,000				1/4
Cost of Acquiring Revenue			0.82				0.83				0.84				0.85				0.93				1.01				1/4
Financial Metrics																											70%

The financial performance metrics are subject to increase based on additional factors for employee engagement, gross margin, and revenue churn, referred to as “accelerators”. If any of these factors is achieved, there is a 10% increase (i.e., a maximum increase of 30%) in the aggregate funding percentage of the financial performance component.

 

 

27

In addition to the 2019 financial performance metrics above, the corporate performance metrics in the 2019 Cash Bonus Plan also considers a metric that reflects customers at risk (a leading indicator of customer satisfaction). This component comprises 10% of the total target performance bonus. Threshold and maximum performance for this metric results in a bonus funding percentage on a sliding scale between 25% and 200%. In January 2019, our Compensation and Leadership Development Committee set the payout levels for this metric for purposes of the 2019 Cash Bonus Plan. The target performance level for customers at risk was 16.41.

 

Metric		25% (threshold)				50%				75%				100% (target)				150%				200% (maximum)				Weight
Customers at Risk			18.34				17.85				17.37				16.41				14.40				12.55				10%

Individual Performance Factor

Under the 2019 Cash Bonus Plan, an evaluation of each executive officer’s individual performance comprises 20% of the total target performance bonus. Generally, this evaluation involved, in the case of our Chief Executive Officer, an evaluation of his performance by the Compensation and Leadership Development Committee and, in the case of our other executive officers, an evaluation by our Chief Executive Officer and discussion with the Compensation and Leadership Development Committee. These evaluations were based on a review of the various individual performance goals established for our executive officers during our annual performance evaluation process. Such performance goals reflect each individual executive officer’s position or function within the company and included metrics that could reflect corporate or departmental goals or specific operational goals within an executive officer’s area of responsibility. Attainment of executive officer’s goal can result in a maximum bonus funding percentage of 130% for the portion of the cash bonus attributable to the individual performance factor.

2019 Annual Cash Bonus Decisions

In January 2020, the Compensation and Leadership Development Committee, based on its evaluation, as well as the recommendation of our Chief Executive Officer for certain components, determined the cash bonus payments for our executive officers pursuant to the 2019 Cash Bonus Plan. The plan requires participants to be actively employed as of the bonus payment date, which was March 15, 2020.

The Compensation and Leadership Development Committee reviewed our actual performance against the financial performance metrics and customers at risk metric and determined that we had achieved 148% funding.

 

Metric		100% (target)				Actual Results				Earned (%)				Weight (%)				Total Weighted Attained (%)
New Bookings ($ in 000s)		$	94,000			$	110,000				200%
Revenue ($ in 000s)		$	342,000			$	382,421				200%
Operating Cash Flow ($ in 000s)		$	15,000			$	22,386				135%
Cost of Acquiring Revenue			0.85				1.02				200%
Financial Performance Metrics											184%				70%				129%
Impact of Accelerators											10%								12%
Customers at Risk			16.41				17.53				67%				10%				7%
Total Corporate Performance Metrics																			148%

Our Chief Executive Officer evaluated the achievement of each other executive officer against his or her individual performance objectives and formulated a recommendation for each such executive officer’s annual cash bonus

 

 

28

payment for consideration by the Compensation and Leadership Development Committee. These recommendations were based on our Chief Executive Officer’s subjective assessment of each individual’s contributions against the personal performance objectives during the year. In the case of our Chief Executive Officer, the Compensation and Leadership Development Committee evaluated the achievement of the Chief Executive Officer against his individual performance objectives and formulated a recommended annual cash bonus payment for him. The Compensation and Leadership Development Committee determined that Messrs. McFarlane and Ingram earned 125% and Mr. Mathradas and Ms. Pinney earned 115% of the 20% individual performance factor.

Based on these evaluations, together with the achievement of the performance-based metrics, the Compensation and Leadership Development Committee approved the following annual cash bonus payments for our named executive officers for 2019:

 

Name		Target Annual Cash Bonus Payment ($)				Actual Annual Cash Bonus Payment ($)				% of Target Annual Cash Bonus Paid
Scott McFarlane			475,000				822,225				173%
William Ingram			198,000				342,738				173%
Amit Mathradas(1)			298,846				511,326				171%
Alesia Pinney			136,246				233,116				171%
Pascal Van Dooren			239,968				n/a				n/a

 

 

(1)

The target annual cash bonus opportunity for Mr. Mathradas is calculated pro rata based on his date of initial appointment.

New Hire Bonus

In connection with his hiring and in addition to his participation in the 2019 Cash Bonus Plan, Mr. Mathradas received a sign-on bonus of $300,000, paid in equal installments in March and September 2019, which was subject to full or partial forfeiture in the event of specified terminations within one year. No amount was forfeited.

Long-Term Equity Incentive Compensation

Annual Equity Awards – Expedited Transition to a Public Company Equity Program

Beginning in 2019, the Board determined to implement an annual equity award program for executive officers and other key employees to address retention and incentive objectives. We believe that long-term equity incentive compensation aligns the interests of our executives and our shareholders, supports retention, and provides motivational value.

In January 2019, the Compensation and Leadership Development Committee approved stock option and RSU awards to our executive officers, all of which are to be settled in shares of our common stock. The number of shares of our common stock subject to the stock option and RSU awards granted to our executive officers was determined by the Compensation and Leadership Development Committee. Differentiation was made among our executive officers based on the Compensation and Leadership Development Committee’s review of the competitive market data for their respective positions, the size of the equity awards previously granted to them in anticipation of our IPO, and the Compensation and Leadership Development Committee’s desire to quickly transition to a normalized annual grant program.

The aggregate grant values of the January 2019 awards were allocated 30% to stock options and 70% to RSUs, although Mr. McFarlane and Mr. Ingram elected, based upon the opportunity presented by the Compensation and Leadership Development Committee, to receive 100% of such equity award in the form of stock options. In April 2019, the Compensation and Leadership Development Committee approved a supplemental RSU grant to Mr. McFarlane based on the market analysis described in “Compensation Discussion and Analysis – Base Salary.”

 

 

29

The stock option and RSU awards granted to our named executive officers in January 2019 (and April 2019 with respect to Mr. McFarlane’s RSU award) were as follows (reflecting the election of Mr. McFarlane and Mr. Ingram to receive the January 2019 awards solely in the form of stock options):

 

Name		Stock Option Award (#)				Aggregate Grant Value ($)(1)				Restricted Stock Unit Award (#)				Aggregate Grant Value ($)(1)
Scott McFarlane			391,703				5,288,000				51,778				2,330,000
William Ingram			185,185				2,500,000				—				—
Amit Mathradas			n/a				n/a				n/a				n/a
Alesia Pinney			22,222				300,000				22,928				700,000
Pascal Van Dooren			26,666				360,000				27,513				840,000

 

 

(1)

The Compensation and Leadership Development Committee approved a grant value for each award, and then converted the grant value to equity for each award using an approximation of grant date fair value. Therefore, the aggregate grant values in this table are different than the grant date fair value for such awards set forth in the “Summary Compensation Table for Fiscal 2019.”

New Hire Equity Awards

In connection with his hiring, Mr. Mathradas received new hire equity awards of 75,313 stock options (based on an aggregate grant value of $1,800,000) and 77,590 RSUs (based on an aggregate grant value of $4,200,000). He did not participate in the annual equity award program in 2019.

Vesting

The time-based RSU awards granted to our named executive officers vest over a four-year period as follows: 20% of the shares vest on the one-year, two-year, and three-year anniversaries of the vesting commencement date (January 5, for 2019 grants, except January 1 for 2019 grants to Mr. McFarlane and April 5 for 2019 grants to Mr. Mathradas), and the remaining 40% of the shares vest on the four-year anniversary, subject to continuous service with us through each vesting date. The time-based stock option awards granted to our named executive officers vest over a four-year period as follows: 25% of the shares vest on the one-year anniversary of the vesting commencement date (January 1, for 2019 grants, except March 4 for 2019 grants to Mr. Mathradas), and, thereafter, 1/48th of the shares vest each month, subject to continuous service with us through each vesting date.

Welfare and Health Benefits

The Company offers a salary deferral 401(k) plan for its U.S. employees, including its executive officers. The plan allows employees to contribute a percentage of their pretax earnings annually, subject to limitations imposed by the Internal Revenue Service. The plan also allows the Company to make a matching contribution, subject to certain limitations. Additional benefits available to our executive officers include medical, dental, and vision insurance, an employee assistance program, health and dependent care flexible spending accounts, a commuter benefit program, health savings accounts, basic and voluntary life and accidental death and dismemberment insurance, and disability insurance. All of these benefits are provided to our executive officers on the same basis as to all of our employees. Mr. McFarlane also is eligible to receive additional insurance benefits as described under “Potential Payments Upon Termination or Change in Control—Executive Employment Agreements.”

Perquisites and Other Personal Benefits

Currently, we do not view perquisites or other personal benefits as a significant component of our executive compensation program. Perquisites are offered in situations where we believe it is appropriate to assist an individual

 

 

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in the performance of their duties, to make him or her more efficient and effective, and for recruitment and retention purposes. During 2019, none of our named executive officers received perquisites or other personal benefits that were, in the aggregate, $10,000 or more for each individual (excluding 401(k) matching), except Mr. McFarlane and Mr. Mathradas. Mr. McFarlane received employee-recognition trip expenses, HSA employer contributions, life insurance premiums paid by the Company, commuting expenses, rent for a Seattle apartment, and tax gross-ups on perquisites and benefits. Mr. Mathradas received moving expenses (including household goods, temporary housing, lease termination, and related matters) in connection with his hiring, as well as employee-recognition trip expenses and tax gross-ups on perquisites and benefits.

In the future, we may provide perquisites or other personal benefits in limited circumstances, such as those described in the preceding paragraph, subject to periodic review by the Compensation and Leadership Development Committee.

Reasonable Severance and Change in Control Benefits

Employment Agreements with Each Named Executive Officer

We have written employment agreements with each of our named executive officers, which agreements were approved by the Compensation and Leadership Development Committee or our Board. Our employment agreements are designed to induce new hires and retain talent due to significant competition for talent among software companies and establish target annual compensation and new hire compensation, provide for severance and change in control benefits, and contain confidentiality and general release benefits to the Company. We believe the severance and change of control benefits in our employment agreements are reasonable and necessary to ensure that executive officers have the security to make decisions that are in the best long-term interest of the shareholders and to provide continuity of management in the event of an actual or threatened change of control.

Each of our named executive officers also has executed our standard form of proprietary information and inventions agreement. The employment agreements provide that employment with us is “at will.” See “Potential Payments Upon Termination or Change in Control—Executive Employment Agreements” for a description of the material terms of the employment agreements, including specified payments in connection with certain termination events.

We do not provide any tax gross-ups to cover personal income taxes that may apply to any severance or change in control benefits. If any payments or benefits payable under the employment agreements will be subject to an excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”), we will pay to the named executive officer either (1) the full amount of such payments or benefits or (2) the full amount, reduced by the minimum amount necessary to prevent any portion from being an excess parachute payment within the meaning of Code Section 280G, whichever results, on an after-tax basis, in the greater amount payable to the named executive officer.

Employment Agreement – Mr. Mathradas

In 2019, Mr. Mathradas entered into a customary employment agreement for our executive officers in connection with his hiring.

Equity Incentive Plans

Under the 2018 Equity Plan, there are “single-trigger” protections for participants in the event of a change in control if equity awards are not continued, assumed, or substituted (or otherwise not exercised or settled prior to such event). This benefit provides participants assurance that the equity awards of the Company will provide the intended purposes, including ensuring that participants have the security to make decisions that are in the best long-term interest of the shareholders and to provide continuity of management in the event of an actual or threatened change of control. See “Potential Payments Upon Termination or Change in Control” for a description of the material terms of the 2018 Equity Plan and 2006 Equity Incentive Plan (the “2006 Equity Plan”), including specified vesting or acceleration of equity awards in connection with certain termination events.

 

 

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Equity Award Acceleration Policy

In July 2019, the Compensation and Leadership Development Committee approved the Equity Award Acceleration Policy, which provides our chief executive officer, other executive officers whom we have employed for at least five years, and specified other employees with full accelerated vesting of time-based equity awards in the event of termination due to death or disability.

Other Compensation Policies Supporting Shareholder Alignment

Robust Stock Ownership Guidelines

All of our executive officers hold either shares of common stock and/or stock-based equity awards, which further aligns their interests with those of our shareholders. Effective July 25, 2019, our Board adopted stock ownership guidelines for our executive officers and non-employee members of the Board, which set the following minimum stock ownership requirements:

 

Chief Executive Officer		Executive Officers		Non-Employee Directors
5X annual base salary		4X annual base salary		5X annual cash retainer

Executive officer ownership levels will be determined annually as of December 31 using the base salary as of such date, divided by the average closing price of the common stock for such calendar year. Executive officers, including the Chief Executive Officer, have five years from the date of initial appointment to their position to attain the required ownership level (or, for the Chief Executive Officer and other executive officers serving on the effective date of the stock ownership policy, the later of (i) one year from December 31, 2019, and (ii) five years from the date of initial appointment to their position).

Executive officers must show progress of at least 20% per year until the target is met and must retain at least 50% of the shares of common stock acquired, on an after-tax basis, pursuant to the exercise of stock options or the vesting of other equity awards of the Company. Once the minimum stock ownership level is satisfied or after the initial compliance period, the executive officer must continuously maintain sufficient equity ownership throughout the year to satisfy the guidelines and will not be permitted to sell or otherwise dispose of shares of common stock (other than for tax withholding purposes) unless the guidelines will be satisfied after such transaction. An executive officer will be deemed to have satisfied such ownership requirement if no sales are made during the calendar year and such person was in compliance as of December 31 in the prior year.

Hedging and Pledging Prohibitions

As part of our Insider Trading Policy, our employees (including our executive officers) and the non-employee members of our Board are prohibited from trading in publicly traded options, such as puts and calls, and other derivative securities with respect to our securities. This includes any hedging or similar transaction designed to decrease the risks associated with holding shares of our common stock. In addition, our employees (including our executive officers) and the non-employee members of our Board are prohibited from holding our common stock in a margin account or pledging our securities; provided, however, this prohibition is subject to a limited exception that may allow the pledging of securities for a loan that is not margin debt if the person can clearly demonstrate the financial capacity to repay the loan without resorting to the pledged securities. Our named executive officers and directors had no outstanding pledges as of December 31, 2019.

Timing and Pricing of Equity-Based Grants

The Compensation and Leadership Development Committee and the Board do not coordinate the timing of equity-based grants to executive officers with the release of material non-public information. The Compensation and

 

 

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Leadership Development Committee may not take actions that would be treated as a repricing under U.S. generally accepted accounting principles without satisfying the applicable shareholder approval requirements of New York Stock Exchange. In particular, the 2018 Equity Plan prohibits direct repricings (lowering the exercise price of a stock option or the base price of a stock appreciation right (“SAR”)) and indirect repricings (cancelling an outstanding stock option or SAR and granting a replacement or substitute stock option or SAR with a lower exercise or base price, or otherwise exchanging such awards for cash, stock options, SARs, or other award).

Tax and Accounting Implications

Deductibility of Executive Compensation

Section 162(m) of the Code generally prohibits public companies from taking a tax deduction for compensation for any year in respect of any individual who is a “covered employee” for such year to the extent such compensation exceeds $1,000,000 (reduced, but not below zero, by the amount of any excess parachute payment in respect of such covered employee for such year). For this purpose, a “covered employee” of a public company for any year means (i) an individual who at any time during the year is the principal executive officer or the principal financial officer of the public company, (ii) an individual whose total compensation for the year is required to be reported to shareholders under the Exchange Act by reason of such individual being among the three highest compensated officers of the public company for the year (other than the principal executive officer or the principal financial officer), and (iii) any individual who was a covered employee under either of the foregoing clauses (i) or (ii) during any prior year beginning after 2016.

However, for a company that became public in connection with an IPO effectuated prior to December 20, 2019, compensation payable under an agreement or plan that existed prior to such IPO may not be subject to the Code Section 162(m) annual deduction limitation applicable to covered employees during a limited transition or reliance period following the IPO which, for the Company, could expire as late as our first shareholder meeting at which directors are elected that occurs in 2022 (the “IPO Grandfather Rule”). Under the IPO Grandfather Rule, compensation attributable to certain grants made to covered employees of the Company under the 2018 Equity Plan, if the grants are made, settled, or paid during the limited period following the Company’s IPO, and compensation, or a portion of the compensation, under an employment agreement with a covered employee of the Company entered into before the Company’s IPO, if paid during the limited period following the Company’s IPO, may not be subject to the Code Section 162(m) annual deduction limitation.

Our Compensation and Leadership Development Committee may consider the potential impact of Section 162(m) of the Code in approving the compensation of our executive officers; however, our Compensation and Leadership Development Committee may approve compensation that may not be deductible for federal income tax purposes if it believes that such compensation is in our best interests or the best interests of our shareholders. While the transition rule for newly public companies may help minimize the effect of the Section 162(m) deduction limitation, going forward a portion of our executive officer compensation may not be fully deductible for federal income tax purposes.

Nonqualified Deferred Compensation

Section 409A of the Code generally imposes an additional 20% income tax, as well as interest and penalties, on recipients of deferred compensation that does not comply with Section 409A of the Code. “Deferred compensation” for this purpose generally consists of compensation to which an individual has a legally binding right in a taxable year and which is to be paid or may be paid in a later taxable year. In addition to the taxes, interest, and penalties, deferred compensation that does not comply with Section 409A of the Code may be required to be taken into income earlier than is intended. The Company believes that its compensation arrangements comply with, or are exempt from, the requirements of Section 409A.

Change in Control Payments

If a company makes “parachute payments,” Section 280G of the Code prohibits the company from deducting the portion of the parachute payments constituting “excess parachute payments” and Section 4999 of the Code imposes

 

 

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a 20% excise tax on the person who receives the excess parachute payments. For this purpose, parachute payments generally are defined as payments to employees or other types of service providers who are officers, highly compensated, or greater than 1% shareholders (“disqualified individuals”) that are contingent upon a change in control in an amount equal to or greater than three times the disqualified individual’s base amount (i.e., in general, the average Form W-2 compensation for the five calendar years preceding the year in which the change in control occurs). The excess parachute payments, which are nondeductible and subject to a 20% excise tax, equal the portion of the parachute payments that exceeds the disqualified individual’s base amount.

Each of the named executive officers has an employment agreement with the Company that entitles him or her to payments upon the termination of his or her employment, including in connection with a change of control, which may constitute excess parachute payments. Other payments or benefits owing under such employment agreement that are not associated with a termination of employment may also constitute excess parachute payments. If any payments or benefits to which he or she would be entitled to receive pursuant to the terms of the applicable agreement or otherwise in connection with a change in control of the Company would result in all or a portion of such payments or benefits being deemed “parachute payments” under Section 280G of the Code and the excise tax imposed by Section 4999 of the Code, such payments and benefits will be reduced to the minimum extent necessary so that they would not result in the imposition of an excise tax under Section 4999 of the Code, provided that no reduction will be made if the named executive officer would receive a greater net after-tax amount absent such reduction.

Other

Except for tax gross-ups on certain perquisites and benefits, the Company does not pay tax gross-ups or other reimbursement payments with respect to the excise tax imposed on any person as a result of the application of Sections  4999 or 409A of the Code.

Compensation Risk Assessment

Our management regularly assesses and discusses with the Compensation and Leadership Development Committee our compensation programs, policies, and practices for our employees as they relate to our risk management. In this regard, the Compensation and Leadership Development undertakes a risk review of our employee compensation programs, policies, and practices to determine whether these programs, policies, and practices contain features that might create undue risks or encourage unnecessary and excessive risk-taking that could threaten our value. Based upon this review, the Compensation and Leadership Development believes that any risks arising from such programs, policies, and practices are not reasonably likely to have a material adverse effect on us.

Non-GAAP Financial Information

We define free cash flow as net cash provided by (used in) operating activities less cash used for the purchases of property and equipment. Management uses free cash flow to understand and compare operating results across accounting periods, for internal budgeting and forecasting purposes, and to evaluate financial performance and liquidity.

For the fiscal year ended December 31, 2019:

 

Free Cash Flow:		2019 (in 000s) ($)				2018 (in 000s) ($)
Net cash provided by (used in) operating activities			22,386				(3,062	)
Purchases of property and equipment			(10,180	)			(15,483	)
Free Cash Flow			12,206				(18,545	)

 

 

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Report of the Compensation and Leadership Development Committee

The Compensation and Leadership Development Committee has reviewed and discussed with management the Compensation Discussion and Analysis provided above. Based on its review and discussions, the Compensation and Leadership Development Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement and Avalara’s Annual Report on Form 10-K for our fiscal year ended December 31, 2019.

Members of the Compensation

and Leadership Development

Committee:

Edward Gilhuly

Justin Sadrian

Rajeev Singh

Chelsea Stoner

Kathleen Zwickert (Chair)

 

 

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Named Executive Officer Compensation Tables

Summary Compensation Table for Fiscal 2019

The following table provides information regarding the compensation of our named executive officers and their titles during the fiscal years ended December 31, 2019, 2018, and 2017:

 

Name and Principal Position		Fiscal Year				Salary(1) ($)				Bonus(2) ($)				Stock Awards(3) ($)				Option Awards(4) ($)				Non-Equity Incentive Compensation(5) ($)				All Other Compensation(6) ($)				Total ($)
Scott McFarlane			2019				475,000				—				2,848,826				6,755,858				822,225				82,095				10,984,004
Chairman			2018				450,000				—				—				1,107,000				656,550				62,494				2,276,044
and Chief			2017				410,000				—				—				1,612,059				320,948				6,675				2,349,682
Executive Officer
William Ingram			2019				330,000				—				—				3,193,960				342,738				5,600				3,872,298
Former			2018				330,000				—				—				311,716				282,942				2,700				927,358
Chief			2017				330,000				—				—				555,552				163,904				2,700				1,052,156
Financial Officer(7)
Amit Mathradas			2019				373,558				300,000				4,275,209				1,787,456				511,326				67,419				7,314,967
President and Chief Operating Officer(8)
Alesia Pinney			2019				302,768				—				911,617				383,272				233,116				10,551				1,841,324
Executive Vice President, General Counsel, and Secretary			2018				282,768				—				—				330,011				181,834				2,700				797,313
Pascal Van Dooren			2019				275,348				—				1,093,917				459,919				—				14,016				1,843,200
Former
Chief Revenue Officer(9)

 

 

(1)

Amounts in this column represent base salary earned during the fiscal year.

 

(2)

The amount in this column represents a sign-on bonus to Mr. Mathradas, paid in equal installments in March and September 2019. It was subject to full or partial forfeiture in the event of specified terminations within one year, but no amount was forfeited.

 

(3)

Amounts in this column represent the aggregate grant date fair value of RSUs granted to the named executive officers during the fiscal year, as computed in accordance with ASC Topic 718, without regard to estimated forfeitures related to service-based vesting conditions. For more information regarding these awards and the calculation of fair value, refer to the Company’s disclosure in its Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

 

(4)

Amounts in this column represent the aggregate grant date fair value of stock options granted to the named executive officers during the fiscal year, as computed in accordance with ASC Topic 718, without regard to estimated forfeitures related to service-based vesting conditions. For more information regarding these awards and the calculation of fair value, refer to the Company’s disclosure in its Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

 

(5)

Amounts in this column represent incentive compensation earned under the 2019 Cash Bonus Plan.

 

(6)

Amounts in this column for 2019 consist of: 401(k) plan matching contributions of $5,600 for each of Messrs. McFarlane, Ingram, and Van Dooren, $5,597 for Mr. Mathradas and $5,593 for Ms. Pinney; employee-recognition trip expenses of $9,345 for Mr. McFarlane, $7,919 for Mr. Mathradas, and $6,366 for Mr. Van Dooren; and tax gross-ups amounts for perquisites of $18,706 for Mr. McFarlane, $14,993 for Mr. Mathradas, $1,280 for Ms. Pinney and $2,049 for Mr. Van Dooren. For Mr. McFarlane, 2019 amounts also include the following: HSA employer contributions of $417; certain life insurance premiums paid by the Company of $3,975; commuting

 

 

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expenses paid by the Company of $7,768; and rent for Seattle apartment paid by the Company of $36,284. For Mr. Mathradas, 2019 amounts also include $38,909 for relocation costs paid by the Company. For Ms. Pinney, 2019 amounts also include $3,678 for parking costs at our headquarters.

 

(7)

Mr. Ingram was appointed to the Board on January 29, 2020. He retired as Chief Financial Officer and Treasurer of the Company effective March 31, 2020.

 

(8)

Mr. Mathradas was appointed as our President and Chief Operating Officer effective March 4, 2019.

 

(9)

As of February 25, 2019, Mr. Van Dooren was appointed as the Company’s Executive Vice President of International and the Board determined that he was no longer an executive officer of the Company as of such date. Mr. Van Dooren resigned from the Company on October 18, 2019.

 

 

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Grants of Plan Based Awards Table for 2019

The following table provides information on equity and non-equity awards granted to our named executive officers in fiscal 2019:

 

Name		Grant Date				Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(1)												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 ($/share)				Grant Date Fair Value of Stock and Option Awards ($)(5)
						Threshold ($)(2)				Target ($)(3)				Maximum ($)(4)
Scott			—				47,500				475,000				1,083,000				—				—				—				—
McFarlane			1/28/2019	(6)			—				—				—				—				391,703				39.76				6,755,858
			4/4/2019	(7)			—				—				—				51,778				—				—				2,848,826
William			—				19,800				198,000				451,440				—				—				—				—
Ingram			1/28/2019	(6)			—				—				—				—				185,185				39.76				3,193,960
Amit			—				29,885				298,846				681,369				—				—				—				—
Mathradas			4/22/2019	(6)			—				—				—				—				75,313				55.10				1,787,456
			4/22/2019	(7)			—				—				—				77,590				—				—				4,275,209
Alesia			—				13,625				136,246				310,640				—				—				—				—
Pinney			1/28/2019	(6)			—				—				—				—				22,222				39.76				383,272
			1/28/2019	(7)			—				—				—				22,928				—				—				911,617
Pascal Van			—				23,997				239,968				547,128				—				—				—				—
Dooren			1/28/2019	(6)			—				—				—				—				26,666				39.76				459,919
			1/28/2019	(7)			—				—				—				27,513				—				—				1,093,917

 

 

(1)

Represents bonuses under the 2019 Cash Bonus Plan. Actual bonuses earned for 2019 are disclosed in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table for 2019.

 

(2)

Threshold funding for non-equity incentive plan assumes none of the company performance factors are met and achievement of 50% toward the individual performance factor. This results in a threshold funding at 10% of target.

 

(3)

Target funding for non-equity incentive plan assumes achievement of each company performance factor at 100% of target and achievement of 100% toward the individual performance factor. It assumes none of the potential accelerators are met.

 

(4)

Maximum funding for non-equity incentive plan assumes achievement of each company performance factor at 200% of target, achievement of all three potential accelerators and achievement of 130% toward the individual performance factor. This results in a maximum funding at 228% of target.

 

(5)

See Notes 2 and 3 to the Summary Compensation Table for information regarding grant date fair value of each award. Each RSU awarded on January 28, April 4, and April 22 had a grant date fair value of $39.76, $55.02, and $55.10, respectively. Each stock option award on January 28 and April 22 had a grant date fair value of $17.25 and $23.73, respectively.

 

(6)

Grant is comprised of time-vested stock options.

 

(7)

Grant is comprised of time-vested RSUs.

 

 

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