DEF 14A 1 d511293ddef14a.htm DEF 14A DEF 14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934 (Amendment No.    )

Filed by the Registrant    

Filed by a Party other than the Registrant    

Check the appropriate box:

 

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

PayPal Holdings, 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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   Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
  

 

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Table of Contents

 

 

LOGO

MESSAGE FROM OUR CHAIRMAN OF THE

BOARD AND LEAD INDEPENDENT DIRECTOR

April 12, 2018

Dear PayPal Stockholder:

We are pleased to invite you to attend the annual meeting of stockholders of PayPal Holdings, Inc. on Wednesday, May 23, 2018 at 8:00 a.m. Pacific Time. Our annual meeting will be conducted exclusively online via live webcast. We have conducted an exclusively virtual annual meeting of stockholders every year since we became a public company in 2015. We believe that hosting virtual meetings enables greater stockholder attendance and participation from any location around the world.

You will be able to attend the virtual annual meeting of stockholders online and submit your questions during the meeting by visiting pypl.onlineshareholdermeeting.com. You also will be able to vote your shares electronically at the virtual annual meeting. Details regarding how to attend the meeting online, how to submit your questions before and during the meeting, and the business to be conducted at the annual meeting are more fully described in the accompanying proxy statement.

We will be providing access to our proxy materials over the Internet under the U.S. Securities and Exchange Commission’s “notice and access” rules. As a result, beginning on or about April 12, 2018, we are mailing to many of our stockholders a notice instead of a paper copy of this proxy statement and our 2017 Annual Report. This approach conserves natural resources and reduces our printing and distribution costs, while providing a timely and convenient method of accessing the materials and voting. The notice contains instructions on how to access those documents over the Internet. The notice also contains instructions on how to receive a paper copy of our proxy materials, including this proxy statement, our 2017 Annual Report, and a form of proxy card or voting instruction card. All stockholders who do not receive a notice, including stockholders who have previously requested to receive paper copies of proxy materials, will receive a paper copy of the proxy materials by mail.

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

Sincerely yours,

 

LOGO

John J. Donahoe

Chairman of the Board

  

LOGO

David M. Moffett

Lead Independent Director

 


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  Table of Contents    

 

Table of Contents

 

 

  NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS

     1  

  PROXY STATEMENT SUMMARY

     2  

  2018 Annual Meeting Information

     2  

  Proposals to be Voted on and Board Voting Recommendations

     2  

  2018 Director Nominees

     3  

  Corporate Governance

     4  

  Executive Compensation

     4  

  PROPOSAL 1 — ELECTION OF DIRECTORS

     7  

  Director Compensation

     15  

  CORPORATE GOVERNANCE

     18  

  The Board’s Role and Responsibilities

     18  

  Director Independence

     19  

  Board Leadership and Lead Independent Director

     20  

  Board Committees

     20  

  Board and Committee Meetings and Attendance

     22  

  Related Person Transactions

     22  

  Communication with the Board

     23  

  OUR EXECUTIVE OFFICERS

     24  

  STOCK OWNERSHIP INFORMATION

     26  

  Security Ownership of Certain Beneficial Owners and Management

     26  

  Section 16(a) Beneficial Ownership Reporting Compliance

     27  

   PROPOSAL 2 — ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION

     28  

  COMPENSATION DISCUSSION AND ANALYSIS

     29  

  Introduction

     30  

  Executive Summary — Overview of Executive Compensation Program

     31  

  Compensation Framework

     36  

  Other Compensation Practices and Policies

     46  

  COMPENSATION TABLES

     50  

  2017 Summary Compensation Table

     50  

  2017 Grants of Plan-Based Awards

     51  

  2017 Outstanding Equity Awards at Fiscal Year-End

     52  

  2017 Option Exercises and Stock Vested

     54  

   2017 Non-Qualified Deferred Compensation

     54  

  Potential Payments Upon Termination or Change in Control

     55  

  CEO PAY RATIO DISCLOSURE

     58  

  EQUITY COMPENSATION PLAN INFORMATION

     59  

   PROPOSAL 3 — APPROVAL OF THE AMENDED AND RESTATED 2015 EQUITY AWARD INCENTIVE PLAN

     60  

   Increasing the Number of Shares Reserved for Issuance under the 2015 Plan

     60  

  Summary of the 2015 Plan

     61  

  Summary of U.S. Federal Income Tax Consequences

     65  

  Number of Awards Granted to Employees, Directors, and Consultants

     66  

   PROPOSAL 4 — APPROVAL OF THE AMENDED AND RESTATED EMPLOYEE STOCK PURCHASE PLAN

     68  

  Background and Overview of the ESPP

     68  

  Reasons for Voting for the Proposal

     68  

  Material Changes to the ESPP

     68  

 

www.paypal.com


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  Summary of the ESPP

     68  

  Number of Shares Purchased by Certain Individuals and Groups

     71  

  Summary of U.S. Federal Income Tax Consequences

     72  

   PROPOSAL 5 — RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITOR

     73  

   PROPOSAL 6 — STOCKHOLDER PROPOSAL REGARDING STOCKHOLDER PROXY ACCESS ENHANCEMENT

     76  

   PROPOSAL 7 — STOCKHOLDER PROPOSAL REGARDING POLITICAL TRANSPARENCY

     78  

  PROPOSAL 8 —  STOCKHOLDER PROPOSAL REGARDING HUMAN AND INDIGENOUS PEOPLES’ RIGHTS

     80  

  OTHER INFORMATION

     83  

  Questions and Answers

     83  

  Other Matters

     88  

   APPENDIX A — PAYPAL HOLDINGS, INC. AMENDED AND RESTATED 2015 EQUITY INCENTIVE AWARD PLAN

     A-1  

   APPENDIX B — PAYPAL HOLDINGS, INC. AMENDED AND RESTATED EMPLOYEE STOCK PURCHASE PLAN

     B-1  

 

LOGO       2018 Proxy Statement


Table of Contents
         
  Notice of 2018 Annual Meeting of Stockholders     1

 

Notice of 2018 Annual Meeting of Stockholders

 

 

Date:    Wednesday, May 23, 2018
Time:    8:00 a.m. Pacific Time
Place:    Online at pypl.onlineshareholdermeeting.com. There is no physical location for the 2018 annual meeting.
Items of Business:   

(1)   Election of 11 director nominees identified in this proxy statement.

  

(2)  Advisory vote to approve named executive officer compensation.

  

(3)  Approval of the PayPal Holdings, Inc. Amended and Restated 2015 Equity Incentive Award Plan.

  

(4)  Approval of the PayPal Holdings, Inc. Amended and Restated Employee Stock Purchase Plan.

  

(5)  Ratification of the appointment of PricewaterhouseCoopers LLP as our independent auditor for 2018.

  

(6)  Consideration of three stockholder proposals, if properly presented at the annual meeting.

  

(7)  Transaction of such other business as may properly come before the meeting or any adjournment or postponement of the annual meeting.

Record Date:    The Board of Directors set April 3, 2018 as the record date for the annual meeting. That means our stockholders of record at the close of business on that date are entitled to receive notice of the annual meeting and to vote at the annual meeting and at any adjournment or postponements of the annual meeting.
Participation in Virtual Meeting:    We are pleased to invite you to participate in our annual meeting, which will be conducted exclusively online via webcast. The accompanying proxy materials include instructions on how to participate in the annual meeting and how to vote your shares of common stock by attending the virtual annual meeting by webcast. To submit your questions during the annual meeting, please log on to pypl.onlineshareholdermeeting.com. You will need to enter the 16-digit control number included on your notice of Internet availability of proxy materials, on your proxy card or on the instructions that accompanied your proxy materials to enter the annual meeting. The annual meeting will begin promptly at 8:00 a.m. Pacific Time.
Pre-Meeting:    The online format for the annual meeting also allows us to communicate more effectively with you via www.proxyvote.com. You can submit questions in advance of the annual meeting and access copies of our proxy statement and annual report at www.proxyvote.com.
Voting:    Your vote is very important to us. Regardless of whether you plan to participate in the annual meeting, we hope you will vote as soon as possible. You may vote your shares over the Internet or via a toll-free telephone number. If you received a paper copy of a proxy or voting instruction card by mail, you may submit your proxy or voting instruction card for the annual meeting by completing, signing, dating and returning your proxy or voting instruction card. Stockholders of record and beneficial owners will be able to vote their shares electronically at the annual meeting. For specific instructions on how to vote your shares, please refer to the section “Other Information — Voting Information” beginning on page 83 of this proxy statement.

 

By Order of the Board of Directors

 

 

LOGO

Brian Y. Yamasaki
Vice President, Corporate Legal and Secretary

This notice of annual meeting and proxy statement and form of proxy are being distributed and made available on or about April 12, 2018.

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to Be Held on May 23, 2018. This proxy statement and PayPal Holdings, Inc.’s 2017 Annual Report are available electronically at https://investor.paypal-corp.com/annuals-proxies.cfm and with your 16-digit control number by visiting www.proxyvote.com.

 

www.paypal.com


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2      Proxy Statement Summary   

 

Proxy Statement Summary

 

This summary highlights certain information contained elsewhere in this proxy statement for the 2018 Annual Meeting of Stockholders (the “Annual Meeting”). This summary does not contain all of the information that you should consider, and you should read the entire proxy statement carefully before voting. References to “PayPal,” the “Company,” “we,” “us,” or “our” refer to PayPal Holdings, Inc.

2018 Annual Meeting Information

 

 

Time and Date:

 

  

8:00 a.m. Pacific Time on Wednesday, May 23, 2018

 

 

Place:

 

  

Online at pypl.onlineshareholdermeeting.com. There is no physical location for the Annual Meeting.

 

 

Record Date:

 

  

April 3, 2018

 

Proposals to be Voted on and Board Voting Recommendations

 

     Proposal   

Recommendation

of the Board

   Page

1.

   Election of 11 director nominees identified in this proxy statement    FOR

each of the nominees

   7

2.

   Advisory vote to approve named executive officer compensation    FOR    28

3.

   Approval of the PayPal Holdings, Inc. Amended and Restated 2015 Equity Incentive Award Plan    FOR    60

4.

   Approval of the PayPal Holdings, Inc. Amended and Restated Employee Stock Purchase Plan    FOR    68

5.

   Ratification of the appointment of PricewaterhouseCoopers LLP as our independent auditor for 2018    FOR    73

6.

   Stockholder Proposal Regarding Stockholder Proxy Access Enhancement    AGAINST    76

7.

   Stockholder Proposal Regarding Political Transparency    AGAINST    78

8.

   Stockholder Proposal Regarding Human and Indigenous Peoples’ Rights    AGAINST    80

 

LOGO       2018 Proxy Statement


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  Proxy Statement Summary     3

 

2018 Director Nominees

 

  Name & Primary Occupation    Independent     

Director

since

    

Committee

Memberships*

    

# of
Other Public

Company

Boards

 

  Rodney C. Adkins

     LOGO        2017        ARC        4  

  President, 3RAM Group LLC

           

  Wences Casares

     LOGO        2016        Compensation         

  CEO and Founder, Xapo Inc.

           

  Jonathan Christodoro

     LOGO        2015        Compensation        2  

  Former Managing Director, Icahn Capital LP

           

  John J. Donahoe

            2015               2  

  President and CEO, ServiceNow, Inc.

           

  David W. Dorman

     LOGO        2015        Compensation (Chair)        1  

  Chairman and CEO, AT&T Corporation (retired)

           Governance     

  Belinda J. Johnson

     LOGO        2017        ARC         

  Chief Operating Officer, Airbnb, Inc.

           

  Gail J. McGovern

     LOGO        2015        Compensation        1  

  President and CEO, American Red Cross

           Governance (Chair)     

  David M. Moffett

     LOGO        2015        ARC (Chair)        2  

  CEO, Federal Home Loan Mortgage Corp. (retired)

           

  Ann M. Sarnoff

     LOGO        2017        ARC         

  President, BBC Worldwide Americas

           

  Daniel H. Schulman

            2015               2  

  President and CEO, PayPal Holdings, Inc.

           

  Frank D. Yeary

     LOGO        2015        ARC        1  

  Chairman, CamberView Partners, LLC

                             

* ARC = Audit, Risk and Compliance Committee; Compensation = Compensation Committee; Governance = Corporate Governance and Nominating Committee

Ensuring the Board of Directors of PayPal (the “Board” or the “PayPal Board”) is composed of directors who possess a wide variety of relevant skills, professional experience and backgrounds, bring diverse viewpoints and perspectives, and effectively represent the long-term interests of stockholders, is a top priority of the Board and the Corporate Governance and Nominating Committee. The following provides a snapshot of the diversity, skills, and experience of our director nominees:

 

LOGO

 

 

 

 

 

 

 

  

 

LOGO

 

Diversity Nearly half of the Board are women or from underrepresented ethnic groups 6 5 Diverse Other Skills and Experience 7 Payments, Financial Services and/or FinTech 8 Technology and Innovation 11 Business Development and Strategy 11 Senior Leadership 9 Legal, Regulatory and/or Governmental 11 Nominees Global Business 9 Other Public Company Board Service 9 Finance and/or Accounting 8 Consumer, Marketing and/or Brand Management 5 Information Security 0 1 2 3 4 5 6 7 8 9 10 11

 

www.paypal.com


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4      Proxy Statement Summary   

 

Corporate Governance

Corporate governance at PayPal is designed to promote the long-term interests of our stockholders, strengthen Board and management accountability, foster responsible decision-making, and engender public trust. We believe that strong corporate governance practices that provide meaningful rights to our stockholders and ensure Board and management accountability are essential to our relationship with our stockholders.

The following are the key governance provisions that demonstrate PayPal’s commitment to transparency and accountability:

 

   LOGO    Strong Board independence (nine of 11 director nominees are independent)       LOGO    Separate Chairman and CEO roles
   LOGO    Independent Chairman or Lead Independent Director with robust responsibilities       LOGO    All directors stand for annual election
   LOGO    Majority vote standard for uncontested director elections       LOGO    Strong stockholder engagement practices
   LOGO   

Stockholder right to call a special meeting

      LOGO    Proxy access for qualifying stockholders
   LOGO   

Simple majority vote standard for charter/bylaw amendments and mergers/business combinations

      LOGO    Robust stock ownership requirements for our executive officers and directors

Executive Compensation

OUR COMPENSATION PROGRAM

We completed our second year as an independent company in 2017 following our separation from eBay Inc. (“eBay”) in July 2015 (the “Separation”), continuing our transformative journey while delivering strong results. For 2017, the Compensation Committee of the Board approved an executive compensation program based on our “pay for performance” philosophy that is designed to align our executive officers’ compensation with the key drivers of profitable short-term and long-term growth with the goals of properly incentivizing and rewarding our executives for performance that exceeds expectations, providing transparency for both our executives and our stockholders, and positioning us competitively to enable us to attract and retain our executives. As such, the Compensation Committee prioritized the following compensation philosophy and goals in 2017:

 

  Simplicity, Transparency and Clarity of our program – enable executives to directly link Company and individual performance to their pay, and enable stockholders to directly link returns on their investment to Company performance;
  One Team – maintain unified goals and objectives for the entire executive leadership team to drive operational decisions and Company performance;
  Winning the War for Talent – recognize the unique financial technology (“FinTech”) space in which we compete, and prioritize nimble and aggressive compensation strategies to attract and retain key talent; and
  Individual Performance – ensure compensation is commensurate with results, both on the upside and downside, and that leaders are held accountable for their performance.

 

LOGO       2018 Proxy Statement


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  Proxy Statement Summary     5

 

OUR 2017 NEO PAY

We believe that our executive compensation program was effective at incentivizing results in 2017 by appropriately aligning pay and performance. The following charts show the 2017 Target Total Direct Compensation mix for our Chief Executive Officer, Mr. Schulman (our “CEO”), and the average Target Total Direct Compensation mix for our other named executive officers (“NEOs”). Target Total Direct Compensation is the sum of (i) 2017 base salary, (ii) target 2017 annual incentive award (based on the grant date fair value for the portion of the award delivered as PBRSUs) and (iii) target annual long-term incentive award (based on grant date fair values).

 

LOGO

OUR PAY PRACTICES

We are committed to maintaining strong governance standards with respect to our executive compensation program, policies, and practices. Consistent with this focus, we maintain the following policies and practices that we believe demonstrate our commitment to executive compensation best practices.

 

What We Do
Pay for Performance    LOGO   A substantial percentage of our NEOs’ 2017 Target Total Direct Compensation was performance-based and tied to pre-established performance goals aligned with our short-term and long-term objectives.
Adherence to Rigorous Goals    LOGO   We use objective performance-based company goals in our annual and long-term incentive plans that we believe are rigorous and designed to incentivize and motivate NEO performance.
Clawback Policy    LOGO   Our NEOs are subject to a clawback policy, which permits the Compensation Committee to require forfeiture or reimbursement of incentive compensation, including any cash incentive award, equity award, or equity-based award paid or awarded to the NEO during the period in which he or she is subject to the policy, if (i) an action or omission by the NEO constitutes a material violation of our Code of Business Conduct; (ii) an action or omission by the NEO results in material financial or reputational harm to the Company; or (iii) a material restatement of all or a portion of our financial statements is the result of a supervisory or other failure by the NEO.
Robust Stock Ownership Guidelines    LOGO   Our stock ownership guidelines are designed to align the long-term interests of our NEOs and non-employee directors with those of our stockholders and discourage excessive risk-taking. Our guidelines require stock ownership levels as a value of our common stock equal to a multiple of base salary (6x for CEO and 3x for executive vice presidents (“EVPs”)) or annual retainer (5x for non-employee directors), and include stock retention requirements for executive officers until the required ownership levels are reached.

 

Target total direct compensation mix CEO 5% Annual Base Salary 11% Target Annual Incentive Award 84% TARGET ANNUAL LONG-TERM INCENTIVE VALUE 42% RSUS 25% Cash 75% PBRSUs 42% PBRSUs 53% PERFORMANCE-BASED COMPENSATION 9% Annual Base Salary 9% Target Annual Incentive Award 83% TARGET ANNUAL LONG-TERM INCENTIVE VALUE 41% RSUS 25% Cash 41% PBRSUs 42% PBRSUs 50% PERFORMANCE-BASED COMPENSATION

 

www.paypal.com


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6      Proxy Statement Summary   

 

What We Do
Prohibition of Hedging and Pledging Transactions    LOGO   Our insider trading policy prohibits members of our Board and NEOs from (i) entering into any hedging or monetization transactions relating to our securities or otherwise trading in any instrument relating to the future price of our securities, or (ii) pledging our common stock as collateral for any loans.
Independent Compensation Consultant    LOGO   The Compensation Committee engages its own independent compensation consultant to advise on executive and non-employee director compensation matters.
Annual Risk Assessment    LOGO   Based on our annual risk assessment, we have concluded that our compensation program does not present any risk that is reasonably likely to have a material adverse effect on PayPal.
Annual Comparator Peer Group Review    LOGO   The Compensation Committee, with the assistance of its compensation consultant, reviews the composition of our comparator peer groups annually and makes adjustments to the composition of the peer group as it deems appropriate.
Annual Say-on-Pay Vote    LOGO   We conduct an annual advisory (non-binding) vote on the compensation of the NEOs (a “say-on-pay” vote). At our 2017 annual meeting of stockholders (the “2017 Annual Meeting”), more than 96% of the votes cast on the say-on-pay proposal were voted in support of the 2016 compensation of the NEOs.
Investor Engagement    LOGO   In addition to the annual say-on-pay vote, we are committed to ongoing engagement with our investors on executive compensation and governance matters. These engagement efforts take place through teleconferences, in-person meetings and correspondence with our investors.
What We Don’t Do
No Excise Tax Gross-Ups on Severance Payments    LOGO   We do not provide our NEOs with any gross-ups or other payment or reimbursement of excise taxes on severance or other payments in connection with a change in control of PayPal.
No “Single-Trigger” CIC Payments and Acceleration of Equity Awards    LOGO   We do not make “single-trigger” change-in-control payments or maintain any plans that require single-trigger change-in-control acceleration of equity awards to our NEOs upon a change in control of PayPal.
No Tax Gross-Ups on Perquisites    LOGO   We do not provide our NEOs with tax gross-ups on perquisites, other than in limited circumstances for business-related relocations and international business travel-related benefits that are under our control, at our direction and deemed to benefit our business operations.

No Discounting of Stock Options or

Repricing of Underwater Options

   LOGO   We expressly prohibit the discounting of stock options and the repricing of underwater stock options without stockholder approval under our equity compensation plan.
No Guaranteed Bonuses    LOGO   Our annual incentive plan is performance-based and our NEOs are not guaranteed any minimum levels of payment.

SUPPORTING OUR EXECUTIVE COMPENSATION PROGRAM

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

 

LOGO       2018 Proxy Statement


Table of Contents
         
  Proposal 1     7

 

Proposal 1 — Election of Directors

 

The eleven directors listed below have been nominated by our Board for election at the Annual Meeting to serve until our 2019 Annual Meeting of Stockholders and until their successors are elected and qualified. All of the nominees are currently members of the Board. All of the director nominees are independent under the listing standards of The NASDAQ Stock Market (“NASDAQ”), except for Mr. Schulman and Mr. Donahoe.

Except for Ms. Sarnoff and Mr. Adkins, each of our current directors has been previously elected by our stockholders. Based upon the recommendations of our Corporate Governance and Nominating Committee (the “Governance Committee”), the Board appointed Ms. Sarnoff as a director in June 2017, and Mr. Adkins as a director in September 2017. Both Ms. Sarnoff and Mr. Adkins were initially identified as potential candidates by our CEO from recommendations he received from third parties.

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

MAJORITY VOTE STANDARD

Under our Amended and Restated Bylaws (“Bylaws”), directors must be elected by a majority of the votes cast in uncontested elections, such as the election of directors at the Annual Meeting. This means that the number of votes cast “FOR” a director nominee must exceed the number of votes cast “AGAINST” that nominee. Abstentions and broker non-votes are not counted as votes “FOR” or “AGAINST” a director nominee. As a result, abstentions and broker non-votes will have no effect on the vote for this proposal. If a director nominee who currently serves as a director is not re-elected, Delaware law provides that the director would continue to serve on the Board as a “holdover director.” Under our Bylaws and the Governance Guidelines of the Board (the “Corporate Governance Guidelines”), each director submits an advance, contingent, irrevocable resignation that the Board may accept if stockholders do not re-elect that director. Within 90 days of the certification of the stockholder vote (subject to an additional 90-day period in certain circumstances), the Governance Committee or another committee of the Board would make a recommendation to the Board about whether to accept the resignation, and the Board would be required to decide whether to accept the resignation and to publicly disclose its decision and the rationale behind it.

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

DIRECTOR NOMINEES

The Governance Committee and the Board have evaluated each of the director nominees against the factors and principles used to select director nominees. Based on this evaluation, the Governance Committee and the Board have concluded that it is in the best interests of the Company and its stockholders for each of the proposed director nominees listed below to continue to serve as a director of the Company. The Board believes that each of the director nominees has a strong track record of being a responsible steward of stockholders’ interests and brings extraordinarily valuable insight, perspective and expertise to the Board.

 

Diversity Nearly half of the Board are women or from underrepresented ethnic groups 6 5 Diverse Other Independence Independent Other

 

www.paypal.com


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8      Proposal 1   

 

The Board and Governance Committee evaluate director nominees based on a number of key qualifications and attributes. The following provides a snapshot of the diversity, skills and experience of our director nominees:

 

LOGO

 

LOGO

    

Highly relevant professional experience in financial services, payments, FinTech, technology, innovation, business development, strategy, legal, regulatory, government, global business, finance, accounting, consumer, marketing, brand management and/or information security;

 

    

Relevant senior leadership/CEO experience;

 

    

High-level managerial experience in complex organizations;

 

    

Experience and expertise that complement the skill sets of the other director nominees;

 

    

High degree of character and integrity and ability to contribute to strong Board dynamics;

 

    

Highly engaged and able to commit the time and resources needed to provide active oversight of PayPal and its management, including attending at least 75% of all of our Board meetings and Board committee meetings for committees on which such director served during 2017;

 

    

Sound business judgment; and

 

    

Commitment to enhancing stockholder value.

 

    
    
    

The table below summarizes the key skills and experience most relevant to the decision to nominate each of the director nominees to serve on the Board. A mark indicates a specific area of focus or expertise on which the Board particularly relies. Not having a mark does not mean the director nominee does not have that skill or experience. The director nominee biographies below describe each person’s background and relevant experience in more detail.

 

     

 

LOGO

 

 

 

   

 

LOGO

 

 

 

   

 

LOGO

 

 

 

   

 

LOGO

 

 

 

   

 

LOGO

 

 

 

   

 

LOGO

 

 

 

   

 

LOGO

 

 

 

   

 

LOGO

 

 

 

   

 

LOGO

 

 

 

   

 

LOGO

 

 

 

   

 

LOGO

 

 

 

 

Payments, Financial Services and/or FinTech

   

 

 

 

LOGO

 

 

 

 

 

 

LOGO

 

 

 

 

 

 

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Technology and/or Innovation

 

 

 

 

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Business Development and Strategy

 

 

 

 

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Senior Leadership

 

 

 

 

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Legal, Regulatory and/or Governmental

 

 

 

 

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Global Business

 

 

 

 

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Other Public Company Board Service

 

 

 

 

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Information Security

 

 

 

 

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LOGO       2018 Proxy Statement


Table of Contents
         
  Proposal 1     9

 

Included in each director nominee’s biography below is a description of select key qualifications and experience of such nominee. The Board and the Governance Committee believe that the combination of the various qualifications, skills and experience of the director nominees would contribute to an effective and well-functioning Board and that, individually and collectively, the director nominees possess the necessary qualifications to provide effective oversight of the business and quality advice and counsel to the Company’s management.

 

      
 

 

LOGO

  

Rodney C. Adkins

Age: 59

 

Director since: September 2017

 

Board Committees:

Audit, Risk and Compliance

 

Other Current Public Company Boards:

Avnet, Inc.

PPL Corporation

United Parcel Service, Inc.

W.W. Grainger, Inc.

 

Key Qualifications and Experience: 

  Technology and Innovation

  Business Development and Strategy

  Senior Leadership

  Regulatory and Governmental

  Global Business

  Other Public Company Board Service

  Finance

  Consumer, Marketing and Brand Management

  Information Security

 
 

Biography:

Mr. Adkins has served as a director of PayPal since September 2017. Since January 2015, Mr. Adkins has served as the President of 3RAM Group LLC, a privately held company specializing in capital investments, business consulting services and property management. Formerly, Mr. Adkins was Senior Vice President of International Business Machines Corporation (IBM), a leading manufacturer of information technologies, having served in that position from 2007 until 2014. In his more than 30-year career with IBM, Mr. Adkins held a number of development and management roles, including Senior Vice President of Corporate Strategy from April 2013 to April 2014, Senior Vice President of Systems and Technology Group from October 2009 to April 2013, Senior Vice President of Development & Manufacturing from May 2007 to October 2009, and Vice President of Development of IBM Systems and Technology Group from December 2003 to May 2007. Mr. Adkins serves on the Board of Directors of Avnet, Inc., PPL Corporation, United Parcel Service, Inc., and W.W. Grainger, Inc.

 

Mr. Adkins received his B.A. in Physics from Rollins College and B.S. and M.S. degrees in Electrical Engineering from Georgia Tech.

 
      

 

      
 

LOGO

 

  

Wences Casares

Age: 44

 

Director since: January 2016

 

Board Committees:

Compensation

 

Other Current Public Company Boards:

None

 

Key Qualifications and Experience:

  Financial Services and Payments

  Technology and Innovation

  Business Development and Strategy

  CEO Experience

  Global Business

  Consumer, Marketing and Brand Management

  Information Security

 
 

Biography:

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

 
      

 

www.paypal.com


Table of Contents
           
10      Proposal 1   

 

 

      
  LOGO   

Jonathan Christodoro

Age: 42

 

Director since: July 2015

 

Board Committees:

Compensation

 

Other Current Public Company Boards:

Enzon Pharmaceuticals, Inc.

Herbalife Ltd

 

Key Qualifications and Experience:

  Financial Services

  Business Development and Strategy

  Senior Leadership

  Regulatory and Compliance

  Global Business

  Other Public Company Board Service

  Finance

 
 

Biography:

Mr. Christodoro has served as a director of PayPal since July 2015. He was previously a board member of eBay from March 2015 to July 2015. Mr. Christodoro served as a Managing Director of Icahn Capital LP, the entity through which Carl C. Icahn manages investment funds, from July 2012 to February 2017. Prior to joining Icahn Capital, Mr. Christodoro served in various investment and research roles at P2 Capital Partners, LLC, a company with investments in technology and distribution, from March 2007 to July 2012. Mr. Christodoro began his career as an investment banking analyst at Morgan Stanley, where he focused on merger and acquisition transactions across a variety of industries. Mr. Christodoro also serves on the Board of Directors of Enzon Pharmaceuticals, Inc., and Herbalife Ltd. Mr. Christodoro was previously a director of: Hologic, Inc., a supplier of diagnostic, medical imaging and surgical products, from December 2013 to March 2016; eBay, a global commerce and payments company, from March 2015 to July 2015; Talisman Energy Inc., an independent oil and gas exploration and production company, from December 2013 to May 2015; American Railcar Industries, Inc., a railcar manufacturing company, from June 2015 to February 2017; Xerox Corporation from June 2016 to December 2017; and Cheniere Energy, Inc. from August 2015 to August 2017.

 

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

 
      

 

      
  LOGO   

John J. Donahoe

Age: 57

 

Director since: July 2015

 

Board Committees:

None

 

Other Current Public Company Boards:

Nike, Inc.

ServiceNow, Inc.

 

Key Qualifications and Experience:

  Payments and FinTech

  Technology

  Business Development and Strategy

  CEO Experience

  Global Business

  Other Public Company Board Service

  Finance

  Consumer and Marketing

  Information Security

 
 

Biography:

Mr. Donahoe has served as Chairman of the PayPal Board since July 2015. Since April 2017, Mr. Donahoe has served as the President and Chief Executive Officer of ServiceNow, Inc., an enterprise cloud company. He served as the President and Chief Executive Officer of eBay from March 2008 to July 2015, and was a director of eBay, from January 2008 to July 2015. From March 2005 to January 2008, Mr. Donahoe served as President, eBay Marketplaces. From January 2000 to February 2005, Mr. Donahoe served as the Worldwide Managing Director of Bain & Company. Mr. Donahoe also serves on the Board of Directors of Nike, Inc. and ServiceNow, Inc.

 

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

 
      

 

LOGO       2018 Proxy Statement


Table of Contents
         
  Proposal 1     11

 

 

      
  LOGO   

David W. Dorman

Age: 64

 

Director since: June 2015

 

Board Committees:

Compensation (Chair)

Governance

 

Other Current Public Company Boards:

CVS Health Corporation

 

Key Qualifications and Experience:

  Technology

  Business Development and Strategy

  CEO Experience

  Regulatory and Compliance

  Global Business

  Other Public Company Board Service

  Finance and Accounting

  Consumer and Marketing

  Information Security

 
 

Biography:

Mr. Dorman has served as a director of PayPal since June 2015. He previously served as a board member of eBay from June 2014 to July 2015. Mr. Dorman has been the Non-Executive Chairman of the Board of CVS Health Corporation, a pharmacy healthcare provider, since May 2011, and is the former Chairman and Chief Executive Officer of AT&T Corporation, a telecommunications company (formerly known as SBC Communications Inc.). He is also Founding Partner of Centerview Capital, a private investment firm, since July 2013. He was formerly Non-Executive Chairman of the Board of Motorola Solutions, Inc. (formerly Motorola, Inc.), a leading provider of business and mission-critical communication products and services for enterprise and government customers. He served as Non-Executive Chairman of the Board of Motorola, Inc. from May 2008 until the separation of its mobile devices and home businesses in January 2011. From October 2006 to May 2008, he was a Senior Advisor and Managing Director to Warburg Pincus LLC, a global private equity firm. From November 2005 until January 2006, Mr. Dorman served as President and a director of AT&T Corporation. From November 2002 until November 2005, Mr. Dorman was Chairman of the Board and Chief Executive Officer of AT&T Corporation. Prior to this, he was President of AT&T Corporation from 2000 to 2002 and the Chief Executive Officer of Concert Communications Services, a former global venture created by AT&T Corporation and British Telecommunications plc, from 1999 to 2000. Mr. Dorman also serves on the Board of Directors of CVS Health Corporation and as a Trustee for Georgia Tech Foundation, Inc. He was a board member of Yum! Brands until May 2017.

 

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

 
      

 

      
  LOGO   

Belinda J. Johnson

Age: 51

 

Director since: January 2017

 

Board Committees:

Audit, Risk and Compliance

 

Other Current Public Company Boards:

None

 

Key Qualifications and Experience:

  Payments

  Technology

  Business Development and Strategy

  Senior Leadership

  Legal and Regulatory

  Global Business

  Finance

  Consumer, Marketing and Brand Management

  Information Security

 
 

Biography:

Ms. Johnson has served as a director of PayPal since January 2017. In February 2018, she was appointed as the Chief Operating Officer of Airbnb, Inc., a global community marketplace which provides access to unique accommodations. Prior to this, she was the Chief Business Affairs and Legal Officer of Airbnb, from July 2015 to February 2018 and joined Airbnb as General Counsel in December 2011. Prior to joining Airbnb, from August 1999 until August 2011, Ms. Johnson served in various positions at Yahoo! Inc., a digital information platform, including most recently as Senior Vice President and Deputy General Counsel. From November 1996 to August 1999, Ms. Johnson was General Counsel of Broadcast.com, Inc., an Internet broadcasting company.

 

Ms. Johnson received her B.A. from The University of Texas at Austin and her J.D. from The University of Texas Law School.

 
      

 

www.paypal.com


Table of Contents
           
12      Proposal 1   

 

 

      
  LOGO   

Gail J. McGovern

Age: 66

 

Director since: June 2015

 

Board Committees:

Compensation

Governance (Chair)

 

Other Current Public Company Boards:

DTE Energy Company

 

Key Qualifications and Experience:

  Technology

  Business Development and Strategy

  CEO Experience

  Regulatory and Compliance

  Global Business

  Other Public Company Board Service

  Finance

  Consumer and Marketing

 
 

Biography:

Ms. McGovern has served as a director of PayPal since June 2015. She previously served as a board member of eBay from March 2015 to July 2015. Ms. McGovern is the President and Chief Executive Officer of the American Red Cross, a humanitarian organization, and has served in that position since June 2008. Ms. McGovern also serves as a trustee of John Hopkins Medicine, a director of DTE Energy Company, and an advisor to The Weather Channel.

 

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

 
      

 

      
 

 

LOGO

  

David M. Moffett

Age: 66

 

Director since: June 2015

 

Board Committees:

Audit, Risk and Compliance (Chair)

 

Other Current Public Company Boards:

CSX Corporation

Genworth Financial, Inc.

 

Key Qualifications and Experience:

  Payments

  Business Development and Strategy

  CEO Experience

  Governmental, Regulatory and Compliance

  Global Business

  Other Public Company Board Service

  Finance and Accounting

 
 

Biography:

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

 

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

 
      

 

LOGO       2018 Proxy Statement


Table of Contents
         
  Proposal 1     13

 

 

      
 

LOGO

 

  

Ann M. Sarnoff

Age: 56

 

Director since: June 2017

 

Board Committees:

Audit, Risk and Compliance

 

Other Current Public Company Boards:

None

 

Key Qualifications and Experience:

  Technology

  Business Development and Strategy

  Senior Leadership

  Regulatory

  Global Business

  Other Public Company Board Service

  Finance

  Consumer and Marketing

 
 

Biography:

Ms. Sarnoff has served as a director of PayPal since June 2017. Since August 2015, Ms. Sarnoff has served as the President of BBC Worldwide Americas, a media company that delivers high-quality, innovative and intelligent programming. From 2010 through July 2015, she served as Chief Operating Officer of BBC Worldwide North America. She is also the chair of the board of BritBox, a joint venture subscription streaming service launched in partnership with ITV in March of 2017, and sits on the board, operating committee and editorial committee of BBC America, a joint venture with AMC Networks. From June 2006 until joining BBC Worldwide in 2010, Ms. Sarnoff was President of Dow Jones Ventures and Senior Vice President of Strategy for Dow Jones & Company, Inc. She is also a member of the board of Georgetown University, as the vice chair of the McDonough School of Business at Georgetown, and is on the board of the Harvard Business School Women’s Association of New York. Ms. Sarnoff previously served on the Board of HSN, Inc., an interactive multichannel retailer from December 2012 to December 2017.

 

Ms. Sarnoff received her B.S. from Georgetown University’s McDonough School of Business and her MBA from Harvard Business School.

 
      

 

      
  LOGO   

Daniel H. Schulman

Age: 60

 

Director since: July 2015

 

Board Committees:

None

 

Other Current Public Company Boards:

Flex Ltd.

Symantec Corporation

 

Key Qualifications and Experience:

  Payments, Financial Services and FinTech

  Technology

  Business Development and Strategy

  CEO Experience

  Legal, Regulatory and Governmental

  Global Business

  Other Public Company Board Service

  Finance and Accounting

  Consumer, Marketing and Brand Management

  Information Security

 
 

Biography:

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

 

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

 
      

 

www.paypal.com


Table of Contents
           
14      Proposal 1   

 

 

      
  LOGO   

Frank D. Yeary

Age: 54

 

Director since: July 2015

 

Board Committees:

Audit, Risk and Compliance

 

Other Current Public Company Boards:

Intel Corporation

 

Key Qualifications and Experience:

  Financial Services

  Business Development and Strategy

  Senior Leadership

  Governmental, Regulatory and Compliance

  Global Business

  Other Public Company Board Service

  Finance and Accounting

 
 

Biography:

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

 

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

 
      

 

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

CONSIDERATION OF DIRECTOR NOMINEES

Stockholder Recommendations and Nominations

The Governance Committee is responsible for recommending to the Board a slate of nominees for election at each annual meeting of stockholders for PayPal. Nominees may be suggested by directors, members of management, stockholders, or by a third-party firm. In evaluating potential director nominees, the Governance Committee considers a wide range of factors, including the criteria described below under “Director Selection Process and Qualifications.”

Stockholders who would like the Governance Committee to consider their recommendations for director nominees should submit their recommendations in writing by mail to the Governance Committee in care of our Corporate Secretary at PayPal Holdings, Inc., 2211 North First Street, San Jose, California 95131, stating the candidate’s name and qualifications for Board membership. Recommendations by stockholders that are made in accordance with these procedures will receive the same consideration by the Governance Committee as other suggested nominees.

In addition, our Restated Certificate of Incorporation (“Certificate of Incorporation”) and Bylaws provide proxy access rights that permit eligible stockholders to nominate candidates for election to the Board in the Company’s proxy statement. These proxy access rights permit a stockholder, or group of up to 20 stockholders, owning 3% or more of the Company’s outstanding common stock continuously for at least three years to nominate and include in the Company’s proxy materials director nominees constituting up to 20% of the Board, provided that the stockholder(s) and nominee(s) satisfy the requirements and procedures described in our Certificate of Incorporation and Bylaws.

Director Selection Process and Qualifications

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

 

LOGO       2018 Proxy Statement


Table of Contents
         
  Proposal 1     15

 

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

 

  Directors should have high-level managerial experience in a relatively complex organization or be accustomed to dealing with complex problems;
  Directors should represent the balanced, best interests of the stockholders as a whole rather than special interest groups or constituencies;
  Directors should be individuals of the highest character and integrity, with the ability to work well with others and with sufficient time available to devote to the affairs of the Company in order to carry out their responsibilities;
  In addressing the overall composition of the Board, diversity (including gender, race and ethnicity), age, international background, and expertise should be considered in evaluating potential Board members;
  The interplay of a candidate’s background and expertise with that of other Board members, and the extent to which a candidate may be a desirable addition to any Board committee should be considered;
  The Board should include individuals with highly relevant professional experience; and
  The Board should be composed of directors who are highly engaged with our business.

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

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

Director Compensation

The Compensation Committee is responsible for reviewing and making recommendations to the Board regarding compensation paid to non-employee directors for their Board and committee services. On an annual basis, the Compensation Committee reviews the non-employee director compensation program, receiving input from the Compensation Committee’s independent consultant regarding market practices and the competiveness of the non-employee director compensation program in relation to the general market and the Company’s peer group.

2017 DIRECTOR COMPENSATION

For 2017, each non-employee director of the Company received the following annual retainers on the first trading day after January 1, 2017, other than Mr. Omidyar, who did not receive any compensation for his services as a Board member and did not stand for re-election at PayPal’s 2017 Annual Meeting:

 

  2017 Annual Retainers:        

 

  All Non-Employee Directors

   $ 80,000/year  

 

  Non-Executive Board Chair

   $ 100,000/year  

 

  Lead Independent Director

   $ 75,000/year  

 

  ARC Committee Chair

   $ 25,000/year  

 

  Compensation Committee Chair and Governance Committee Chair

   $ 20,000/year  

 

  ARC Committee Member

   $ 20,000/year  

 

  Compensation Committee Member

   $ 18,000/year  

 

  Governance Committee Member

   $ 10,000/year  

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

A non-employee director may elect to receive 100% of his/her annual retainer(s) in fully vested stock awards of PayPal common stock having a value equal to the annual retainer(s) in lieu of cash.

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

 

www.paypal.com


Table of Contents
           
16      Proposal 1   

 

2017 Equity Awards:

In addition to the annual retainers, all non-employee directors of PayPal received the following fully vested stock awards of PayPal common stock following PayPal’s annual meeting of stockholders:

 

 

  All Non-Employee Directors

   $ 250,000 in PayPal common stock  

 

  Board Chair1

   $ 100,000 in PayPal common stock  

1 The Board Chair receives $100,000 in PayPal common stock in addition to the $250,000 in PayPal common stock that he/she receives for services as a non-employee director.

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

Effective June 2017, if a non-employee director is appointed or elected at any time other than at an annual stockholders meeting, such director will be eligible to receive a prorated annual equity award, as of the date of his or her appointment or election, for the period prior to the first annual stockholders meeting following his or her appointment or election, determined by (i) multiplying the amount of the annual equity award (i.e., $250,000 and, with respect to the additional equity award to the Board Chair, $100,000) by a fraction, the numerator of which is the number of days from the date of appointment or election to the first anniversary of the most recent annual stockholders meeting, and the denominator of which is 365, and (ii) dividing such amount by the per share fair market value on the date of appointment or election, rounded up to the nearest whole share.

2018 DIRECTOR COMPENSATION

Effective January 1, 2018, each non-employee director of the Company will receive the following annual retainer on the first trading day after January 1 of each year in which the director serves as a non-employee director of the Company:

 

  2018 Annual Retainers:        

 

  All Non-Employee Directors

   $ 80,000/year  

 

  Non-Executive Board Chair

   $ 100,000/year  

 

  Lead Independent Director

   $ 75,000/year  

 

  ARC Committee Chair

   $ 40,000/year  

 

  Compensation Committee Chair and Governance Committee Chair

   $ 20,000/year  

 

  ARC Committee Member

   $ 20,000/year  

 

  Compensation Committee Member

   $ 18,000/year  

 

  Governance Committee Member

   $ 10,000/year  

2018 Equity Awards:

In addition to the annual retainers, all non-employee directors of PayPal will receive the following fully vested stock awards of PayPal common stock following PayPal’s annual meeting of stockholders:

 

 

All Non-Employee Directors

   $ 275,000 in PayPal common stock  

 

Board Chair1

   $ 100,000 in PayPal common stock  

1 The Board Chair receives $100,000 in PayPal common stock in addition to the $275,000 in PayPal common stock that he/she receives for services as a non-employee director.

 

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  Proposal 1     17

 

2017 DIRECTOR COMPENSATION TABLE

The following table summarizes the total compensation paid by the Company to non-employee directors for the fiscal year ended December 31, 2017.

 

  Name   

Fees Earned or

Paid in Cash(1)

($)

    

Stock

Awards(2)

($)

    

Option

Awards(2)

($)

    

Total

($)

 

 

  Rodney C. Adkins

     26,575        165,092                —        191,667  

 

  Wences Casares

     98,000        250,043               348,043  

 

  Jonathan Christodoro

     98,000        250,043               348,043  

 

  John J. Donahoe

     180,000        350,050               530,050  

 

  David W. Dorman

     110,000        250,043               360,043  

 

  Belinda J. Johnson

     96,986        250,043           347,029  

 

  Gail J. McGovern

     120,000        250,043               370,043  

 

  David M. Moffett

     180,000        250,043               430,043  

 

  Pierre M. Omidyar

                           

 

  Ann M. Sarnoff

     51,506        227,424           278,930  

 

  Frank D. Yeary

     100,000        250,043               350,043  

1 The amounts reported in the Fees Earned or Paid in Cash column reflect the cash fees earned by each non-employee director in 2017, which includes fees with respect to which the following directors elected to receive fully vested shares of PayPal stock in lieu of cash:

 

  Name   

Fees

Forgone

($)

    

Shares

Received

(#)

 

 

  Rodney C. Adkins

     26,575        423  

 

  Wences Casares

     98,000        2,435  

 

  John J. Donahoe

     180,000        4,473  

 

  David W. Dorman

     110,000        2,733  

 

  Belinda J. Johnson

     96,986        2,334  

 

  Ann M. Sarnoff

     51,506        977  

2 Amounts shown represent the grant date fair value of the stock awards granted on May 25, 2016 to our directors as computed in accordance with FASB ASC Topic 718. As of December 31, 2017, our non-employee directors held the following deferred stock units (“DSUs”) and stock options.

 

  Name   

Total

DSUs Held

as of 12/31/17

(#)

    

Total

Options Held

as of 12/31/17

(#)

 

 

  Rodney C. Adkins

             

 

  Wences Casares

             

 

  Jonathan Christodoro

     5,353         

 

  John J. Donahoe

     2,464        198,513  

 

  David W. Dorman

     9,488         

 

  Belinda J. Johnson

             

 

  Gail J. McGovern

     3,711         

 

  David M. Moffett

     49,001         

 

  Pierre M. Omidyar

             

 

  Ann M. Sarnoff

             

 

  Frank D. Yeary

     5,460         

 

www.paypal.com


Table of Contents
           
18      Corporate Governance   

 

Corporate Governance

 

Corporate governance at PayPal is designed to promote the long-term interests of our stockholders, strengthen Board and management accountability, foster responsible decision-making, and engender public trust. We believe that strong corporate governance practices that provide meaningful rights to our stockholders and ensure Board and management accountability are essential to our relationship with our stockholders. We strive to have regular, constructive conversations with our stockholders to better understand their priorities and perspectives, and to provide us with useful input concerning our corporate governance and compensation practices.

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

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

The Board’s Role and Responsibilities

The Board is responsible for providing advice and oversight of the strategic and operational direction of the Company and overseeing its executive management to support the long-term interests of the Company and its stockholders.

RISK OVERSIGHT

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

In January 2017, the Audit Committee of the Board was renamed the Audit, Risk and Compliance Committee (the “ARC Committee”) to more accurately reflect the scope of the committee’s role with respect to oversight of risk and compliance matters. The Board has delegated to the ARC Committee primary responsibility for the oversight of the risk framework and risk appetite framework at PayPal. In accordance with its charter, the ARC Committee oversees and assesses the Company’s overall risk management framework, including policies and practices established by management to identify, assess, measure and manage key current and emerging risks facing the Company. The ARC Committee reviews with our Chief Business Affairs and Legal Officer and Chief Risk, Compliance and Security Officer, as applicable, significant legal, regulatory or compliance matters that could have a material impact on our financial statements, business, or compliance policies, including material notices to or inquiries received from governmental agencies.

To oversee and manage risk, we have established an Enterprise Risk and Compliance Management Program (“ERCMP”). The ERCMP sets forth the Company’s programmatic approach to identifying, measuring, managing, monitoring, and reporting key risks facing our Company, including financial crime compliance risk, regulatory compliance risk, technology risk, operational risk, credit risk, capital structure risk, and strategic risk. The ERCMP is designed to enable the ARC Committee to have effective oversight over the Company’s risk framework, including the Company’s risk management practices and capabilities. The ARC Committee periodically reviews the Company’s Enterprise Risk and Compliance Management Policy and other key risk management policies. The ARC Committee also regularly reviews and discusses with management the overall effectiveness of, and ongoing enhancements to, the ERCMP. In addition, the ARC Committee discusses key risk areas with management throughout the year. The ARC Committee reports to the entire Board on a regular basis.

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

BOARD AND COMMITTEE EVALUATIONS

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

DIRECTOR ORIENTATION AND CONTINUING EDUCATION

Our director orientation program familiarizes new directors with the Company’s businesses, strategies, and policies, and assists them in developing the skills and knowledge required for their service on the Board and any committees on which they serve. All other directors are also invited to attend the orientation programs. From time to time, management provides, or invites outside

 

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  Corporate Governance     19

 

experts to attend Board meetings to provide, educational briefings to the Board on business, corporate governance, regulatory and other matters. In addition, Board members may attend, at the Company’s expense, accredited director education programs.

SUCCESSION PLANNING

The Board recognizes the importance of effective executive leadership to PayPal’s success and annually reviews executive succession planning. As part of this process, the Board reviews and discusses the capabilities of our senior leadership, as well as succession planning and potential successors for the CEO and our other executive officers. The process includes consideration of organizational and operational needs, competitive challenges, leadership/management potential and development, and emergency situations.

CODE OF BUSINESS CONDUCT

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

OUTSIDE ADVISORS

The Board may retain outside legal, accounting, or other advisors as it deems necessary or appropriate at the Company’s expense and without obtaining management’s consent. Each principal committee of the Board may also retain outside legal, accounting or other advisors as it deems necessary or appropriate at the Company’s expense and without obtaining the Board’s or management’s consent.

Director Independence

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

Based on its review, the Board has determined that each of the following directors is independent under the listing standards of NASDAQ and our Corporate Governance Guidelines, and is free of any relationship that would interfere with his or her individual exercise of independent judgment:

 

  Rodney C. Adkins

 

  

Gail J. McGovern

 

 

  Wences Casares

 

  

David M. Moffett

 

 

  Jonathan Christodoro

 

  

Pierre M. Omidyar1

 

 

  David W. Dorman

 

  

Ann M. Sarnoff

 

 

  Belinda J. Johnson

 

  

Frank D. Yeary

 

1 Mr. Omidyar did not stand for re-election at PayPal’s 2017 Annual Meeting.

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

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

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

 

www.paypal.com


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20      Corporate Governance   

 

Board Leadership and Lead Independent Director

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

In March 2017, Mr. Moffett was appointed by the Board to serve an additional two-year term as Lead Independent Director, effective upon the conclusion of our 2017 Annual Meeting, subject to his continuing reelection and status as an independent director. The Lead Independent Director’s responsibilities are detailed in our Corporate Governance Guidelines, and include:

 

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

Board Committees

The Board has three principal standing committees: the ARC Committee, the Compensation Committee, and the Governance Committee. Each committee has a written charter, available on the corporate governance section of our investor relations website at https://investor.paypal-corp.com/corporate-governance.cfm, which describes in more detail its specific responsibilities and functions. The table below provides the current membership for each principal Board committee.

 

     

ARC

Committee

 

  

Compensation

Committee

 

  

Governance

Committee

 

 

  Rodney C. Adkins

 

   Member

 

  

 

  

 

 

  Wences Casares

 

  

 

   Member

 

  

 

 

  Jonathan Christodoro

 

  

 

   Member

 

  

 

 

  John J. Donahoe

 

  

 

  

 

  

 

 

  David W. Dorman

 

  

 

   Chair

 

   Member

 

 

  Belinda J. Johnson

 

   Member

 

  

 

  

 

 

  Gail J. McGovern

 

  

 

   Member

 

   Chair

 

 

  David M. Moffett

 

   Chair

 

  

 

  

 

 

  Ann M. Sarnoff

 

   Member

 

  

 

  

 

 

  Daniel H. Schulman

 

  

 

  

 

  

 

 

  Frank D. Yeary

 

   Member

 

  

 

  

 

 

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  Corporate Governance     21

 

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

 

ARC Committee                     

  

 

  

 

Members:

Rodney C. Adkins (since Sept. 2017)

Belinda J. Johnson (since Jan. 2017)

David M. Moffett (Chair)

Ann M. Sarnoff (since June 2017)

Frank D. Yeary

 

Committee Meetings in 2017: 11

 

Charter:

The ARC Committee Charter, as adopted by the Board, is available on our webite at https://investor.paypal-corp.com/corporate-governance.cfm

   Primary Responsibilities
  

Provide assistance and guidance to the Board in fulfilling its oversight responsibilities with respect to:

 

      PayPal’s corporate accounting and financial reporting practices and the audit of PayPal’s financial statements;
      The independent auditors, including their qualifications and independence;
      The performance of PayPal’s internal audit function and independent auditor;
      The quality and integrity of PayPal’s financial statements and reports;
      Reviewing and approving all audit engagement fees and terms, as well as all non-audit engagements with the independent auditor;
      Producing the Audit Committee Report for inclusion in our proxy statement;
      PayPal’s overall risk framework and risk appetite framework; and
      PayPal’s compliance with legal and regulatory obligations.
  

 

Independence

  

The Board has determined that each member of the ARC Committee meets the independence requirements of NASDAQ and the SEC and otherwise satisfies the requirements for audit committee service imposed by the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

 

The Board has also determined that each member of the ARC Committee is financially literate and that Mr. Moffett is an “audit committee financial expert” as defined by SEC rules.

 

 

Compensation Committee    

     

Members:

Wences Casares

Jonathan Christodoro

David W. Dorman (Chair)

Gail J. McGovern (since Sept. 2017)

 

Committee Meetings in 2017: 5

 

Charter:

The Compensation Committee Charter, as adopted by the Board, is available on our website at

https://investor.paypal-corp.com/corporate-governance.cfm

   Primary Responsibilities
      Review and approve the overall strategy for employee compensation and all compensation programs applicable to directors and executive officers;
      Annually review and approve corporate goals and objectives relevant to the compensation of the CEO and evaluate the CEO’s performance;
      Review, determine and approve the compensation for the CEO and our other executive officers;
      Oversee and monitor compliance with the Company’s stock ownership guidelines applicable to directors and executive officers;
      Review and discuss the Compensation Discussion and Analysis contained in our proxy statement and prepare the Compensation Committee Report for inclusion in our proxy statement; and
      Review and consider the results of any advisory stockholder votes on executive compensation.
  

 

The charter of the Compensation Committee permits the Compensation Committee, in its discretion, to delegate all or a portion of its duties and responsibilities to a subcommittee or any member of the Compensation Committee or, subject to applicable law, listing standards and the terms of the charter, any officer(s) of the Company.

   Independence
  

The Board has determined that each member of the Compensation Committee meets the independence requirements of NASDAQ and the SEC.

 

Additionally, the Compensation Committee assesses on an annual basis the independence of its compensation consultants, outside legal counsel, and other compensation advisers. Additional disclosure regarding the role of the Compensation Committee in compensation matters, including the role of consultants in compensation decisions, can be found below under the section “Compensation Discussion and Analysis — Other Compensation Practices and Policies — Roles and Responsibilities — Compensation Consultant.”

 

 

www.paypal.com


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22      Corporate Governance   

 

 

Governance Committee    

     

Members:

David W. Dorman

Gail J. McGovern (Chair)

 

Committee Meetings in 2017: 3

 

Charter:

The Governance Committee Charter, as adopted by the Board, is available on our website at https://investor.paypal-corp.com/corporate-governance.cfm

   Primary Responsibilities
      Make recommendations to the Board as to the appropriate size of the Board or any Board committee;
      Identify individuals believed to be qualified to become Board members;
      Make recommendations to the Board on potential Board and Board committee members, whether as a result of vacancies (including any vacancy created by an increase in the size of the Board) or as part of the annual election cycle, taking into consideration the criteria set forth in the “Composition of the Board” section of the Governance Guidelines;
      Review our Governance Guidelines at least annually;
      Establish procedures to exercise oversight of the evaluation of the Board and senior management;
      Lead an annual evaluation of the Board and senior management; and
      Consider any other corporate governance issues that may arise from time to time, and develop appropriate recommendations for the Board.
  

 

Independence

  

The Board has determined that each member of the Governance Committee meets the independence requirements of NASDAQ.

 

Board and Committee Meetings and Attendance

Our Board holds eight regularly scheduled meetings in additional to special meetings scheduled as appropriate. At each regularly scheduled quarterly, in-person Board meeting, a member of each principal Board committee reports on any significant matters addressed by the committee since the last quarterly, in-person Board meeting. In addition, the outside directors have the opportunity to meet without our management or the other directors as part of each regularly scheduled Board meeting. The Lead Independent Director leads these discussions. The Board expects that its members rigorously prepare for, attend and participate in all Board and applicable Board committee meetings.

Our Board met eight times during 2017. Each director nominee who served in 2017 attended at least 75% of all of our Board meetings and committee meetings for committees on which he or she served for the period during which he or she served in 2017.

All directors are encouraged to attend the Annual Meeting. Last year, six of the ten directors serving on our Board at the time of our 2017 Annual Meeting attended that meeting.

Related Person Transactions

RELATED-PERSON TRANSACTION POLICY

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

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

 

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

 

 

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  Corporate Governance     23

 

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

TRANSACTIONS WITH RELATED PERSONS

An immediate family member of Gary Marino, our Executive Vice President, Chief Commercial Officer, is employed by the Company. Gary’s Marino’s son, Steve Marino, is a project manager in credit technology, and received total compensation of approximately $197,896 in 2017 and standard benefits applicable to similarly situated employees. This related person transaction was approved by the ARC Committee.

The charter of the ARC Committee requires it to review and approve all related person transactions that are required to be disclosed under Item 404(a) of Regulation S-K. There were no transactions required to be reported in this Proxy Statement since the beginning of fiscal 2017 where our written related-person transaction policy did not require review, approval or ratification or where this policy was not followed.

Communication with the Board

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

 

www.paypal.com


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24      Our Executive Officers   

 

Our Executive Officers

 

Our executive officers are elected annually by the Board and serve at the discretion of the Board. Set forth below is information regarding our executive officers as of April 12, 2018.

 

  Name    Age      Position    Biography

 

  Daniel H. Schulman

  

 

 

 

60

 

 

  

 

President and Chief Executive Officer

  

 

Mr. Schulman’s biography is set forth on page 13 under the heading “Proposal 1 — Election of Directors — Director Nominees.”

 

 

  Jonathan Auerbach

  

 

 

 

55

 

 

  

 

Executive Vice President, Chief Strategy, Growth and Data Officer

  

 

Mr. Auerbach has served PayPal as Executive Vice President, Chief Strategy, Growth and Data Officer since January 2018. From September 2016 to January 2018, he served as Executive Vice President, Chief Strategy and Growth Officer. From July 2015 to September 2016, he served as Senior Vice President, Chief Strategy and Growth Officer.

 

Mr. Auerbach was the CEO of Group Digital Life at Singapore Telecommunication Limited (Singtel), a telecommunications company, from September 2014 to May 2015, where he led the company’s global portfolio of digital businesses as well as its venture fund. From 1987 through 2014, Mr. Auerbach was a management consultant and held a variety of executive roles with McKinsey & Company, a global management consulting firm.

 

 

  Aaron Karczmer

  

 

 

 

46

 

 

  

 

Executive Vice President, Chief Risk, Compliance and Security Officer

  

 

Mr. Karczmer has served PayPal as Executive Vice President, Chief Risk, Compliance and Security Officer since April 2017. From September 2016 to March 2017, he served as Senior Vice President, Chief Compliance and Ethics Officer. From May 2016 to September 2016, he served as Senior Vice President, Chief Compliance Officer.

 

From 2013 to April 2016, he served as Senior Vice President, Deputy Chief Compliance Office and Head of Global Financial Crime Compliance of American Express, a financial services company. From May 2011 to January 2013, he served as Vice President, Principal Compliance Leader, Enterprise Growth and Enterprise Compliance Risk Management of American Express. From September 2007 to May 2011, he served as Vice President, Financial Intelligence Unit — AML Enterprise Surveillance, Investigations & Technology of American Express.

 

 

  Gary J. Marino

  

 

 

 

61

 

 

  

 

Executive Vice President, Chief Commercial Officer

  

 

Mr. Marino has served PayPal as Executive Vice President, Chief Commercial Officer since September 2016. From July 2015 to September 2016, he served as Senior Vice President, Global Credit and the Americas.

 

Mr. Marino co-founded Bill Me Later, Inc. in 2001 and served as its Chief Executive Officer from 2001 through November 2009, when eBay Inc. acquired Bill Me Later, Inc.

 

 

  A. Louise Pentland

  

 

 

 

46

 

 

  

 

Executive Vice President, Chief Business Affairs and Legal Officer

  

 

Ms. Pentland has served PayPal as Executive Vice President, Chief Business Affairs and Legal Officer since September 2016. From September 2015 to September 2016, she served as Senior Vice President, Chief Legal Officer and Secretary. From July 2015 to September 2015, she served as Senior Vice President, General Counsel and Secretary.

 

Ms. Pentland was previously the Executive Vice President and Chief Legal Officer at Nokia Corporation, a multinational communications and information technology company, from July 2008 to July 2014. Ms. Pentland also serves on the Board of Directors of Hitachi Ltd.

 

 

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  Our Executive Officers     25

 

  Name    Age      Position    Biography

 

  John D. Rainey

  

 

 

 

47

 

 

  

 

Chief Financial Officer and Executive Vice President, Global Customer Operations

  

 

Mr. Rainey has served PayPal as Chief Financial Officer and Executive Vice President, Global Customer Operations since January 2018. From September 2016 to January 2018, he served as Executive Vice President, Chief Financial Officer. From August 2015 to September 2016, he served as Senior Vice President, Chief Financial Officer.

 

From April 2012 to July 2015, Mr. Rainey was Executive Vice President and Chief Financial Officer of United Continental Holdings, Inc., an airline holding company. Mr. Rainey also served as Chief Financial Officer and Executive Vice President at United Airlines, Inc., an airline company, from April 2012 to August 2015. From October 2010 to April 2012, Mr. Rainey was Senior Vice President of Financial Planning and Analysis at United Continental Holdings, Inc. Mr. Rainey also serves on the Board of Directors of Nasdaq, Inc.

 

 

  William J. Ready

  

 

 

 

38

 

 

  

 

Executive Vice President, Chief Operating Officer

  

 

Mr. Ready has served PayPal as Executive Vice President, Chief Operating Officer since September 2016. From July 2015 to September 2016, he served as Senior Vice President, Global Head Product & Engineering of PayPal. Prior to the Separation, Mr. Ready was the head of PayPal’s Braintree operations from the time of its acquisition in December 2013.

 

Mr. Ready was the Chief Executive Officer of Braintree, an online payments provider, from October 2011 until its acquisition by PayPal, Inc., in December 2013. From July 2011 to October 2011, Mr. Ready was an executive in residence at Accel Partners, a leading Silicon Valley venture capital and growth equity firm. Mr. Ready was the President of iPay Technologies, Inc., a payments services provider, from 2008 to 2011. Mr. Ready also serves on the Board of Directors of Automatic Data Processing, Inc.

 

 

www.paypal.com


Table of Contents
           
26      Stock Ownership Information   

 

Stock Ownership Information

 

Security Ownership of Certain Beneficial Owners and Management

The following table sets forth certain information known to us with respect to beneficial ownership of our common stock as of April 3, 2018 by (1) each stockholder known to us to be the beneficial owner of more than 5% of our common stock, (2) each director and nominee for director, (3) each executive officer named in the 2017 Summary Compensation Table below, and (4) all executive officers and directors as a group. Unless otherwise indicated below, the address for each of our executive officers and directors is c/o PayPal Holdings, Inc., 2211 North First Street, San Jose, California 95131.

 

     Shares Beneficially
Owned(1)
 
  Name of Beneficial Owner    Number      Percent  

  FMR LLC2

     82,888,592        7.0

  The Vanguard Group3

     80,842,746        6.8

  BlackRock, Inc.4

     69,404,765        5.9

  Daniel H. Schulman5

     630,150        *  

  John D. Rainey6

     116,948        *  

  Gary J. Marino7

     97,598        *  

  A. Louise Pentland8

     88,944        *  

  William J. Ready9

     203,916        *  

  Rodney C. Adkins

     10,149        *  

  Wences Casares10

     14,347        *  

  Jonathan Christodoro

     15,927        *  

  John J. Donahoe11

     325,467        *  

  David W. Dorman12

     33,391        *  

  Belinda J. Johnson13

     7,435        *  

  Gail J. McGovern14

     12,647        *  

  David M. Moffett

     66,320        *  

  Ann M. Sarnoff15

     6,645        *  

  Frank D. Yeary16

     17,389        *  

  All directors and executive officers as a group (17 persons)17

     1,856,670        0.2

* Less than one percent

1 This table is based upon information supplied by officers, directors, and principal stockholders and any Schedules 13D and 13G filed with the SEC. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Unless otherwise indicated in the footnotes to this table, the persons and entities named in the table have sole voting and sole investment power with respect to all shares beneficially owned, subject to community property laws where applicable. Shares of our common stock subject to options that are currently exercisable or exercisable within 60 days of April 3, 2018, and restricted stock units (“RSUs”) that are scheduled to vest within 60 days of April 3, 2018 are deemed to be outstanding for the purpose of computing the percentage ownership of the person holding those options or RSUs, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. The percentage of beneficial ownership is based on 1,187,180,992 shares of common stock outstanding as of April 3, 2018.

2 FMR LLC has beneficial ownership of an aggregate of 82,888,592 shares of the Company’s common stock. FMR LLC has sole voting power of 12,183,260 shares of the Company’s common stock and sole dispositive power of 82,888,592 shares of the Company’s common stock. The address for FMR LLC is 245 Summer Street, Boston, Massachusetts 02210.

3 The Vanguard Group and its affiliates and subsidiaries have beneficial ownership of an aggregate of 80,842,746 shares of the Company’s common stock. The Vanguard Group has sole voting power of 1,618,860 shares of the Company’s common stock, shared voting power of 244,955 shares of the Company’s common stock, sole dispositive power of 79,019,404 shares of the Company’s common stock, and shared dispositive power of 1,823,342 shares of the Company’s common stock. The address for The Vanguard Group is 100 Vanguard Blvd., Malvern, PA 19355.

4 BlackRock, Inc. and its affiliates and subsidiaries have beneficial ownership of an aggregate of 69,404,765 shares of the Company’s common stock. BlackRock, Inc. has sole voting power of 60,178,544 shares of the Company’s common stock, and sole dispositive power of 69,404,765 shares of the Company’s common stock. The address for BlackRock, Inc. is 55 East 52nd Street, New York, New York 10055.

5 Mr. Schulman is our President and CEO. Includes 254,853 shares Mr. Schulman has the right to acquire pursuant to outstanding options exercisable within 60 days of April 3, 2018.

6 Mr. Rainey is our Chief Financial Officer and Executive Vice President, Global Customer Operations. Includes 9,103 shares Mr. Rainey has the right to acquire pursuant to outstanding options exercisable within 60 days of April 3, 2018.

7 Mr. Marino is our Executive Vice President, Chief Commercial Officer. Includes 12,823 shares Mr. Marino has the right to acquire pursuant to outstanding options exercisable within 60 days of April 3, 2018.

8 Ms. Pentland is our Executive Vice President, Chief Business Affairs and Legal Officer. Includes 3,056 shares Ms. Pentland has the right to acquire pursuant to outstanding options exercisable within 60 days of April 3, 2018, and 33,278 RSUs scheduled to vest within 60 days of April 3, 2018.

9 Mr. Ready is our Executive Vice President, Chief Operating Officer. Includes 25,551 shares Mr. Ready has the right to acquire pursuant to outstanding options exercisable within 60 days of April 3, 2018 and 24,258 RSUs scheduled to vest within 60 days of April 3, 2018.

 

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  Stock Ownership Information     27

 

10 The address for Mr. Casares is Xapo Inc., 364 University Avenue, Palo Alto, California 94301.

11 Includes 198,513 shares Mr. Donahoe has the right to acquire pursuant to outstanding options exercisable within 60 days of April 3, 2018. The address for Mr. Donahoe is ServiceNow, Inc., 2225 Lawson Lane, Santa Clara, California 95054.

12 The address for Mr. Dorman is Knoll Ventures, Tower Place 200, Suite 1000, 3348 Peachtree Road, NE, Atlanta, Georgia 30326.

13 The address for Ms. Johnson is Airbnb, Inc., 888 Brannan Street, San Francisco, California 94103.

14 The address for Ms. McGovern is American Red Cross, 430 17th Street, NW, Washington, DC 20006.

15 The address for Ms. Sarnoff is BBC Worldwide Americas, 1120 Avenue of the Americas, 5th Floor, New York, New York 10036.

16 The address for Mr. Yeary is CamberView Partners, LLC, 650 California Street, 31st Floor, San Francisco, California 94108.

17 Includes 566,720 shares subject to options exercisable within 60 days of April 3, 2018, and 94,889 RSUs scheduled to vest within 60 days of April 3, 2018.

Section 16(a) Beneficial Ownership Reporting Compliance

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

We believe that during the fiscal year ended December 31, 2017, our directors, executive officers, and greater than 10% stockholders complied with all applicable Section 16(a) filing requirements.

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

 

www.paypal.com


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28      Proposal 2   

 

Proposal 2 — Advisory Vote to Approve Named Executive Officer Compensation

 

In accordance with the requirements of Section 14A of the Exchange Act, we are asking our stockholders to vote on an advisory basis to approve the compensation paid to our NEOs (“say-on-pay”), as described in the Compensation Discussion and Analysis and the compensation table sections of this proxy statement.

As discussed in the Compensation Discussion and Analysis, the Compensation Committee is committed to an executive compensation program that creates transparent and simple programs that appropriately incentivize our executives, align with stockholder interests and external expectations, and enable us to effectively compete for and win top talent and to build the strongest possible leadership team for PayPal. The Compensation Committee believes that the goals of our executive compensation program are appropriate and that the program is properly structured to achieve those goals. In deciding how to vote on this proposal, the Board encourages you to read the Compensation Discussion and Analysis and the compensation table sections of this proxy statement.

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

“RESOLVED, that the Company’s stockholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed in the Company’s Proxy Statement for the 2018 Annual Meeting of Stockholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the 2017 Summary Compensation Table, and the other related tables and disclosures.”

This “say-on-pay” vote is advisory, and therefore not binding on the Company, the Board, or the Compensation Committee. However, the Board and the Compensation Committee value the opinions of our stockholders and will take into account the outcome of this vote in considering future compensation arrangements. We hold our advisory “say-on-pay” vote every year and expect that the next “say-on-pay” vote will occur at PayPal’s 2019 annual meeting of stockholders.

 

The Board Recommends a Vote FOR Proposal 2.

 

LOGO       2018 Proxy Statement


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  Compensation Discussion and Analysis     29

 

LOGO

Compensation Discussion and Analysis

Dear PayPal Stockholder:

2017 was an extraordinary year for PayPal. We continued to pursue our mission and vision as part of the multi-year strategic plan that dramatically expanded our customer value proposition, transformed our business model to support customer choice, and strengthened strategic partnerships across the ecosystem. In 2017, we succeeded in growing our core through expanding our global capabilities, in expanding our value proposition for customers by focusing on trust and simplicity, and in strengthening strategic partnerships by building new strategic partnerships to provide better experiences for our customers and seeking new areas of growth through new international markets around the world.

Our executive compensation program takes into consideration the unique nature of the financial technology (“FinTech”) competitive landscape, and is designed to create transparent and simple programs that appropriately incentivize our executives, align with stockholder interests and external expectations, and enable us to effectively compete for and win top talent and to build the strongest possible leadership team for PayPal. The discussion that follows provides an overview of our compensation program for our named executive officers and their compensation for 2017. We encourage you to review this discussion and analysis of our program carefully, and we hope you agree that our executive compensation program supports PayPal’s growth strategy and is well aligned with creating long-term stockholder value.

The Compensation Committee of the Board of Directors

David W. Dorman (Chairman)

Wences Casares

Jonathan Christodoro

Gail J. McGovern

 

 

 

 

www.paypal.com


Table of Contents
           
30      Compensation Discussion and Analysis   

 

Introduction

We completed our second year as an independent company in 2017, continuing our transformative journey while delivering strong results. For 2017, the Committee approved an executive compensation program based on our “pay for performance” philosophy that is designed to align our executive officers’ compensation with the key drivers of profitable short-term and long-term growth and the goals of properly incentivizing and rewarding our executives for performance that exceeds expectations, providing transparency for both our executives and our stockholders, and positioning us competitively to enable us to attract and retain our executives.

 

This Compensation Discussion and Analysis (“CD&A”) describes the compensation for each of PayPal’s named executive officers (“NEOs”). For 2017, our NEOs were:

 

   Daniel H. Schulman

   President and Chief Executive Officer (our “CEO”)

   John D. Rainey

  

Chief Financial Officer and Executive Vice President, Global Customer Operations

   Gary J. Marino

   Executive Vice President, Chief Commercial Officer

   A. Louise Pentland

   Executive Vice President, Chief Business Affairs and Legal Officer

   William J. Ready

   Executive Vice President, Chief Operating Officer

 

LOGO       2018 Proxy Statement


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  Compensation Discussion and Analysis     31

 

Executive Summary—Overview of Executive Compensation Program

The following is a brief overview of the primary compensation elements for our NEOs in 2017.

PRIMARY COMPENSATION ELEMENTS FOR NEOs IN 2017

 

    Total Direct Compensation
                 Salary        Annual Incentive Award        Performance-Based
Restricted Stock Units
(“PBRSUs”)
       Restricted Stock Units
(“RSUs”)
     
 

 

When is it set?

   

 

Set at hire; reviewed annually

   

 

Granted annually and paid or settled in February following conclusion of performance period.

   

 

Granted annually in March

  
 

 

Form of payment

   

 

Cash

   

 

Cash and Equity

   

 

Equity

  
 

 

Timeframe of targeted performance

    Short-term (annual) emphasis     Long-term (multi-year) emphasis   
 

 

Performance period

   

 

Ongoing

   

 

One year

   

 

Three year performance period with “cliff” vesting of shares earned, if any, following end of performance period

   

 

Three year service-based vesting, on annual ratable basis

  
 

 

2017 performance measures

   

 

N/A

   

 

Company Performance – Revenue and Non-GAAP Operating Margin, with Net New Actives adjustment

 

Individual Performance

   

 

FX-Neutral Revenue Compound Annual Growth Rate (“CAGR”) and Free Cash Flow CAGR

   

 

Service-based vesting; ultimate value varies based on stock price performance

  
   

 

Objective

         

 

Compensates for expected day-to-day performance

 

Rewards individuals’ current contributions

 

Reflects scope of roles and responsibilities

 

Attracts highly capable leaders in an extremely competitive talent market

     

 

Compensates for successful annual performance

 

Motivates achievement of short-term performance goals designed to enhance value of Company

 

Attracts highly capable leaders in an extremely competitive talent market

     

 

Compensates for successful achievement of three year performance goals designed to enhance long-term value

 

Intended to satisfy long-term retention objectives

 

Attracts highly capable leaders in an extremely competitive talent market

     

 

Compensates for the creation of long-term value

 

Recognizes recent performance and potential future contributions

 

Intended to satisfy long-term retention objectives

 

Attracts highly capable leaders in an extremely competitive talent market

    

The Committee believes that long-term equity incentives should comprise the majority of the target total direct compensation opportunity for our NEOs. Other than the annual long-term incentive awards, the Committee may also grant other equity awards from time to time in recognition of an NEO’s promotion or special achievement. In 2017, a special equity grant of RSUs was made to Mr. Ready with a grant date value equal to $16 million (the “Promotion RSU Award”) in recognition of his promotion to Chief Operating Officer in late 2016. The vesting schedule of this Promotion RSU Award is intended to enhance our long-term retention objective, due to its back-loaded vesting schedule, as 50% of the Promotion RSU Award will vest on the second anniversary of the date of grant and 25% will vest on each of the third and fourth anniversaries of the date of grant, subject to Mr. Ready’s continued service through the applicable vesting date. The Promotion RSU Award was granted after considering the input of the Committee’s independent compensation consultant, the level deemed necessary to retain Mr. Ready’s continued service to the Company in this key operational role over the four-year vesting period given the highly competitive labor market in the Bay Area, Mr. Ready’s expanded scope of responsibilities, and his performance in that role since his promotion.

KEY CONSIDERATIONS IN SETTING PAY

Objectives of Executive Compensation Program

In 2017, the Committee prioritized the following compensation philosophy and goals:

 

  Simplicity, Transparency and Clarity of our Program – enable executives to directly link Company and individual performance to their pay, and enable stockholders to directly link returns on their investment to Company performance;
  One Team – maintain unified goals and objectives for the entire executive leadership team to drive operational decisions and Company performance;
  Winning the War for Talent – recognize the unique FinTech space in which we compete and prioritize nimble and aggressive compensation strategies to attract and retain key talent; and
  Individual Performance – ensure compensation is commensurate with results, both on the upside and downside, and that leaders are held accountable for their performance.

 

www.paypal.com


Table of Contents
           
32      Compensation Discussion and Analysis   

 

Investor Feedback and 2017 Say-On-Pay Advisory Vote on Named Executive Officer Compensation

At our 2017 annual meeting of stockholders (the “2017 Annual Meeting”), we received more than 96% support of the votes cast on our say-on-pay proposal. Following our 2017 Annual Meeting, we engaged in proactive outreach efforts with major institutional investors holding approximately 55% of our common stock focused on various corporate governance and executive compensation-related issues.

After considering our 2017 say-on-pay voting results as well as the positive feedback received during our stockholder engagement efforts, the Committee determined that it was appropriate to maintain the core design of our 2017 executive compensation program and did not make any changes to our executive compensation program in response to those voting results or stockholder engagement feedback. The Committee will continue to consider future say-on-pay votes and investor feedback when considering and making decisions relating to our executive compensation program, policies, and practices.

Pay for Performance

Our key executive compensation guiding principle continues to be closely aligning the compensation of our executives with the creation of long-term value for our stockholders by tying a significant portion of their target total direct compensation opportunity to the Company’s performance.

2017 Performance Highlights

In 2017, led by significantly higher revenue growth and improved operating performance, our business delivered greater profitability and higher earnings per share on a reported and adjusted basis. We continued to focus on the long-term growth of our business by executing a broad transformation of our culture and business model to support customer choice and strengthening strategic partnerships across the ecosystem.

The following summarizes our key financial and operational performance results for 2017. We use certain of these key metrics as the performance measures in our incentive compensation program and believe these measures help to align the interests of our executives with those of our stockholders.

 

 

LOGO

 

 

LOGO       2018 Proxy Statement


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  Compensation Discussion and Analysis     33

 

1 Non-GAAP operating margin and free cash flow are two of the performance metrics used in our incentive compensation program. Non-GAAP operating margin and free cash flow are not financial measures prepared in accordance with generally accepted accounting principles (“GAAP”). For information on how we compute these non-GAAP financial measures and a reconciliation to the most directly comparable financial measures prepared in accordance with GAAP, please refer to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section beginning on page 47 of our 2017 Annual Report on Form 10-K filed with the SEC on February 7, 2018.

2 Free Cash Flow for 2017 reflects the impact of held for sale accounting treatment in connection with the potential sale of the Company’s U.S. consumer credit receivables portfolio, which reduced free cash flow for 2017 by approximately $1.3 billion. Normalizing for this impact, free cash flow for 2017 would have been approximately $3.16 billion.

In addition to our strong financial and operational results, we also achieved the following in 2017:

 

  Our total stockholder return for 2017 (measured from December 30, 2016 to December 29, 2017) was 87%.
  We signed a new long-term strategic partnership with Synchrony Financial that extends our existing co-branded consumer credit card program agreement. Under this partnership, Synchrony will also become the exclusive issuer of the PayPal credit online consumer financing program in the U.S. for the next ten years and acquire the assets of PayPal’s U.S. consumer credit receivables portfolio.
  As part of our vision of being a true Customer Champion and supporting customer choice, we continued to forge a series of strategic partnerships with networks, financial institutions, technology companies, and mobile carriers, and entered into 16 major strategic partnerships in 2017.
  Continued strength in mobile, as mobile represented approximately 34% of overall payment volume on our platform for the full year 2017 with total mobile payment volume growing 52% to approximately $155 billion for the year.

Linking 2017 NEO Compensation to Performance

We believe that our executive compensation program was effective at incentivizing results in 2017 by appropriately aligning pay and performance. The following charts show the 2017 Target Total Direct Compensation mix for our CEO, Mr. Schulman, and the average Target Total Direct Compensation mix for our other NEOs. Target Total Direct Compensation is the sum of (i) 2017 base salary, (ii) target 2017 annual incentive award (based on the grant date fair value for the portion of the award delivered as PBRSUs) and (iii) target annual long-term incentive award (based on grant date fair values).

 

LOGO

 

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Table of Contents
           
34      Compensation Discussion and Analysis   

 

The following chart demonstrates the alignment between Revenue, a key metric of our financial performance, and our Indexed TSR, to our CEO Pay (as shown in the “2017 Summary Compensation Table”) during 2017, 2016 and 2015. Indexed TSR is defined as the total shareholder return on our common stock during the period from December 31, 2015 through December 29, 2017, assuming $100 was invested on December 31, 2015.

 

LOGO    LOGO

2017 Incentive Pay Outcomes Are Aligned with Performance—Annual Incentive Award Program

Our NEOs earned annual incentive awards (bonuses) under the 2017 annual incentive award program (the “2017 AIP”), which is our annual bonus program for eligible employees adopted pursuant to the PayPal Employee Incentive Plan.

Under the 2017 AIP, Revenue served as the “gate” or the funding performance target (the “2017 AIP Funding Threshold”), and if achieved, payouts were determined based on a Company performance component and an individual performance component, weighted 75% and 25%, respectively. Assuming the 2017 AIP Funding Threshold was achieved, Revenue and Non-GAAP Operating Margin served as equally weighted Company performance measures and represented the primary determinants of the payout with respect to the financial component, with “Net New Actives” (as defined below in “Compensation Framework – Incentive (Performance-Based) Compensation for 2017 – Annual Incentive Award Program – Company Performance Measures) serving as a financial performance measure modifier.

In addition, the Committee approved a revised annual incentive award program design by granting the Company performance component of the 2017 AIP in the form of PBRSUs, with a one-year performance period (calendar year 2017), pursuant to the terms of the PayPal Employee Incentive Plan and the 2015 PayPal Holdings, Inc. Equity Incentive Award Plan, as amended and restated. The awards were granted in mid-February 2017 and vested on the one-year anniversary of the grant date, based on Company performance and continued employment through the vesting date. The Committee believes that delivering the Company performance portion of the 2017 AIP in equity further reinforces and strengthens the pay for performance design of our executive compensation program, and provides a further linkage between our NEOs and stockholders, without increasing the target short-term incentive of our NEOs.

 

LOGO       2018 Proxy Statement


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  Compensation Discussion and Analysis     35

 

The 2017 AIP weighted the Company performance component at 75% and the individual performance component at 25% for our NEOs.

 

 

LOGO

In early 2018, the Committee approved funding 2017 annual incentives under the 2017 AIP based upon our exceeding the 2017 AIP Funding Threshold. The Committee then approved specific awards of these annual incentives based upon Company performance with regard to Revenue and Non-GAAP Operating Margin, “Net New Actives” performance and each executive’s individual performance, as further discussed under “Compensation Framework – Incentive (Performance-Based) Compensation for 2017 – Annual Incentive Award Program.” Based on these results, the Committee determined that the achievement level of the Company performance component under the 2017 AIP was 185% of target.

The Committee set the 2017 Revenue and Non-GAAP Operating Margin target levels in consideration of anticipated performance and within the guidance range provided to the market in early 2017. We experienced significant growth during the year and, accordingly, the 2017 AIP payments were higher than the 2016 annual incentive payments, primarily due to our strong financial and operational performance.

Key Compensation Policies and Practices

We are committed to maintaining strong governance standards with respect to our executive compensation program, policies, and practices. Consistent with this focus, we maintain the following policies and practices that we believe demonstrate our commitment to executive compensation best practices.

 

     What We Do      
 

 

Pay for
Performance

  

 

LOGO

  

 

A substantial percentage of our NEOs’ 2017 Target Total Direct Compensation was performance-based and tied to pre-established performance goals aligned with our short-term and long-term objectives.

  
 

 

Adherence to
Rigorous Goals

  

 

LOGO

  

 

We use objective performance-based company goals in our annual and long-term incentive plans that we believe are rigorous and designed to incentivize and motivate NEO performance.

  
 

 

Clawback Policy

  

 

LOGO

  

 

Our NEOs are subject to a clawback policy, which permits the Committee to require forfeiture or reimbursement of incentive compensation, including any cash incentive award, equity award, or equity-based award paid or awarded to the NEO during the period in which he or she is subject to the policy, if (i) an action or omission by the NEO constitutes a material violation of our Code of Business Conduct; (ii) an action or omission by the NEO results in material financial or reputational harm to the Company; or (iii) a material restatement of all or a portion of our financial statements is the result of a supervisory or other failure by the NEO.

  
 

 

Meaningful
Stock Ownership
Guidelines

  

 

LOGO

  

 

Our stock ownership guidelines are designed to align the long-term interests of our NEOs and non-employee directors with those of our stockholders and discourage excessive risk-taking. Our guidelines require stock ownership levels as a value of our common stock equal to a multiple of base salary (6x for CEO and 3x for EVPs) or annual retainer (5x for non-employee directors), and include stock retention requirements for executive officers until the required ownership levels are reached.

  
   

 

Prohibition of
Hedging and
Pledging
Transactions

  

 

LOGO

  

 

Our insider trading policy prohibits members of our Board and NEOs from (i) entering into any hedging or monetization transactions relating to our securities or otherwise trading in any instrument relating to the future price of our securities or (ii) pledging our common stock as collateral for any loans.

    

 

www.paypal.com


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36      Compensation Discussion and Analysis   

 

     What We Do      
 

 

Independent
Compensation
Consultant

  

 

LOGO

  

 

The Committee engages its own independent compensation consultant to advise on executive and non-employee director compensation matters.

  
 

 

Annual Risk
Assessment

  

 

LOGO

  

 

Based on our annual risk assessment, we have concluded that our compensation program does not present any risk that is reasonably likely to have a material adverse effect on PayPal.

  
 

 

Annual
Comparator
Peer Group
Review

  

 

LOGO

  

 

The Committee, with the assistance of its compensation consultant, reviews the composition of our comparator peer group annually and makes adjustments to the composition of the peer group as it deems appropriate.

  
 

 

Annual
Say-on-Pay
Vote

  

 

LOGO

  

 

We conduct an annual advisory (non-binding) vote on the compensation of the NEOs (a “say-on-pay” vote). At our 2017 Annual Meeting, more than 96% of the votes cast on the say-on-pay proposal were voted in support of the 2016 compensation of the NEOs.

  
   

 

Investor
Engagement

  

 

LOGO

  

 

In addition to the annual say-on-pay vote, we are committed to ongoing engagement with our investors on executive compensation and governance matters. These engagement efforts take place through teleconferences, in-person meetings and correspondence with our investors.

    
     What We Don’t Do      
 

 

No Excise Tax
Gross-Ups on
Severance
Payments

  

 

LOGO

  

 

We do not provide our NEOs with any gross-ups or other payment or reimbursement of excise taxes on severance or other payments in connection with a change in control of PayPal.

  
 

 

No “Single-
Trigger” CIC
Payments and
Acceleration of
Equity Awards

  

 

LOGO

  

 

We do not make “single-trigger” change-in-control payments or maintain any plans that require single-trigger change-in-control acceleration of equity awards to our NEOs upon a change in control of PayPal.

  
 

 

No Tax
Gross-Ups on
Perquisites

  

 

LOGO

  

 

We do not provide our NEOs with tax gross-ups on perquisites, other than in limited circumstances for business-related relocations and international business travel-related benefits that are under our control, at our direction and deemed to benefit our business operations.

  
 

 

No Discounting
of Stock Options
or Repricing of
Underwater
Options

  

 

LOGO

  

 

We expressly prohibit the discounting of stock options and the repricing of underwater stock options without stockholder approval under our equity compensation plan.

  
   

 

No Guaranteed
Bonuses

  

 

LOGO

  

 

Our annual incentive plan is performance-based and our NEOs are not guaranteed any minimum levels of payment.

    

Compensation Framework

INCENTIVE (PERFORMANCE-BASED) COMPENSATION FOR 2017

When deciding the target amount and form of each element of compensation for each of our NEOs, the Committee took into account the size and complexity of the NEO’s position and business unit or function, as well as the following factors (the “Incentive Compensation Factors”):

 

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

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

Annual Incentive Award Program

The 2017 AIP provides our NEOs with the opportunity to earn annual incentive compensation based on Company performance and each executive’s individual performance.

 

LOGO       2018 Proxy Statement


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  Compensation Discussion and Analysis     37

 

The Committee believes that it is important to have our executives’ annual incentives tied primarily to our overall performance, with individual compensation differentiated based on individual performance.

Target Incentive Amounts

The 2017 annual incentive target (expressed as a percentage of base salary) for each NEO was determined (i) with reference to the Committee’s assessment of data from public filings of our peer group companies and general industry data for comparable technology companies that were included in proprietary third-party compensation surveys (the specific identity of respondents of which are not provided to the Committee or the Company), (ii) based on each NEO’s position within the Company and (iii) taking into account the Incentive Compensation Factors. For 2017, the Committee did not adjust the target annual incentive opportunity percentages from the percentages set in 2016 for each of the NEOs.

The following table sets forth the 2017 AIP target annual cash incentive opportunities (the “Target Incentive Amount”) for each of our NEOs, expressed as a percentage of 2017 base salary and in dollars.

 

  Name  

Annual Incentive

Target as Percentage
of Base Salary

   

Target

Incentive Amount
($)

 

 

  Daniel H. Schulman

 

 

 

 

 

 

200%

 

 

 

 

 

 

 

 

 

2,000,000

 

 

 

 

 

  John D. Rainey

 

 

 

 

 

 

100%

 

 

 

 

 

 

 

 

 

650,000

 

 

 

 

 

  Gary J. Marino

 

 

 

 

 

100%

 

 

 

 

 

 

 

 

 

550,000

 

 

 

 

 

 

  A. Louise Pentland

 

 

 

 

 

 

100%

 

 

 

 

 

 

 

 

 

625,000

 

 

 

 

 

  William J. Ready

 

 

 

 

 

 

100%

 

 

 

 

 

 

 

 

 

650,000

 

 

 

 

75% of the Target Incentive Amount for each NEO was allocated to Company performance and the remaining 25% of the Target Incentive Amount was allocated to individual performance.

For the 2017 AIP, the Committee approved granting the Company performance portion of the 2017 AIP in the form of PBRSUs, with a one-year performance period (calendar year 2017). The PBRSUs were granted on February 15, 2017. The following table sets forth the 2017 AIP Target Incentive Amount for each of our NEOs in which the Company performance portion is expressed in target number of PBRSUs granted and the individual performance portion is expressed in target cash amount.

 

  Name   

Target

Incentive Amount
($)

     Target PBRSUs1
(75% of Target
Incentive Amount)
(In Shares)
    

Target

Cash (25% of
Target Incentive
Amount)

($)

 

 

  Daniel H. Schulman

     2,000,000        36,697        500,000  

 

  John D. Rainey

     650,000        11,927        162,500  

 

  Gary J. Marino

     550,000        10,092        137,500  

 

  A. Louise Pentland

     625,000        11,468        156,250  

 

  William J. Ready

     650,000        11,927        162,500  

1 The target number of PBRSUs was determined by dividing the USD value of the target award allocated to the Company performance portion by the average of the closing prices of the Company common stock for a period of 30 consecutive trading days prior to the grant date (the “Average Company Closing Price”). The PBRSUs were granted on February 15, 2017.

 

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38      Compensation Discussion and Analysis   

 

Company Performance Measures

In early 2017, the Committee set the Company performance measures under the 2017 AIP for our NEOs to create a strong link between Company performance and incentive payouts, as described in the following table:

 

  Measure    Definition    Purpose

 

  Revenue

  (50% Weighting)

  

 

Revenue, as reported in our Annual Report on our Form 10-K.

  

 

The Committee believes that a Revenue threshold (or “gate”) should be included to ensure that no cash incentive is paid if future income may be impaired by insufficient revenue growth.

 

In 2017, the Committee also included Revenue as one of the equally-weighted Company performance measures to establish the payment with respect to the Company performance component because the Committee believes that top-line growth is an important factor in stockholder value creation. Revenue is also a key financial metric that the Company uses internally to measure its ongoing financial performance.

 

  Non-GAAP Operating Margin

  (50% Weighting)

  

 

“Non-GAAP Operating Margin,” as reported in our Annual Report on our Form 10-K.

  

 

The Committee believes that Non-GAAP Operating Margin is a key measure of our short-term and intermediate-term performance because it measures profitability and reflects the degree of Revenue growth and expense management discipline of the Company and is a widely followed measure of core financial performance and business activities for our industry. Non-GAAP Operating Margin is also a key financial metric that the Company uses internally to measure its ongoing financial performance.

 

  Net New Actives (“NNAs”)

  (“Modifier”)

  

 

Measures the net change in the number of organic active customer accounts compared to the prior period, in this case 2017 compared to 2016. NNAs excludes the impact of any mergers and acquisitions.

  

 

The Committee believes that measuring NNAs reinforces the critical importance of growing our customer base to build for the future.

The Committee determined that the 2017 AIP should contain a minimum Revenue threshold (the “2017 AIP Funding Threshold”) to permit the funding of the plan and minimum Revenue and Non-GAAP Operating Margin thresholds to govern the performance necessary to trigger any payments. If the 2017 AIP Funding Threshold was met, Revenue and Non-GAAP Operating Margin were applied as equally weighted Company performance measures as the primary determinants of the Company performance portion of the payment for the 2017 AIP, with the Company performance payment level ranging from a minimum level of 25% to a maximum level of 200%. The NNAs operational performance measure served as a modifier to adjust the Company performance payout one percentage point for every 2.5 million increase of NNAs above the target. The Company performance payment level could not exceed 200% of target. If the 2017 AIP Funding Threshold was met, 75% of the Target Incentive Amount was determined based on our Revenue and Non-GAAP Operating Margin financial performance as measured against the pre-established performance levels and the NNA modifier, and the remaining 25% of the Target Incentive Amount was determined based on individual performance.

The table below shows the following for the 2017 AIP:

 

  The threshold, target and maximum performance levels established by the Committee for the 2017 AIP. These performance levels were set in the first quarter of 2017 based primarily on our approved budget and operating plan for the year, and the target levels were in-line with full year guidance provided to the investment community in January 2017;
  The actual performance levels achieved in 2017; and
  The resulting Company Performance Score, defined as a payout percentage based on our performance as measured against these pre-established performance levels.

 

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  Company Measure1    Threshold     Target     Maximum     2017 Actual     Percentage
of Target
Achieved2
 

 

  Revenue3

     $12.15     $ 12.65     $ 13.15     $ 13.03       176%  

 

  Non-GAAP Operating Margin

     19.2     20.2     21.2     21.1     188%  

 

  Net New Actives

       20         28.1       3%  

 

  Company Performance Score

                                     185%  

1 Revenue numbers are shown in billions and NNAs shown in millions.

2 After the end of each year, our actual performance is compared to the performance measures to determine the payment level of the Company performance portion of the 2017 AIP, subject to Committee–approved variations due to material events not contemplated at the time the target levels were established (such as major acquisitions and divestitures) and the Committee’s negative discretion. For 2017, the Committee adjusted 2017 Actual Revenue and Non-GAAP Operating Margin downward for the impact of the Company’s agreement to sell the U.S. consumer credit portfolio to Synchrony Financial and adjusted NNAs to exclude certain NNAs not contemplated when company targets were set.

3 The 2017 AIP Funding Threshold was $11.77M.

Individual Performance Measures

To facilitate differentiation based on individual performance, 25% of the Target Incentive Amount for our NEOs was based on individual performance (the “Individual Performance Score”). To determine each NEO’s Individual Performance Score, which can range from 0% to 200%, Mr. Schulman presented to the Committee his assessment of each NEO’s individual performance following the end of 2017, and the Committee assessed Mr. Schulman’s individual performance, in each case, with respect to one or more individual performance factors (collectively, the “Performance Factors”).

The Performance Factors related specifically to each NEO’s job function and generally encompassed the following items for each NEO:

 

  NEO    Performance Factors

 

  Daniel H. Schulman

  

 

  

 

Provided strategic leadership and oversaw key strategic partnerships and corporate transactions.

      Led PayPal through an outstanding year of financial outperformance during which we delivered growth that exceeded the high end of our initial guidance.
      Led a comprehensive strategic review of PayPal’s business portfolio that resulted in our 2017 announcement of an agreement to sell the U.S. consumer credit portfolio to Synchrony Financial.
      Continued to deepen and strengthen PayPal’s clear mission and vision as being a true Customer Champion and supporting customer choice.
  

 

  

Continued implementation of a set of values and core beliefs for PayPal to drive cultural change and create an environment centered on collaboration, innovation, wellness, and inclusion.

 

 

  John D. Rainey

  

 

  

 

Led PayPal’s financial reporting, analysis and planning organization, including overseeing PayPal’s internal controls over financial reporting.

      Continued to implement programs and processes to facilitate cost savings and operational efficiencies across the business.
      Executed financial plans designed to meet or exceed expectations for growth, margin, and cash flow targets.
      Successfully managed corporate capital allocation decisions consistent with creation of stockholder value.
      Led efforts to further enhance control environment and maintained high level of integrity over financial reporting.
  

 

  

Led effective investor relations activities and external guidance process.

 

 

  Gary J. Marino

  

 

  

 

Delivered significant growth and expansion in high growth regions, such as India.

    

 

  

Oversaw PayPal’s marketing strategy and provided leadership with brand expansion strategies.

 

 

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40      Compensation Discussion and Analysis   

 

  NEO    Performance Factors

 

 

  A. Louise Pentland

  

 

  

 

Performance with respect to leading the legal department and overseeing enterprise wide corporate governance initiatives to reflect best practices.

      Led corporate affairs organization, which includes communications, social innovations, and government relations.
      Led the evolution of PayPal’s global intellectual property strategy, both in protecting and creating intellectual property, as well as divesting redundant intellectual property.
      Led enterprise wide business affairs and enterprise wide human resources organizational transformations.
  

 

  

Provided distinctive leadership and judgment in ongoing litigation strategy and business matters.

 

 

  William J. Ready

  

 

  

 

Drove significant cost savings initiatives while maintaining high levels of customer satisfaction through supporting customer choice and being a true Customer Champion.

      Led the expansion of PayPal’s value proposition through product innovation, which led to significantly higher adoption of PayPal experiences and operational wins.
    

 

  

Led product strategy as a core competency of the business.

 

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

The Committee then made a final determination, in its sole discretion, as to the Individual Performance Score for each NEO after considering Mr. Schulman’s recommendations (other than with respect to himself), reviewing each individual’s performance with respect to the Performance Factors, and considering its own observations and assessments of each NEO’s and the Company’s performance. The Committee approved the Individual Performance Scores as recommended by Mr. Schulman for Messrs. Rainey, Marino and Ready and Ms. Pentland of 200%, 175%, 200% and 200%, respectively. For Mr. Schulman, the Committee approved an Individual Performance Score of 200%.

2017 AIP Payment

The actual amount of an NEO’s 2017 AIP award was determined by the following formula:

 

 

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Because the 2017 AIP Funding Threshold was met in 2017, the 2017 AIP was funded. The following table shows the 2017 AIP PBRSU Payout (in shares of Company stock) and the 2017 AIP Cash Payout (in dollars) for each NEO.

 

  NEO    Target
PBRSUs
(75% of
Target
Incentive
Amount)
(in Shares)
     x      75%
(Company
Performance
Score)1
     =      (a) 2017 AIP
PBRSU
Payout (in
Shares)
     +      Target Cash
(25% of
Target
Incentive
Amount)
($)
     x      25%
(Individual
Performance
Score)
     =      (b) 2017
AIP Cash
Payout
($)
 

  Daniel H. Schulman

     36,697           185%           67,889           500,000           200%           1,000,000  

  John D. Rainey

     11,927           185%           22,065           162,500           200%           325,000  

  Gary J. Marino

     10,092           185%           18,670           137,500           175%           240,625  

  A. Louise Pentland

     11,468           185%           21,216           156,250           200%           312,500  

  William J. Ready

     11,927                 185%                 22,065                 162,500                 200%                 325,000  

1 The PBRSUs vested on February 15, 2018, based on the Company Performance Score of 185%.

Long-Term Incentive Components

Long-Term Incentive Award Type and Annual Target Value

In making its determination on the long-term incentive (“LTI”) annual target value for 2017, the Committee set equity award guidelines and target levels of individual awards by position based on the following:

 

  equity compensation practices of technology companies in our peer group, as disclosed in their public filings (see “Other Compensation Practices and Policies – Use of Peer Group Comparisons” below for our 2017 peer group) and in proprietary third-party compensation surveys (the specific identity of respondents of which are not provided to the Committee or the Company);
  individual performance and potential;
  Incentive Compensation Factors; and
  need for individual retention incentives.

Based on these guidelines, the Committee approved the following annual target values for the 2017 LTI awards for the NEOs:

 

  NEO   

2017 LTI

Grant Value

($)

 

  Daniel H. Schulman1

     15,000,000  

  John D. Rainey2

     5,000,000  

  Gary J. Marino3

     6,000,000  

  A. Louise Pentland4

     5,000,000  

  William J. Ready5

     8,000,000  

1. For 2017, the Committee approved increasing Mr. Schulman’s LTI annual target value due in part to his pay relative to the competitive compensation data and his leadership of the Company and resulting Company performance.

2. Mr. Rainey’s LTI annual target value increased from 2016 due to his execution of financial plans that were designed to meet or exceed expectations for growth, operating margin and cash flow targets and the resulting Company performance and his pay relative to internal and external peers.

3. Mr. Marino’s LTI annual target value increased from 2016 due to his expanding role and responsibilities and his pay relative to internal and external peers.

4. Ms. Pentland’s LTI annual target value increased from 2016 due to her expanding role and responsibilities and her pay relative to internal and external peers.

5. Mr. Ready’s LTI annual target value increased from 2016 due to his expanding role and responsibilities and his pay relative to internal and external peers.

 

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Once the annual target values for the 2017 LTI awards were set for each NEO, the grant value was allocated equally among PBRSUs and service-based restricted stock units (“RSUs”).

 

 

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The table below shows the resulting number of shares of our common stock subject to the 2017 LTI target PBRSUs and RSUs:

 

  NEO    2017 Target PBRSUs1      2017 RSUs2  

 

  Daniel H. Schulman

     181,941        181,941  

 

  John D. Rainey

     60,647        60,647  

 

  Gary J. Marino

     72,777        72,777  

 

  A. Louise Pentland

     60,647        60,647  

 

  William J. Ready

     97,035        97,035  

1 The target number of PBRSUs was determined by dividing the value of the award by the Average Company Closing Price. The PBRSUs were granted on March 1, 2017.

2 The number of RSUs granted was determined by dividing the value of the award by the Average Company Closing Price. The RSUs were granted on March 1, 2017.

The following describes the two components of our 2017 LTI program: PBRSUs and RSUs.

Performance-Based Restricted Stock Units (PBRSUs)

In January 2017, the Committee approved the structure for the PBRSUs granted in 2017. To emphasize the importance of long-term, sustained strategic growth, the Committee approved a three-year performance period with each award to be settled for the number of shares of our common stock earned pursuant to the award following the end of the performance period, subject to the Committee’s approval of the level of achievement against the pre-established target levels for the selected performance measures (the “2017-2019 PBRSUs”).

PERFORMANCE MEASURES AND RATIONALES

The Committee approved the 2017-2019 PBRSU performance measures, which are the compound annual growth rates (“CAGR”) of FX-Neutral Revenue and Free Cash Flow over the three-year performance period from 2017-2019, as equally-weighted measures. The Committee believes that measuring CAGR over the three-year performance period is an appropriate performance measure as it is consistent with our long-term goal of growing our revenue and free cash flow.

 

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The following table summarizes the performance measures for the 2017-2019 PBRSUs and the Committee’s rationale for their selection:

 

Measure/Weighting    Definition    Purpose

 

FX-Neutral Revenue CAGR

(50% weighting)

  

 

Calculated on a fixed foreign exchange basis (referred to as “FX-Neutral”).

  

 

The Committee believes that the FX-Neutral Revenue measure should be used to help ensure that our executive officers are accountable for driving profitable growth, and making appropriate tradeoffs between investments that increase operating expense and future growth in revenue.

 

 

Free Cash Flow CAGR

(50% weighting)

  

 

“Free Cash Flow” is defined as “Net cash provided by operating activities” less “Property and equipment, net” as reported in our Annual Report on Form 10-K for each year during the performance period.

  

 

The Committee believes that the Free Cash Flow measure should be used to emphasize the cash generation capability of the business necessary to finance its continued growth and investment requirements, while positioning us to take advantage of inorganic growth opportunities.

 

PBRSU MECHANICS AND TARGETS

The targets established for the three-year performance period were set at a level consistent with the medium term outlook provided to the investment community. When the Committee set the target levels for the 2017-2019 PBRSUs, they were intended to be challenging but attainable based on anticipated market growth over the performance period, and to provide appropriate incentives for our executive officers to continue to grow our business. The Committee believes that achievement of maximum performance against the target levels would require sustained exceptional corporate performance over the performance period.

To earn any of the shares of our common stock subject to the 2017-2019 PBRSUs, at least one of the FX-Neutral Revenue CAGR or Free Cash Flow CAGR performance thresholds must be met. Each of the performance thresholds for FX-Neutral Revenue CAGR and Free Cash Flow CAGR is independent, and if either threshold is met, the award is earnable with respect to that performance measure based on the percentages shown in the table below. If the performance threshold for either FX-Neutral Revenue CAGR or Free Cash Flow CAGR is not met, there is no payment attributable to that performance measure.

The following chart shows the minimum, target, and maximum vesting levels for FX-Neutral Revenue CAGR and Free Cash Flow CAGR (linear interpolation applies to performance between threshold, target and maximum, with no funding for performance below threshold):

 

      Threshold      Target      Maximum  

 

  FX-Neutral Revenue CAGR

  (50% weighting)

     50% Payout        100% Payout        200% Payout  

 

  Free Cash Flow CAGR

  (50% weighting)

     50% Payout        100% Payout        200% Payout  

NO PERFORMANCE DETERMINATIONS RELATED TO PREVIOUSLY AWARDED PBRSUs IN 2017

2015 was the last year in which PBRSUs with a two-year performance period were granted based on performance criteria set by the eBay Compensation Committee. The amount and value of the award depended on our performance relative to the target levels approved by the eBay Compensation Committee in early 2015.

In 2016, the Committee approved a revised structure for future PBRSUs. To emphasize the importance of long-term, sustained strategic growth to the Company, the Committee approved extending the performance period from a two-year performance cycle to a three-year performance cycle with “cliff” vesting following the end of the performance period, subject to the Committee’s approval of the level of achievement against the pre-established performance criteria.

Due to the change in our PBRSU performance cycles, from two years to three years, the Committee was not required to approve any performance determinations relating to 2017 for previously awarded PBRSUs.

Restricted Stock Units

Our 2017 LTI awards also included service-based RSUs with a three-year annual vesting schedule, which aligns the vesting period of the RSUs with the three-year performance period of the PBRSUs granted in 2017. Service-based RSUs have value regardless of whether our stock price increases or decreases and therefore help to secure and retain executive officers and provide an appropriate incentive to remain with us during the vesting period.

 

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OTHER COMPENSATION ELEMENTS

Base Salary

At the beginning of each year, the Committee meets to review and approve each executive officer’s base salary for the year after considering competitive market data and the individual factors described below. For 2017, the Committee assessed competitive market data on base salaries from public filings of our peer group companies and general industry data for comparable technology and financial companies that are included in proprietary third-party compensation surveys (the specific identity of respondents of which are not provided to the Committee or the Company). The Committee also considered individual factors such as individual performance, levels of responsibility, breadth of knowledge, and prior experience in its evaluation of base salary adjustments.

In accordance with our emphasis on performance-based compensation, the Committee determined that none of the NEOs would receive an increase in base salary and in lieu of any base salary increase, the Committee delivered an increase in target total direct compensation through its decisions with respect to long-term incentive compensation, as discussed above.

 

  NEO   

Base Salary

for 2017

($)

    

Base Salary

for 2016

($)

 

 

  Daniel H. Schulman

     1,000,000        1,000,000  

 

  John D. Rainey

     650,000        650,000  

 

  Gary J. Marino

     550,000        550,000  

 

  A. Louise Pentland

     625,000        625,000  

 

  William J. Ready

     650,000        650,000  

Promotion Equity Award

Mr. Ready

The Committee believes that long-term equity incentives should comprise the majority of the target total direct compensation opportunity for our NEOs. In addition to the LTI awards described above, the Committee may also grant other equity awards from time to time in recognition of an NEO’s promotion or special achievement. In 2017, a special equity grant of RSUs was made to Mr. Ready with a grant date value equal to $16 million (the “Promotion RSU Award”) in recognition of his promotion to Chief Operating Officer in late 2016. The vesting schedule of this Promotion RSU Award is intended to enhance our long-term retention objective, due to its back-loaded vesting schedule, as 50% of the Promotion RSU Award will vest on the second anniversary of the date of grant and 25% will vest on each of the third and fourth anniversaries of the date of grant, subject to Mr. Ready’s continued service through the applicable vesting date. The Promotion RSU Award was granted after considering the input of the Committee’s independent compensation consultant, the level deemed necessary to retain Mr. Ready’s continued service to the Company in this key operational role over the four-year vesting period given the highly competitive labor market in the Bay Area, Mr. Ready’s expanded scope of responsibilities, and his performance in that role since his promotion.

“Make Whole” Payments

Mr. Rainey

Mr. Rainey commenced employment with us in August 2015 as our Senior Vice President, Chief Financial Officer. Pursuant to the terms of his offer letter, in recognition of his forfeited equity awards with his former employer, Mr. Rainey received the last “make-whole” payment in the amount of $2 million in February 2017. This “make-whole” payment was subject to a clawback should Mr. Rainey’s employment be terminated for cause or should he resign without good reason prior to the second anniversary of his commencement of employment.

Deferred Compensation

The PayPal Holdings, Inc. Deferred Compensation Plan (“DCP”), our non-qualified deferred compensation plan, provides our U.S.-based executive officers a mechanism to defer compensation in excess of the amounts that are legally permitted to be deferred under our tax-qualified 401(k) savings plan (the “401(k) Plan”). Together, the 401(k) Plan and the DCP allow participants to set aside tax-deferred amounts. The Committee believes the opportunity to defer compensation is a competitive benefit that enhances our ability to attract and retain talented executives while building plan participants’ long-term commitment to the Company. The investment return on the deferred amounts is linked to the performance of a range of market-based investment choices made available pursuant to the plan. None of our NEOs participated in or had a balance in the DCP during 2017.

 

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Other Benefits

Perquisites

We provide certain executive officers with perquisites and other personal benefits that the Committee believes are reasonable and consistent with our overall executive compensation program and philosophy. These benefits are provided to help us attract and retain these executive officers. The Committee periodically reviews the levels of these benefits provided to our executive officers. In 2017, we offered the following perquisites to our NEOs:

 

    CEO Security Program  

We maintain a comprehensive security policy, and as a component of this policy, we may determine that in certain circumstances, certain executives should be required to have personal security protection. In June 2017, because of the high visibility of the Company, the Committee has authorized a CEO Security Program for Mr. Schulman to address safety concerns due to specific threats to his safety arising directly as a result of his position as our President and CEO. We paid for the initial procurement, installation and maintenance of personal residential security measures for Mr. Schulman and for the costs of security personnel during personal travel in a location in which he may be a particular target of criminal activity. In addition, the Committee approved Mr. Schulman’s use of our corporate aircraft for personal travel in connection with his overall security program.

 

We require that the executive accept such personal security protection because we believe it is in the best interests of the Company and its stockholders that the executive not be vulnerable to security threats to the executive or members of his or her family. We also believe that the costs of this overall security program are appropriate and necessary. Although we do not consider Mr. Schulman’s overall security program to be a perquisite for his benefit for the reasons described above, the costs related to personal security for Mr. Schulman at his residence and during personal travel, as well as the costs of private aircraft for personal travel pursuant to his overall security program are reported in the “All Other Compensation” column in the 2017 Summary Compensation Table below.

 

Prior to the Committee authorizing this change to the overall security program, Mr. Schulman was permitted to make limited personal use of our corporate aircraft for up to 50 hours per year, but was required to reimburse us for any personal use of the aircraft pursuant to the terms of a lease arrangement for all trip related expenses and hourly direct operating costs, as permitted under federal aviation regulations. As a result of this reimbursement arrangement, Mr. Schulman’s personal use of the aircraft prior to the authorization of this change to the overall security program resulted in no additional cost to us in 2017.

 

Severance and Change in Control Provisions

Each of the NEOs is eligible to receive payments and benefits in the event of a termination of employment, including a termination of employment in connection with a change in control of the Company (the “Executive Severance Provisions”), either through specific provisions included in individual agreements with the Company or substantially similar provisions provided under our SVP and Above Standard Severance Plan and Change in Control Severance Plan for Key Employees. Under the Executive Severance Provisions, an NEO is eligible to receive payments and benefits in certain terminations of employment, including without limitation, a termination of employment by the Company without cause or by the executive for good reason. No payments or benefits are provided under the Executive Severance Provisions if there is a change in control of the Company without an accompanying qualifying termination of employment (i.e., no “single-trigger” payments). We do not provide any of the NEOs with excise tax “gross-ups” or other similar payments.

The Committee believes that these Executive Severance Provisions are essential to fulfill our objective to recruit, retain, and develop key, high-quality management talent in the competitive market because these arrangements provide reasonable protection to the executive officer in the event that he or she is not retained under specific circumstances. Further, the Executive Severance Provisions are intended to facilitate changes in the leadership team by setting terms for the termination of an NEO in advance, thus allowing a smooth transition of responsibilities when it is deemed to be in the best interest of the Company. The change in control provisions in the Executive Severance Provisions are intended to allow executives to focus their attention on our business operations in the face of the potentially disruptive impact of a proposed change-in-control transaction, to assess takeover bids objectively without regard to the potential impact on their individual job security, and to allow for a smooth transition in the event of a change in control of the Company. These factors are especially important in light of the executives’ key leadership roles.

See “Potential Payments Upon Termination or Change in Control” below for a description of these arrangements and the estimated payments and benefits payable under the Executive Severance Provisions.

 

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Other Compensation Practices and Policies

ROLES AND RESPONSIBILITIES

Compensation Committee

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

Compensation Consultant

The Committee’s independent compensation consultant provides it with advice and resources to help it assess the effectiveness of our executive compensation strategy and program. This compensation consultant reports directly to the Committee, and the Committee has the sole power to terminate or replace the consultant at any time. In 2017, Compensia served as the Committee’s compensation consultant.

As part of its engagement, the Committee directed Compensia to work with our Senior Vice President, People and other members of management to obtain information necessary to formulate recommendations and evaluate management’s recommendations to the Committee. Compensia also meets with the Committee during its regular meetings, in executive session (where no members of management are present), and with the Committee chair and other Committee members outside of its regular meetings.

As part of its engagement in 2017, Compensia provided an environmental scan of executive compensation, evaluated our peer group composition, evaluated cash and equity compensation levels at the peer group companies for our executive officers, reviewed proposed compensation adjustments, advised on the framework for our annual and long-term incentive awards, assessed executive perquisites relative to peer and broader market practices, and reviewed the compensation of the non-employee directors. Compensia did not provide any other services to us in 2017.

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

CEO and the Human Resources (“People”) Department

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

Generally, our CEO reviews with the Committee his performance evaluations of each of our other NEOs and his recommendations regarding base salary adjustments, annual incentive awards and long-term incentives to ensure that the Committee’s decisions consider our corporate financial and operational results as well as individual performance. The Committee makes all final decisions regarding the compensation of our NEOs.

While certain members of management attended the meetings of the Committee in 2017 upon invitation, they did not attend executive sessions of the meetings nor do they attend the portion of Committee meetings at which their own compensation was discussed.

USE OF PEER GROUP COMPARISONS

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

 

  revenue;
  market capitalization;
  historical growth rates;
  primary line of business;
  whether the company has a recognizable and well-regarded brand; and
  whether we compete with the company for talent, particularly in the competitive Bay Area labor market.

For each member of the peer group, one or more of the factors listed above was relevant for inclusion in the group, and, similarly, one or more of these factors may not have been relevant for inclusion in the group. In addition, although some of our peer group members may be larger than the Company in terms of revenue or market capitalization, the Committee has determined to include such companies as peer group members where such peer companies compete with the Company for talent, particularly in the competitive Bay Area labor market.

 

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In considering our executive compensation program for 2017 and going forward, the Committee considered the peer group used in measuring performance plans, as well as its goals of rewarding performance and retaining core top talent. Traditionally, companies compare their performance against the performance of a group of companies whose business models are relatively similar to those of the company. Executive compensation programs are generally designed to reward performance that is relatively stronger than that of its peers. Executive compensation programs are also generally designed to roughly parallel the programs of members of the performance peer group because employees have historically been recruited by these competitors and we compete against them for talent.

Our peer group consists generally of “technology” companies and “financial” companies. This is intended to provide the Committee with insight into the differences across these two sectors in which we generally compete for executive talent. Our peer group for 2017 is composed of 12 technology companies, which generally reflect the companies with which we directly compete for talent, and eight financial companies, which generally reflect the companies with which we not only compete for talent but also to which we more closely compare our financial performance. This is the same peer group that was used for evaluating 2016 compensation decisions except for the removal of LinkedIn, Inc. because it was acquired by Microsoft. These companies are as follows:

 

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STOCK OWNERSHIP GUIDELINES

Our Board has adopted robust stock ownership guidelines to better align the interests of our non-employee directors and executive officers with the interests of our stockholders and further promote our commitment to sound corporate governance. In January 2017, our Board approved revised stock ownership guidelines to align with changes to our executive leadership structure and to further emphasize the alignment of the interests of the newly promoted executive vice presidents with the interests of our stockholders. Under these guidelines, our executive officers are required to achieve ownership of our common stock valued at a multiple of their annual base salary:

 

  CEO — six times base salary
  EVPs — three times base salary

It is expected that each executive officer will meet his or her applicable guideline level within five years of his or her appointment to his or her position. Our stock ownership guidelines are available on our investor relations website at https://investor.paypal-corp.com/corporate-governance.cfm.

Prior to our executive officers satisfying their applicable guideline level, they are required to retain an amount equal to 25% of the net shares of our common stock received as the result of the exercise, vesting or payment of any equity awards granted to them.

Our non-employee directors are also subject to our stock ownership guidelines. The guideline level for each non-employee director is five times his or her annual retainer (excluding any additional retainer paid as a result of service as a Board chair, lead independent director, committee chair or committee member). Our non-employee directors are required to satisfy their guideline level within five years of joining the Board, and are expected to continuously own sufficient shares to satisfy the guideline once it is attained for as long as they remain a Board member.

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

 

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

HEDGING AND PLEDGING POLICY

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

CLAWBACK POLICY

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

Under the clawback policy, the Committee has the authority and discretion to determine whether an event covered by the policy has occurred and, depending on the facts and circumstances, may require the full or partial forfeiture and/or repayment of any incentive compensation covered by the policy that was paid or awarded to a covered employee. The forfeiture and/or repayment may include all or any portion of the following:

 

  any incentive compensation that is greater than the amount that would have been paid to the covered employee had the covered event been known;
  any outstanding or unpaid incentive compensation, whether vested or unvested, that was awarded to the covered employee; and

 

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  any incentive compensation that was paid to or received by the covered employee (including gains realized through the exercise of stock options) during the 12-month period preceding the date on which we had actual knowledge of the covered event or the full impact of the covered event was known, or such longer period of time as may be required by any applicable statute or government regulation.

TAX AND ACCOUNTING CONSIDERATIONS

As a publicly traded company, we are limited by Section 162(m) of the Internal Revenue Code to a deduction for federal income tax purposes of up to $1 million of compensation paid to our CEO and certain of our other most highly compensated executive officers in a taxable year. Historically, compensation above $1 million could be deducted only if, by meeting certain technical requirements, it can be classified as “performance-based compensation.” Although the Committee has historically used the requirements of Section 162(m) as a guideline, deductibility is not the sole factor it considers in assessing the appropriate levels and types of executive compensation. The Committee expressly retains the full discretion to forgo deductibility when it believes doing so is in our and our stockholders’ best interests.

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

COMPENSATION COMMITTEE REPORT

The Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management. Based on its review and discussions, the Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference into the Company’s 2017 Annual Report on Form 10-K.

The Compensation Committee of the Board

David W. Dorman (Chairman)

Wences Casares

Jonathan Christodoro

Gail J. McGovern

 

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Compensation Tables

 

2017 Summary Compensation Table

The following table summarizes the total compensation earned by each of our named executive officers, or NEOs, for the fiscal year ended December 31, 2017 and, to the extent required under the SEC executive compensation disclosure rules, the fiscal years ended December 31, 2016 and December 31, 2015. The information provided below includes compensation earned by our NEOs for services provided to eBay prior to the separation in July 2015 (the “Separation”).

 

  Name and

  Principal Position

  (a)

 

Year

(b)

   

Salary

($) (c)

   

Bonus

($) (d)

   

Stock

Awards(1)

($) (e)

   

Option

Awards

($) (f)

   

Non-Equity

Incentive Plan

Compensation(2)

($) (g)

   

Change in

Pension Value

and

Non-qualified

Deferred

Compensation

Earnings

($) (h)

   

All Other

Compensation(3)

($) (i)

   

Total

($)

 

  Daniel H. Schulman

  President and Chief

  Executive Officer

    2017       1,000,000             16,976,017             1,000,000             242,617       19,218,634  
    2016       1,000,000             13,453,388             3,140,000             1,340,953       18,934,341  
    2015       942,308             8,825,674       1,537,111       2,374,615             764,783       14,444,491  

  John D. Rainey

  Chief Financial Officer and

  Executive Vice President,

Global Customer Operations

    2017       650,000             5,645,887             325,000             2,010,800       8,631,687  
    2016       650,000             4,139,520             979,875             4,165,313       9,934,708  
    2015       212,500             8,369,049       706,251       241,188             1,153,558       10,682,546  

  Gary J. Marino

Executive Vice President,

Chief Commercial Officer

    2017       550,000             6,598,408             240,625             10,800       7,399,833  
                 
                 

  A. Louise Pentland

  Executive Vice President,

  Chief Business Affairs and

  Legal Officer

    2017       625,000             5,626,669             312,500             10,800       6,574,969  
    2016       620,846             4,139,520             935,926             41,232       5,737,524  
    2015       398,846             6,486,866       426,548       502,546             3,674,330       11,489,136  

  William J. Ready

  Executive Vice President,

  Chief Operating Officer

    2017       650,000             25,202,553             325,000             10,800       26,188,353  
    2016       580,000             4,656,955             910,600             10,600       6,158,155  
    2015       372,308             1,585,208       270,794       320,045             10,600       2,558,955  

1 Amounts shown represent the grant date fair value of RSUs and PBRSUs (including 2017 AIP PBRSUs) granted to each of our NEOs as computed in accordance with FASB ASC Topic 718. The grant date fair value of RSUs is determined using the fair value of the underlying common stock on the grant date. The assumptions used by the Company in calculating the grant date fair value of the stock awards are incorporated herein by reference to Note 16 to the consolidated financial statements contained in the Company’s 2017 Annual Report on Form 10-K. The estimated fair value of PBRSUs is calculated based on the probable outcome of the performance measures for the applicable performance period as of the date on which the awards are granted for accounting purposes. Assuming the highest level of performance is achieved under the applicable performance measures for the 2017-2019 PBRSUs and the 2017 AIP PBRSUs, the maximum possible value of the awards using the fair value of the underlying common stock on the date that the awards were granted for accounting purposes is presented below:

 

  Name   

Maximum Value of 2017 AIP PBRSUs

(as of Grant Date for Accounting Purposes) ($)

    

Maximum Value of 2017-2019 PBRSUs

(as of Grant Date for Accounting Purposes) ($)

 

  Mr. Schulman

     3,073,007        15,439,513  

  Mr. Rainey

     998,767        5,146,504  

  Mr. Marino

     845,104        6,175,856  

  Ms. Pentland

     960,330        5,146,504  

  Mr. Ready

     998,767        8,234,390  

2 Amounts represent cash (non-equity) performance-based compensation earned under the individual performance portion of the Company’s annual incentive plan for fiscal 2017 (the “2017 AIP”). For 2017, the Company performance portion was delivered in PBRSUs and is reflected in the “Stock Awards” column. In fiscal 2016 and 2015, the entire amount of the annual incentive payout was delivered as cash compensation and reflected in this column. See “Compensation Discussion and Analysis—Compensation Framework—Incentive (Performance-Based) Compensation for 2017” for a more detailed discussion.

 

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3 The dollar amounts for each perquisite and each other item of compensation shown in the “All Other Compensation” column and in this footnote represent the Company’s incremental cost of providing the perquisite or other benefit to our NEOs, net of any amounts reimbursed by our NEOs, and are valued based on the amounts accrued for payment or paid to the service provider or NEO, as applicable. See “Compensation Discussion and Analysis—Compensation Framework—Other Compensation Elements” for additional discussions on these benefits. Amounts include the following perquisites and other items of compensation provided to our NEOs in 2017.

 

  Name   

401(k)

Matcha

($)

    

Other

Payments

and Benefitsb

($)

    

Make

Whole

Paymentsc

($)

    

Total

($)

 

  Mr. Schulman

     10,800        231,817               242,617  

  Mr. Rainey

     10,800               2,000,000        2,010,800  

  Mr. Marino

     10,800                      10,800  

  Ms. Pentland

     10,800                      10,800  

  Mr. Ready

     10,800                      10,800  

a Represents the amount of the Company match of 401(k) Plan contributions to the NEO.

b Represents amounts the Company paid related to personal security.

c Represents the amount of “make whole” payment made pursuant to the terms of such NEO’s offer letter.

2017 Grants of Plan-Based Awards

The following table sets forth information regarding grants of plan-based awards to each of our NEOs for the fiscal year ended December 31, 2017.

 

   

Approval

Date

(b)

   

Grant

Date

(c)

   

 

Estimated Future Payouts Under

Non-Equity Incentive Plan
Awards(1)

   

 

Estimated Future Payouts

Under Equity Incentive Plan
Awards(2)

   

All Other

Stock

Awards:

Number

of Shares

of Stock

or Units(3)

(#)(j)

   

All Other

Option

Awards:

Number of

Securities

Underlying

Options

(#)(k)

   

Exercise

or Base

Price of

Option

Awards

($/Sh)(l)

   

Grant

Date

Fair

Value(4)

($)(m)

 
  Name (a)      

Threshold

($)(d)

   

Target

($)(e)

   

Maximum

($)(f)

   

Threshold

(#)(g)

   

Target

(#)(h)

   

Maximum

(#)(i)

         

  Daniel H. Schulman

                                                                                               

  2017 AIP – Cash

              500,000       1,000,000                                            

  2017 AIP – PBRSUs

    2/14/2017       2/15/2017                         9,174       36,697       73,394                         1,536,503  

  2017-2019 PBRSUs

    2/14/2017       3/1/2017                         45,485       181,941       363,882                         7,719,757  

  RSUs

    2/14/2017       3/1/2017                                           181,941                   7,719,757  

  John D. Rainey

                       

  2017 AIP – Cash

              162,500       325,000                                            

  2017 AIP – PBRSUs

    1/12/2017       2/15/2017                         2,982       11,927       23,854                         499,383  

  2017-2019 PBRSUs

    1/12/2017       3/1/2017                         15,162       60,647       121,294                         2,573,252  

  RSUs

    1/12/2017       3/1/2017                                           60,647                   2,573,252  

  Gary J. Marino

                       

  2017 AIP – Cash

              137,500       275,000                                            

  2017 AIP – PBRSUs

    1/12/2017       2/15/2017                         2,523       10,092       20,184                         422,552  

  2017-2019 PBRSUs

    1/12/2017       3/1/2017                         18,194       72,777       145,554                         3,087,928  

  RSUs

    1/12/2017       3/1/2017                                           72,777                   3,087,928  

  A. Louise Pentland

                       

  2017 AIP – Cash

              156,250       312,500                                            

  2017 AIP – PBRSUs

    1/12/2017       2/15/2017                         2,867       11,468       22,936                         480,165  

  2017-2019 PBRSUs

    1/12/2017       3/1/2017                         15,162       60,647       121,294                         2,573,252  

  RSUs

    1/12/2017       3/1/2017                                           60,647                   2,573,252  

  William J. Ready

                       

  2017 AIP – Cash

              162,500       325,000                                            

  2017 AIP – PBRSUs

    1/12/2017       2/15/2017                         2,982       11,927       23,854                         499,383  

  2017-2019 PBRSUs

    2/9/2017       3/1/2017                         24,259       97,035       194,070                         4,117,195  

  RSUs

    2/9/2017       3/1/2017                                           97,035                   4,117,195  

  RSUs

    2/9/2017       3/1/2017                                           388,140                   16,468,780  

1 The amounts shown represent potential non-equity incentive plan awards under the individual performance portion of the 2017 AIP. Maximum amounts represent 200% of the NEO’s target bonus opportunity under the 2017 AIP. For a more complete description of the 2017 AIP, see “Compensation Discussion and Analysis—Compensation Framework—Incentive (Performance-Based Compensation) for 2017.”

2 The amounts shown in the 2017 AIP – PBRSU row represent the AIP PBRSUs granted in 2017 under the PayPal Holdings, Inc. 2015 Equity Incentive Award Plan (the “2015 Plan”) for the Company performance portion of the 2017 AIP. Amounts shown in the “threshold” column represent 25% of the target number of shares, which represents the threshold performance of one of the two performance metrics. Awards are capped at the maximum of 200% of the target number of shares. The 2017 AIP PBRSUs vested on February 15, 2018 based on continued service through such date and performance from January 1, 2017 through December 31, 2017. For a more complete description of the 2017 AIP, see “Compensation Discussion and Analysis—Compensation Framework—Incentive (Performance-Based Compensation) for 2017.”

The amounts shown in the 2017-2019 PBRSUs row represent the 2017-2019 PBRSUs granted in 2017 under the 2015 Plan. Amounts shown in the “threshold” column represent 25% of the target number of shares, which represents the threshold performance of one of the two performance metrics. Awards are capped at the maximum of 200% of the target number of shares. The 2017-2019 PBRSUs will vest based on performance over the 2017-2019 performance period. See “Compensation Discussion and Analysis—Compensation Framework—Incentive (Performance-Based) Compensation for 2017—Long-Term Incentive Components—Performance-Based Restricted Stock Units (PBRSUs)” for more information.

 

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3 The amounts shown represent service-based RSUs granted in 2017 under the 2015 Plan. Other than Mr. Ready’s grant of 388,140 RSUs, these RSUs become fully vested over three years, with 33 1/3% vesting on the first, second and third anniversaries of the date of grant. Mr. Ready’s grant of 388,140 RSUs becomes fully vested after four years, with 50% vesting on the second anniversary of the date of grant and 25% vesting on each of the third and fourth anniversaries of the date of grant. See “Compensation Discussion and Analysis—Compensation Framework—No Performance Determinations Related to Previously Awarded PBRSUs in 2017—Restricted Stock Units” for more information.

4 Represents the grant date fair value determined in accordance with FASB ASC Topic 718. For stock awards, the grant date was calculated by multiplying the closing price of the underlying common stock on the date of grant by the number of stock awards granted. For the 2017 AIP PBRSUs and the 2017-2019 PBRSUs, the grant date fair value assumes the probable outcome of the performance conditions applicable thereto. See footnote 1 to the “2017 Summary Compensation Table” for more information. The assumptions used by the Company in calculating the grant date fair value of the stock awards are incorporated herein by reference to Note 16 to the consolidated financial statements contained in the Company’s 2017 Annual Report on Form 10-K.

2017 Outstanding Equity Awards at Fiscal Year-End

The following table sets forth information regarding outstanding equity awards for each of our NEOs as of December 31, 2017.

 

    Option Awards           Stock Awards  
Name  

Number of

Securities

Underlying

Unexercised

Options (#)

Exercisable

   

Number of

Securities

Underlying

Unexercised

Options (#)

Unexercisable

   

Equity

Incentive

Plan

Awards:

Number of

Securities

Underlying

Unexercised

Unearned

Options(#)

   

Option

Exercise

Price($)

   

Option

Grant

Date

   

Option

Expiration

Date

          

Number

of Shares

or Units

of Stock

That

Have Not

Vested(#)

   

Market

Value

Shares

or Units

of Stock

That

Have

Not

Vested

($)(1)

   

Stock

Award

Grant

Date

   

Equity

Incentive

Plan

Awards:

Number

of

Unearned

Shares,

Units or

Other

Rights

That

Have Not

Vested

(#)

   

Equity

Incentive

Plan

Awards:

Market

or Payout

Value of

Unearned

Shares,

Units or

Other

Rights

That

Have

Not

Vested

($)(1)

 

Daniel H. Schulman

    131,433       30,331 3        31.56       10/15/2014       10/15/2021              
    96,822       48,412 2        35.88       4/1/2015       4/1/2022              
    18,418       12,067 2        41.64       7/17/2015       7/17/2022              
                  33,701 4      2,481,068       10/15/2014      
                  36,308 4      2,672,995       4/1/2015      
                  7,621 4      561,058       7/17/2015      
                  109,110 9      8,032,678       4/1/2016      
                  125,871 7      9,266,623       3/16/2015      
                  26,419 7      1,944,967       7/17/2015      
                  181,941 9      13,394,496       3/1/2017      
                  67,889 13      4,997,988       2/15/2017      
                        178,469 11      13,138,888  
                        181,941 5      13,394,496  

John D. Rainey

    50,977       36,413 3        33.80       9/15/2015       9/15/2022              
                  43,694 9      3,216,752       9/15/2015      
                  21,847 4      1,608,376       9/15/2015      
                  33,572 9      2,471,571       4/1/2016      
                  75,738 7      5,575,832       9/15/2015      
                  60,647 9      4,464,832       3/1/2017      
                  22,065 13      1,624,425       2/15/2017      
                        54,914 11      4,042,769  
                        60,647 5      4,464,832  

Gary J. Marino

    1,368       1,369 2        35.20       4/1/2014       4/1/2021              
    2,689       10,759 2        35.88       4/1/2015       4/1/2022              
    1,345       5,380 2        35.88       4/1/2015       4/1/2022              
                  2,052 12      151,068       4/1/2014      
                    4,034 4      296,983       4/1/2015      
                  8,068 4      593,966       4/1/2015      
                  25,179 9      1,853,678       4/1/2016      
                  72,777 9      5,357,843       3/1/2017      
                  6,993 8      514,825       3/16/2015      
                  13,987 8      1,029,723       3/16/2015      
                  18,670 13      1,374,485       2/15/2017      
                        41,186 11      3,032,113  
                                                                                      72,777 5      5,357,843  

 

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Table of Contents
         
  Compensation Tables     53

 

    Option Awards           Stock Awards  
Name  

Number of

Securities

Underlying

Unexercised

Options (#)

Exercisable

   

Number of

Securities

Underlying

Unexercised

Options (#)

Unexercisable

   

Equity

Incentive

Plan

Awards:

Number of

Securities

Underlying

Unexercised

Unearned

Options(#)

   

Option

Exercise

Price($)

   

Option

Grant

Date

   

Option

Expiration

Date

          

Number

of Shares

or Units

of Stock

That

Have Not

Vested(#)

   

Market

Value

Shares

or Units

of Stock

That

Have

Not

Vested

($)(1)

   

Stock

Award

Grant

Date

   

Equity

Incentive

Plan

Awards:

Number

of

Unearned

Shares,

Units or

Other

Rights

That

Have Not

Vested

(#)

   

Equity

Incentive

Plan

Awards:

Market

or Payout

Value of

Unearned

Shares,

Units or

Other

Rights

That

Have

Not

Vested

($)(1)

 

A. Louise Pentland

    32,599       16,300 3        37.31       5/15/2015       5/15/2022              
                  12,224 4      899,931       5/15/2015      
                  54,332 4      3,999,922       5/15/2015      
                  33,572 9      2,471,571       4/1/2016      
                  21,190 8      1,560,008       5/15/2015      
                  60,647 9      4,464,832       3/1/2017      
                  21,216 13      1,561,922       2/15/2017      
                        54,914 11      4,042,769  
                        60,647 5      4,464,832  

William J. Ready

    21,516       10,759 2        35.88       4/1/2015       4/1/2022              
                  25,094 6      1,847,420       1/15/2014      
                  5,340 6      393,131       1/15/2014      
                  8,068 4      593,966       4/1/2015      
                  37,768 9      2,780,480       4/1/2016      
                  13,986 8      1,029,649       3/16/2015      
                  97,035 9      7,143,717       3/1/2017      
                  388,140 10      28,574,867       3/1/2017      
                  22,065 13      1,624,425       2/15/2017      
                        61,778 11      4,548,096  
                                                                                      97,035 5      7,143,717  

1 Market Value is calculated based on the closing price of $73.62 of our common stock on December 29, 2017.

2 Becomes fully vested after four years, with 12.5% vesting on the six-month anniversary of the grant date, and 1/48th vesting monthly thereafter.

3 Becomes fully vested after four years, with 25% vesting on the one-year anniversary of September 30, 2014, and 1/48th vesting monthly thereafter.

4 Becomes fully vested after four years, with 25% vesting on each of the first four anniversaries of the grant date.

5 The amounts reported in this row are based on achieving target performance goals for the PBRSU awards granted in 2017, as performance for the 2017-2019 performance period is measured on a cumulative basis and is not determinable until the end of the three-year performance period. The PBRSU awards vest based on the Company’s performance over the three-year performance period with respect to the FX-Neutral Revenue CAGR and Free Cash Flow CAGR goals. The PBRSUs earned based on Company performance will vest 100% on March 1, 2020, subject to the NEO’s continued employment through the vesting date.

6 Becomes fully vested after four years, with 20% vesting on the second anniversary of the grant date, and 3.33% vesting monthly thereafter.

7 PBRSU award. Earned in connection with the 2015-2016 performance period, with 100% vested on March 1, 2018 (the first anniversary of the RSU grant date).

8 PBRSU award. Earned in connection with the 2015-2016 performance period, with 50% vested on March 1, 2017 (the RSU grant date) and the remaining 50% vesting on March 1, 2018 (the first anniversary of the grant date).

9 Becomes fully vested over three years, with 33 1/3% vesting on the first, second and third anniversaries of the date of grant.

10 Becomes fully vested after four years, with 50% vesting on the second anniversary of the date of grant and 25% vesting on each of the third and fourth anniversaries of the date of grant.

11 The amounts reported in this row are based on achieving target performance goals for the PBRSU awards granted in 2016, as performance for the 2016-2018 performance period is measured on a cumulative basis and is not determinable until the end of the three-year performance period. The PBRSU awards vest based on the Company’s performance over the three-year performance period with respect to the FX-Neutral Revenue CAGR and Free Cash Flow CAGR goals. PBRSUs earned based on Company performance will vest 100% on March 1, 2019, subject to the NEO’s continued employment through the vesting date.

12 Becomes fully vested after four years, with 33 1/3% vesting on the second anniversary of the grant date, and 33 1/3% vesting on the third and fourth anniversaries of the grant date.

13 2017 AIP Share award. Represents unearned shares under the 2017 AIP granted in 2017, subject to the achievement of the performance goals over the one-year performance period from January 1, 2017 through December 31, 2017. Following the performance period, AIP Shares are earned based on Company performance, with 100% vested on February 15, 2018.

 

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Table of Contents
           
54      Compensation Tables   

 

2017 Option Exercises and Stock Vested

The following table sets forth the number of shares acquired and the value realized upon exercise of stock options and the vesting of stock awards by each of our NEOs for the fiscal year ended December 31, 2017.

 

     Option Awards             Stock Awards  
  Name   

Number of

Shares Acquired

on Exercise

(#)

    

Value

Realized

on Exercise

($)

            

Number of

Shares Acquired

on Vesting

(#)

    

Value

Realized

on Vesting

($)

 

 

  Daniel H. Schulman

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

     

 

 

 

 

151,474

 

 

 

 

  

 

 

 

 

7,411,656

 

 

 

 

 

  John D. Rainey

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

     

 

 

 

 

71,406

 

 

 

 

  

 

 

 

 

4,135,864

 

 

 

 

 

  Gary J. Marino

 

  

 

 

 

 

12,310

 

 

 

 

  

 

 

 

 

135,339

 

 

 

 

     

 

 

 

 

50,912

 

 

 

 

  

 

 

 

 

2,173,738

 

 

 

 

 

  A. Louise Pentland

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

     

 

 

 

 

71,256

 

 

 

 

  

 

 

 

 

3,277,564

 

 

 

 

 

  William J. Ready

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

           

 

 

 

 

402,100

 

 

 

 

  

 

 

 

 

21,895,123

 

 

 

 

2017 Non-Qualified Deferred Compensation

All NEOs are eligible to participate in the PayPal Holdings, Inc. Deferred Compensation Plan (the “DCP”); however, none of our NEOs participated in the DCP in 2017.

The DCP is a non-qualified voluntary deferred compensation plan that allows participants to defer certain amounts of compensation. The DCP provides a supplement to our 401(k) Plan and permits personal savings beyond the IRS contribution limits on qualified plans. All amounts deferred under the DCP are reflected in book-keeping accounts. Each participant is permitted to elect to defer annually, in any whole percentages: (i) from 5% to 50% of base salary; (ii) from 5% to 100% of the incentive award earned by the participant under the AIP; and (iii) from 5% to 100% of RSUs, subject to certain limitations pursuant to the terms of the DCP and rounded to the nearest whole share. All amounts deferred under the DCP are fully vested. The DCP has been designed so that federal and state income taxes on the monies deferred are not due until such time as the account balance is paid to a participant. Participants can elect distribution of their account balances from a given year to be paid to them while they are still working or they can elect to have payments made to them in the event of their separation from service with us. Payments can be made in a lump sum payment or as annual installments over a period of greater than two years and less than fifteen years.

The return on the deferred amounts is linked to the performance of market-based investment choices made available to participants under the DCP. While the deferred dollars are not actually invested in the investment fund(s), earnings or losses of the tracking fund are applied to the participant’s deferral dollars as if they were invested in the fund(s). Participants may make changes to their investment choices daily.

 

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Table of Contents
         
  Compensation Tables     55

 

Potential Payments Upon Termination or Change in Control

The following table, footnotes, and narrative set forth our payment obligations pursuant to the compensation arrangements for each of our NEOs, under the circumstances described below, assuming that his or her employment was terminated or a change in control occurred on December 31, 2017. Because our executive compensation program is heavily weighted towards equity-based compensation, a significant percentage of the compensation to be received by our NEOs upon a termination of employment under the circumstances described below relates to the settlement of outstanding equity awards. Please see the 2017 Outstanding Equity Awards at Fiscal Year-End table for further information regarding outstanding equity awards granted to the NEOs in 2017 and in prior years.

 

  Name   

Voluntary

Termination

($)(a)(1)

    

Involuntary

Termination

Outside of

Change in

Control

Period

($)(b)(2)(3)

    

Involuntary

Termination

Within

Change in

Control

Period

($)(c)(2)(3)

    

Death or

Disability

($)(d)(2)(3)(4)

 

 

  Daniel H. Schulman

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

38,678,674

 

 

 

 

  

 

 

 

 

78,644,277

 

 

 

 

  

 

 

 

 

50,516,578

 

 

 

 

 

  John D. Rainey

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

16,440,379

 

 

 

 

  

 

 

 

 

31,207,962

 

 

 

 

  

 

 

 

 

21,341,869

 

 

 

 

 

  Gary J. Marino

 

  

 

 

 

 

3,789,326

 

 

 

 

  

 

 

 

 

7,528,515

 

 

 

 

  

 

 

 

 

22,248,338

 

 

 

 

  

 

 

 

 

19,533,213

 

 

 

 

 

  A. Louise Pentland

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

9,617,392

 

 

 

 

  

 

 

 

 

26,404,398