DEF 14A 1 d651677ddef14a.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.    )

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      Soliciting Material Pursuant to §240.14a-12   

PayPal Holdings, Inc.

 

 

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LOGO

MESSAGE FROM OUR PRESIDENT AND CEO

Dear Stockholders, Customers, Colleagues, and Partners:

This past year was another transformative year for PayPal. Our world is changing rapidly, and the political and economic landscape remains dynamic. The continuing digitization of cash and the global proliferation of mobile technologies are redefining the face of commerce, and creating new opportunities to connect, to share, to shop, and to sell. And yet too many of our global citizens are being left behind. Despite the inherent advantages of the digital economy, it is clear that the benefits of technology are not being equally distributed across society.

While we are making demonstrable progress in many areas, approximately 1.7 billion people are unbanked and even more are underserved by the traditional financial system. Numbers like these make it clear that PayPal’s mission is more relevant than ever. We must innovate and use technology to democratize financial services to help as many people and businesses as possible join and thrive in the digital economy. This is the unifying vision behind everything we do.

Our opportunity to help the underserved, and drive the next era of commerce is immense. Consumers around the world demand and deserve more convenient, accessible, and affordable financial services. Merchants of all shapes, sizes, and industries are looking for ways to get closer to their customers, maximize the opportunities presented by digital commerce, and compete successfully in this new era.

I’m pleased to share with you the progress PayPal has made this year. We continue to transform our business, and I am proud of what we have achieved for our stockholders, our customers, our colleagues, and our partners. We intend to move forward with focus, energy, and purpose to fulfill PayPal’s potential as the world’s leader in digital payments.

Transforming PayPal into an Open Digital Platform

One of our primary goals is to make PayPal the de facto operating system for mobile and digital commerce around the world, serving the entire payments ecosystem, and creating value for all of our customers and partners.

We continue to evolve towards being an open digital payments platform, through a combination of technological innovation, strategic partnerships, and targeted acquisitions. Our differentiated, open platform gives PayPal’s 267 million active account holders the confidence to connect and transact in new and powerful ways, whether online, on a mobile device, in an app, or in a store. For merchants, our full suite of services and products helps to drive incremental sales, and we are a must-have platform for retailers to compete in a mobile commerce environment. As digital payment methods continue to replace cash, we are creating faster and more secure ways to manage and move money, offering greater choice and flexibility when it comes to sending payments between family and friends, paying for goods and services, or getting paid by customers.

We are committed to continued investment in the security of our platform to keep our products and services as safe and secure as possible, which strengthens our ability to navigate an increasingly complex world where cyberattacks are growing more sophisticated and regulatory requirements are continually evolving.

Strong Growth and Engagement to Achieve Record Results

We had a strong year in 2018, driving record-breaking growth across a number of key metrics. We set new benchmarks for revenue, net new active accounts, and engagement across our platform.

A high point in 2018 was our net new active number, which reached a record of 39 million net new active accounts for the year. We exited 2018 with 267 million active accounts on our platform, with approximately 246 million consumers shopping at more than 21 million merchant accounts. We are helping all of our customers join the digital economy, and we are targeting more than 300 million active accounts on our platform by the end of this year.

 


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Importantly, the newest cohorts of users are exhibiting higher levels of engagement, which is an encouraging sign. Overall, we realized nearly 37 payment transactions per active account in 2018. We processed nearly 10 billion transactions in the year, and our overall payment volume grew 26% on a currency-neutral basis to $578 billion.

Revenue for 2018 exceeded $15.4 billion, growing 18% on both a spot basis and FX-neutral basis.1 In the fourth quarter, we marked the first time in our history that we exceeded $4 billion of revenue in a single quarter. GAAP earnings per share (EPS) in the year grew 16% to $1.71, and non-GAAP EPS grew 28% to $2.42.2 We returned more than $3.5 billion to stockholders during the year through stock repurchases.

Innovating and Evolving to Better Serve Our Customers

Throughout 2018, we delivered significant value across our differentiated two-sided platform, introducing new features and services for our consumers and merchants globally. Through a combination of innovation, partnerships, and acquisitions, we greatly strengthened our overall proposition for merchants, while removing friction and providing consumers with increased choice.

We launched industry-defining products that give our consumers more control over their payment experiences, and also help our merchants get closer to their customers in a mobile commerce environment like the ability to pay with rewards points and use PayPal with Google Pay and Samsung Pay. We introduced new products like PayPal Checkout with Smart Payment Buttons, Funds Now, and PayPal for Partners that help merchants maximize their opportunities and get instant access to their funds. One Touch continues to grow, with approximately 124 million consumer accounts opted in, and 11 million merchant accounts now offering the service. These product innovations are all part of PayPal’s expansion into a global platform company, with a clear and inspiring mission, and a commitment to stay true to our values.

Venmo has grown to become an integral part of our portfolio. For merchants, accepting Venmo opens their doors to millions of socially connected and highly-engaged new consumers who already love to pay friends and family with Venmo multiple times every week. For consumers, paying with Venmo is simple and easy, allowing them to split the bill with friends and share their purchases within their social feed.

In 2018, Venmo processed $62 billion in TPV, growing 79% from last year, and showed significant increases in net new actives and monetized volume growth. We couldn’t be more pleased with Venmo’s performance, and we are excited for what the future holds. By leveraging PayPal’s robust global scale and industry-leading technology infrastructure, we are confident that Venmo is uniquely positioned to drive long-term, sustainable revenue and profitable growth for the entire business.

Expanding Our Growing Community of Partners to Open Up the Global Economy

In the past three years, we’ve announced 38 partnership agreements with world-class retailers, financial institutions, traditional credit card networks, and telecom and technology companies. We have secured partnerships with more than 20 top-tier global financial institutions, including 8 of the top 10 banks in the U.S., representing 75% of all U.S. card volume. In the past year, there were nearly 40 bank-led marketing campaigns that encouraged their customers to pay with PayPal. We strongly believe that these partnerships will help seamlessly connect buyers and sellers — ultimately making the digital economy more accessible for consumers and merchants around the world. We made significant strides in 2018 to deepen existing partnerships and develop new relationships with some of the biggest and most influential global brands in technology, retail and finance, including American Express, Walmart, Paymentus, and HSBC.

Our goal is to expand this partner ecosystem so that we can deliver our capabilities to more customers around the world. Internationally, Central and South America, China, India, and Japan are key focus areas. We are investing significant resources into setting up new technologies and developing novel partnerships to help bring a truly global experience to these customers. These partnerships are opening up the digital economy to millions of new consumers and businesses, and we believe they will play an important role in fostering long-term economic health for communities and businesses around the world.

Acting as Responsible Stewards of Our Capital Resources

We desire to create and grow long-term, sustainable value for our stockholders. We have multiple tools to help drive that outcome.

2018 was a major year for acquisitions with our purchases of Hyperwallet, iZettle, Jetlore, and Simility. These outstanding companies each occupy a distinct position in payments or online services, and we’re excited about their respective abilities to expand PayPal’s scope of offerings. We are positioned to be an open, differentiated digital payments platform, and we will continue to be disciplined in our investments. Our acquisition and investment pipeline is healthy, and our balance sheet gives us the flexibility to move quickly and be opportunistic.

We significantly enhanced our strategic flexibility, while maintaining the opportunity to further increase the momentum in our consumer and merchant credit offerings, by selling our U.S. consumer credit portfolio to Synchrony. The transaction was completed in 2018, and we are very pleased with the resulting benefits.

 


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Reaffirming Our Commitment to be a Responsible Global Corporate Citizen

Over the past several years, we’ve embarked on a journey to democratize financial services for individuals and businesses around the world. We recognize that with these efforts, it’s important to regularly take stock of our progress, as well as reflect on how we’re addressing and managing every facet of our business. I’m proud to share that in 2018, we released our inaugural Global Impact Report to share and track our progress on several key priorities: driving social impact through our business, managing our environmental footprint, and living our values. I hope you will take the time to read it, and engage with us on our journey to being a role model global corporate citizen.

We will continue to act on our mission and values, and try to make a difference in the world, day by day and year by year. In early 2019, we further enhanced the diversity of our board of directors, which is now made up of 50% women and underrepresented minority groups. We are working diligently to build an inclusive, collaborative, and sustainable culture.

We are inspired to see our customers drive positive change in our world by using our platform for charitable giving. We shattered our previous Giving Tuesday donation record, with over one million PayPal customers across 180 markets donating nearly $98 million to charitable causes. For the full year, $9.6 billion was donated to nonprofit organizations around the world through the PayPal platform.

Our success is dependent on the support of all of our customers, partners, and stockholders, and the hard work of PayPal employees across the globe. We look forward to making 2019 another productive year for PayPal. Thank you for your support and confidence.

Best regards,

Dan Schulman

President and CEO

PayPal Holdings, Inc.

NOTES:

1 All growth rates represent year-over-year comparisons, except as otherwise noted. FX-neutral results are calculated by translating the current period’s local currency results with the prior period’s exchange rate. FX-neutral growth rates are calculated by comparing the current period FX-neutral results with the prior period’s results, excluding the impact from hedging activities.

2 Non-GAAP earnings per share is a financial measure not calculated in accordance with U.S. generally accepted accounting principles (“GAAP”). For a reconciliation of non-GAAP to GAAP earnings per share, please see the section entitled “Non-GAAP Financial Information” in “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” in our 2018 Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the SEC on February 7, 2019.

 


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LOGO

MESSAGE FROM OUR INDEPENDENT

CHAIRMAN OF THE BOARD

April 10, 2019

Dear PayPal Stockholder:

On behalf of the Board, thank you for your investment in PayPal. 2018 was a strong year for PayPal and we are excited by the continued execution of our strategic initiatives, which are delivering stockholders long-term, sustainable value.

Engaged and Diverse Board. We have nominated directors who possess a wide variety of relevant skills and backgrounds, bringing the diversity of perspectives necessary to effectively oversee our dynamic business. When evaluating the Board’s composition, we consider the proven capacity of each director to leverage their prior experience to enrich board dialogue. In January, Debbie Messemer joined our Board, bringing a strong global perspective and expertise in finance and accounting, business strategy, and governance that complements the existing directors’ strengths. With Debbie’s appointment, 50% of our directors are women or from underrepresented ethnic groups, a reflection of PayPal’s commitment to inclusion and diversity at all levels of the Company.

Ongoing Stockholder Engagement. Each year, members of senior management reach out to a broad group of stockholders to better understand their perspectives on our strategy, as well as governance, compensation, and sustainability matters. We greatly value the feedback received through these conversations and the insights gained are shared with the Board on an ongoing basis. In 2018, our engagement team reached out to institutional investors holding approximately 60% of our common stock, and spoke with investors representing almost 35% of our common stock. This feedback has informed the Board’s deliberations and actions over the past year, and we look forward to continuing these discussions.

Risk Oversight and Sustainable Business Practices. As a leading technology platform and digital payments company that enables customers to send and receive payments globally, effectively managing risks associated with cybersecurity and privacy is paramount. While our management team is responsible for the day-to-day evaluation of risks, the Board oversees the Company’s overall risk assessment and risk management. Oversight of PayPal’s risk framework and enterprise-wide compliance program is the responsibility of the Audit, Risk and Compliance Committee. Another key area that the Board oversees is PayPal’s environmental and social impact. We believe that effective oversight of these matters is critical to PayPal’s long-term success, and in 2018, we formalized this oversight mechanism through the Corporate Governance and Nominating Committee.

Join Us at Our 2019 Annual Meeting. I look forward to discussing these developments further with you at the 2019 annual meeting, which will again be held via live webcast. We have conducted an exclusively virtual annual meeting each year since becoming a public company in 2015 and have adopted a series of safeguards that we believe provide all stockholders the same rights and opportunities to participate as they would at an in-person meeting. We have found that the live webcast technology enables greater stockholder attendance and participation globally, which allows us to better communicate with our stockholders. Please visit www.virtualshareholdermeeting.com/PYPL19, where you can attend this year’s annual meeting, as well as submit questions before and during the meeting.

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 now 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,

/s/ John J. Donahoe

John J. Donahoe

Chairman of the Board

 


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   NOTICE OF 2019 ANNUAL MEETING OF STOCKHOLDERS

  

 

1

 

  PROXY STATEMENT SUMMARY

  

 

2

 

  2019 Annual Meeting Information

  

 

2

 

   Proposals to be Voted on and Board Voting Recommendations

  

 

2

 

  Virtual Annual Meeting

  

 

2

 

  Who We Are and What We Do

  

 

3

 

  2018 Performance Highlights

  

 

3

 

  2019 Director Nominees

  

 

4

 

  Corporate Governance

  

 

6

 

  Executive Compensation

  

 

6

 

  Environmental and Social Sustainability Oversight

  

 

9

 

   PROPOSAL 1 — ELECTION OF DIRECTORS

  

 

10

 

  Director Compensation

  

 

21

 

  CORPORATE GOVERNANCE

  

 

24

 

  Stockholder Engagement

  

 

24

 

  The Board’s Role and Responsibilities

  

 

24

 

  Director Independence

  

 

26

 

  Board Leadership

  

 

26

 

  Board Committees

  

 

27

 

  Board and Committee Meetings and Attendance

  

 

29

 

  Related Person Transactions

  

 

29

 

  Communication with the Board

  

 

30

 

   ENVIRONMENTAL AND SOCIAL SUSTAINABILITY OVERSIGHT

  

 

31

 

  OUR EXECUTIVE OFFICERS

  

 

32

 

  STOCK OWNERSHIP INFORMATION

  

 

34

 

   Security Ownership of Certain Beneficial Owners and Management

  

 

34

 

  Section  16(a) Beneficial Ownership Reporting Compliance

  

 

35

 

   PROPOSAL 2 — ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION

  

 

36

 

   COMPENSATION DISCUSSION AND ANALYSIS

  

 

38

 

  Named Executive Officers

  

 

38

 

  Executive Summary

  

 

39

 

  Compensation Framework

  

 

47

 

  Other Compensation Practices and Policies

  

 

58

 

  COMPENSATION TABLES

  

 

63

 

  2018 Summary Compensation Table

  

 

63

 

  2018 Grants of Plan-Based Awards

  

 

64

 

  2018 Outstanding Equity Awards at Fiscal Year-End

  

 

65

 

  2018 Option Exercises and Stock Vested

  

 

67

 

   2018 Non-Qualified Deferred Compensation

  

 

67

 

   Potential Payments Upon Termination or Change in Control

  

 

68

 

  CEO PAY RATIO DISCLOSURE

  

 

71

 

   EQUITY COMPENSATION PLAN INFORMATION

  

 

72

 

   PROPOSAL 3 — RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITOR

  

 

73

 

   PROPOSAL 4 — STOCKHOLDER PROPOSAL REGARDING POLITICAL DISCLOSURE

  

 

76

 

   PROPOSAL 5 — STOCKHOLDER PROPOSAL REGARDING HUMAN AND INDIGENOUS PEOPLES’ RIGHTS

  

 

78

 

  OTHER INFORMATION

  

 

80

 

  Questions and Answers

  

 

80

 

  Other Matters

  

 

85

 

 

 

www.paypal.com


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Notice of 2019 Annual Meeting of Stockholders

   

 

1

 

Notice of 2019 Annual Meeting of Stockholders

 

 

 

Date:    Wednesday, May 22, 2019
Time:    8:00 a.m. Pacific Time
Place:    Online at www.virtualshareholdermeeting.com/PYPL19. There is no physical location for the 2019 annual meeting.
Items of Business:   

(1)   Election of the 12 director nominees named in this proxy statement.

  

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

  

(3)  Ratification of the appointment of PricewaterhouseCoopers LLP as our independent auditor for 2019.

  

(4)  Consideration of two stockholder proposals, if properly presented at the annual meeting.

  

(5)  Such other business as may properly come before the annual meeting.

Record Date:   

March 29, 2019 (the “Record Date”)

 

Only stockholders of record at the close of business on the Record Date are entitled to receive notice of, and to vote at, 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 at www.virtualshareholdermeeting.com/PYPL19. To participate in the annual meeting, 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. You can submit questions during the annual meeting at www.virtualshareholdermeeting.com/PYPL19.

 

The annual meeting will begin promptly at 8:00 a.m. Pacific Time. The virtual meeting room will open at 7:45 a.m. Pacific Time for registration.

Annual Meeting Website:    You can submit questions in advance of the annual meeting and access copies of our 2019 proxy statement and 2018 annual report at www.proxyvote.com.
Voting:    Your vote is very important to us. Please act as soon as possible to vote your shares, even if you plan to participate in the annual meeting. You may vote your shares over the Internet or by telephone. 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. In addition, 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 82 of this proxy statement.

 

By Order of the Board of Directors

 

/s/ Brian Y. Yamasaki

 

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 10, 2019.

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to Be Held on May 22, 2019. This proxy statement and PayPal Holdings, Inc.’s 2018 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 2019 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.

2019 Annual Meeting Information

 

 

Time and Date:

 

  

8:00 a.m. Pacific Time on Wednesday, May 22, 2019

 

 

Place:

 

  

Online at www.virtualshareholdermeeting.com/PYPL19. There is no physical location for the Annual Meeting.

 

 

Record Date:

 

  

March 29, 2019

 

Proposals to be Voted on and Board Voting Recommendations

 

      Proposal   

Recommendation

of the Board

   Page

  1.

  

Election of 12 director nominees named in this proxy statement

  

 

FOR

each of the nominees

  

10

  2.

  

Advisory vote to approve named executive officer compensation

  

FOR

  

36

  3.

  

Ratification of the appointment of PricewaterhouseCoopers LLP as our independent auditor for 2019

  

FOR

  

73

  4.

  

Stockholder Proposal Regarding Political Disclosure

  

AGAINST

  

76

  5.

  

Stockholder Proposal Regarding Human and Indigenous Peoples’ Rights

  

AGAINST

  

78

Virtual Annual Meeting

We have held a virtual annual meeting since becoming an independent public company in 2015. We have designed our virtual meeting format to enhance, rather than constrain, stockholder access, participation, and communication. We believe this format facilitates stockholder attendance and participation by enabling all stockholders to participate fully, and equally, using any Internet-connected device from any location around the world at no cost. Our virtual meeting increases our ability to engage with all stockholders, regardless of size, resources, or physical location, while saving the Company’s and investors’ time and money and reducing our environmental impact.

During the live Q&A session of the meeting, members of our executive management and our Chairman of the Board will answer questions as they come in and address those asked in advance, as time permits. Our rules of conduct and procedure governing our virtual annual meeting generally provide that:

 

 

A stockholder who has a question regarding an agenda item to be voted on by the stockholders may submit that question at or prior to the time matters are before the formal meeting for consideration. We will answer questions on any matters on the agenda before voting is closed.

 

After the conclusion of the formal meeting, management will answer stockholder questions.

 

In order to allow us to answer questions from as many stockholders as possible, we limit each stockholder to one question.

 

If there are matters of individual concern to a stockholder and not of general concern to all stockholders, or if a question posed was not otherwise answered, we provide an opportunity for stockholders to contact us separately after the meeting through our Investor Relations website.

Our virtual meeting website will contain instructions for accessing technical support to assist in the event a stockholder encounters any difficulties accessing the virtual meeting.

We have committed to posting our Q&A on our Investor Relations website as soon as practicable following the conclusion of the annual meeting. In addition, although the webcast is available only to stockholders at the time of the meeting, a replay of the meeting is made publicly available on our Investor Relations site after the meeting concludes.

 

 

LOGO       2019 Proxy Statement


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Proxy Statement Summary

   

 

3

 

Who We Are and What We Do

PayPal Holdings, Inc. is a leading technology platform and digital payments company that enables digital and mobile payments on behalf of consumers and merchants worldwide. We provide safer and simpler ways for businesses of all sizes to accept payments from merchant websites, mobile devices, and applications, and at offline retail locations, through a wide range of payment solutions.

We are committed to democratizing financial services and empowering people and businesses to join and thrive in the global economy. Our goal is to enable our consumers and merchants to manage and move their money anywhere in the world, anytime, on any platform and using any device. Our combined payment solutions, including our PayPal, PayPal Credit, Braintree, Venmo, Xoom, and iZettle products, compose our proprietary Payments Platform.

2018 Performance Highlights

In 2018, we completed our third full year as an independent public company after our separation from eBay in 2015. Our business delivered strong revenue and non-GAAP operating margin performance. We set new benchmarks for revenue, net new active accounts, transactions, and engagement, strengthened our strategic positioning through a combination of innovation, partnerships, and acquisitions, and greatly bolstered our platform capabilities. We continued to focus on the long-term growth of our business by executing on a broad transformation of our culture and business model to strengthen and expand our customer choice initiatives and partnerships across the ecosystem.

The following summarizes our key financial and operational performance results for 2018. 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

Performance Highlights Revenue Non-GAAP Operating Margin1 Free Cash Flow1 Expanding Our Base: Active Accounts of 267 Million Up 17% from 2017 Driving Customer Engagement: 9.9 Billion Payment Transactions Up 27% from 2017 Gaining Share: Total Payment Volume of $578 Billion Up 27% from 2017

 

 

www.paypal.com


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4

    

 

Proxy Statement Summary

  

 

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 section entitled “Non-GAAP Financial Information” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2018 Annual Report on Form 10-K filed with the SEC on February 7, 2019, which section is incorporated herein by reference.

2 Free Cash Flow for 2017 and 2018 reflect the impact of held for sale accounting treatment in connection with the sale of the Company’s U.S. consumer credit receivables portfolio, which reduced free cash flow for 2017 by approximately $1.3 billion and increased free cash flow for 2018 by approximately $1.4 billion. Normalizing for this impact, free cash flow for 2017 and 2018 would have been approximately $3.2 billion and $3.3 billion, respectively.

In addition to our strong financial and operational results, we achieved the following in 2018:

 

 

Our three-year total stockholder return (measured from December 31, 2015 to December 31, 2018) was 132% and our one-year total stockholder return (measured from December 29, 2017 to December 31, 2018) was 14%.

   

We significantly outperformed the S&P 500 Index’s three-year total stockholder return of 23% and one-year total stockholder return of -6%.

 

Completed the acquisitions of Hyperwallet, iZettle, Jetlore, and Simility and the sale of our U.S. consumer credit receivables portfolio.

 

Continued to partner with many of the largest and most influential companies in finance, retail, and technology, and have secured partnerships with top-tier global financial institutions.

 

Launched new products like PayPal Checkout with Smart Payment Buttons, Funds Now, and PayPal for Partners that strengthened our merchant value proposition.

To learn more about our 2018 performance and how it relates to our executive compensation program, see the Compensation Discussion and Analysis beginning on page 38.

2019 Director Nominees

 

  Name and Primary Occupation    Independent      Age   

Director

since

    

Committee

Memberships*

    

Other
Public

Company

Boards

 

  Rodney C. Adkins

     LOGO      60      2017        ARC;        4 **  

  President, 3RAM Group LLC

           Governance     

  Wences Casares

     LOGO      45      2016        Compensation         

  CEO and Founder, Xapo Inc.

           

  Jonathan Christodoro

     LOGO      42      2015        Compensation        4  

  Partner, Patriot Global Management, L.P.

           

  John J. Donahoe

     LOGO      58      2015               2  

  President and CEO, ServiceNow, Inc.

           

  David W. Dorman

     LOGO      65      2015        Compensation (Chair);        1  

  Former Chairman and CEO, AT&T Corporation (retired)

           Governance     

  Belinda J. Johnson

     LOGO      52      2017        ARC         

  Chief Operating Officer, Airbnb, Inc.

           

  Gail J. McGovern

     LOGO      67      2015        Compensation;        1  

  President and CEO, American Red Cross

           Governance (Chair)     

  Deborah M. Messemer

     LOGO      61      2019        ARC        1  

  Former Managing Partner, KPMG (retired)

           

  David M. Moffett

     LOGO      67      2015        ARC (Chair)        2  

  Former CEO, Federal Home Loan Mortgage Corp. (retired)

           

  Ann M. Sarnoff

     LOGO      57      2017        ARC         

  President, BBC Studios Americas

           

  Daniel H. Schulman

          61      2015               2  

  President and CEO, PayPal Holdings, Inc.

              

  Frank D. Yeary

     LOGO      55      2015        ARC        1  

  Manager, Darwin Capital Advisors, LLC

                               

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

** Mr. Adkins has notified us that he will be stepping down from the PPL Corporation board in May 2019, which will reduce the number of other public company boards on which he serves to three.

 

 

LOGO       2019 Proxy Statement


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Proxy Statement Summary

   

 

5

 

Ensuring that the Board of Directors of PayPal (the “Board” or the “PayPal Board”) is composed of directors who possess highly 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.

 

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Skills and Experience Diversity 50% of the Board are women 66 or from under Represented ethnic groups Diversity Other Payments, Financial Services and Fin Tech Technology and Innovation Business Development and Strategy Senior Leadership Legal Regulatory Governmental Global Business Other Public Company Board Service Finance Accounting Consumer Marketing Brand Management Cybersecurity/Information Security Human Capital Management Independence Diversity Nominees

 

 

www.paypal.com


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6

    

 

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 strong corporate governance practices that provide meaningful rights to our stockholders and ensure Board and management accountability are essential to our long-term success.

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

 

 

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Strong Board independence (11 of 12 director nominees are independent)

            

 

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Separate Independent Chairman and CEO roles

 

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Independent Chairman with robust responsibilities

     

 

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All directors stand for annual election

 

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Majority vote standard for uncontested director elections

     

 

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Strong stockholder engagement practices

 

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Stockholder right to call a special meeting

     

 

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Proxy access for qualifying stockholders

 

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

     

 

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Robust stock ownership requirements for our executive officers and directors

 

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Diverse board with 6 of 12 director nominees coming from diverse backgrounds

     

 

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Comprehensive Global Impact Report (ESG) with information on environmental responsibility, social impact, employees and culture, and responsible business practices

To learn more about our corporate governance programs, see page 24.

Executive Compensation

OUR COMPENSATION PROGRAM

We completed another strong year, during which we set new benchmarks and expanded our value proposition for our customers. For 2018, 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.

 

 

LOGO       2019 Proxy Statement


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Proxy Statement Summary

   

 

7

 

OUR 2018 NEO PAY

We believe that our executive compensation program was effective at incentivizing results in 2018 by appropriately aligning pay and performance. The following charts show the 2018 Target Total Direct Compensation mix for our Chief Executive Officer, Mr. Schulman (our “CEO”), and the average 2018 Target Total Direct Compensation mix for our other named executive officers (consisting of our principal financial officer and the three most highly compensated executive officers other than our CEO and CFO) (“NEOs”). Target Total Direct Compensation is the sum of (i) 2018 base salary, (ii) target 2018 annual incentive award (based on the grant date fair value for the portion of the award delivered as performance-based restricted stock units), and (iii) target annual long-term incentive award (based on the grant date fair value). For our CEO, Total Target Direct Compensation also included a CEO performance share unit award (as seen in the chart below) granted in 2018 to further incentivize significant stockholder value creation over a five-year period. To learn more about our executive compensation program, see the Compensation Discussion and Analysis beginning on page 38.

 

 

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

  

 

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

 

Adherence to Rigorous Goals

  

 

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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.

 

Independent Compensation Consultant

  

 

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

 

Annual Compensation Peer Group Review

  

 

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The Compensation Committee, with the assistance of its compensation consultant, reviews the composition of our compensation peer group annually and makes adjustments to the composition of that peer group, if deemed appropriate based on our executive compensation philosophy and principles.

 

Annual Say-on-Pay Vote

  

 

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We conduct an annual advisory (non-binding) vote on the compensation of our NEOs (a “say-on-pay” vote). At our 2018 Annual Meeting, more than 88% of the votes cast on the say-on-pay proposal were voted in support of the 2017 compensation of our NEOs.

 

Investor Engagement

  

 

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In addition to conducting an 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.

 

 

www.paypal.com


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8

    

 

Proxy Statement Summary

  

 

What We Do

 

Annual Risk Assessment

  

 

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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.

 

Clawback Policy

  

 

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Each of our NEOs is subject to a clawback policy, which permits the Compensation Committee to require forfeiture or reimbursement of incentive compensation paid or awarded to the NEO in certain circumstances.

 

Robust Stock Ownership Guidelines

  

 

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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 promote the Company’s commitment to sound corporate governance. Our guidelines require ownership of shares of PayPal common stock with a value 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 our executive officers until his or her requisite ownership level is reached.

 

Prohibition of Hedging and Pledging Transactions

  

 

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Our Insider Trading Policy prohibits all Board members, officers, and employees from entering into any hedging or monetization transactions relating to our securities, including the use of PayPal derivative securities as collateral in a margin account or for any loan or extension of credit, or otherwise trading in any instrument relating to the future price of our securities. In addition, no Board member or executive officer may pledge our securities as collateral for loans.

What We Don’t Do

 

No Excise Tax Gross-Ups on CIC Payments

  

 

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We do not provide our NEOs with any excise tax 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

  

 

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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

  

 

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We do not provide our NEOs with any 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

  

 

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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

  

 

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Our annual incentive plan is entirely 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.

To learn more about our executive compensation program, see the Compensation Discussion and Analysis beginning on page 38.

 

 

LOGO       2019 Proxy Statement


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Proxy Statement Summary

   

 

9

 

Environmental and Social Sustainability Oversight

PayPal recognizes its responsibility as a global citizen to operate in a responsible and sustainable manner aligned with our mission, vision, and values to build a more financially inclusive and interconnected world. The management of key non-financial risks and opportunities, such as workforce inclusion and development, social impact, and environmental sustainability, are critical components in the Company’s long-term performance and strategy.

Over the past year, we formalized the Board’s oversight, executive leadership and operationalization of our Environmental, Social and Governance (ESG) efforts:

 

 

The Corporate Governance and Nominating Committee of the Board is responsible for overseeing general ESG activities.

 

Our Chief Business Affairs and Legal Officer directs and manages the execution of our overall ESG strategy.

 

We implemented an internal governance framework to facilitate cross-functional ESG program development.

In 2018, we published our first annual ESG report, the 2017 Global Impact Report, which highlights four key priority areas of our ESG program:

 

 

Social Impact – including reporting on annual impact metrics, product and service enhancements, and partnerships to improve financial health, power charitable giving, and strengthen local communities

 

Employees and Culture – including executing an effective human capital management strategy to ensure the recruitment, retention and development of our workforce, and diversity and inclusion metrics that demonstrate our commitment to equality and inclusion

 

Environmental Responsibility including conducting our first enterprise-wide environmental footprint assessment and committing to further action in this area

 

Responsible Business Practices – including establishing policies and practices to safeguard trust, ensuring ethical and compliant business operations, and securing and protecting customer information

To access the full 2017 Global Impact Report, visit: www.paypal.com/us/webapps/mpp/about/responsible-practices.

The Company is committed to regular communication of environmental and social sustainability topics. As our ESG efforts continue to evolve, we are committed to sharing progress through subsequent reports and updates.

 

 

www.paypal.com


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10

    

 

Proposal 1

  

 

Proposal 1 — Election of Directors

 

 

The 12 directors listed below have been nominated by our Board for election at the Annual Meeting, to serve until our 2020 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.

Except for Ms. Messemer, 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. Messemer as a director in January 2019. Ms. Messemer was initially identified as a potential candidate by an executive officer.

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 a committee composed solely of independent directors that does not include such incumbent director, would determine whether to accept the director’s resignation in accordance with our Bylaws, and the Company would publicly disclose such 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 on pages 13-20 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.

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

 

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

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Relevant senior leadership/CEO experience;

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High-level managerial experience in complex organizations;

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

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

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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 the total number of meetings of the Board and committees of the Board on which he or she served during 2018;

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Sound business judgment; and

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Commitment to enhancing stockholder value.

Eleven of our 12 nominees for election are independent and, as part of PayPal’s commitment to diversity and inclusion, 50% of the Board members are women or from underrepresented ethnic groups.

 

 

LOGO       2019 Proxy Statement


Table of Contents
         
 

 

Proposal 1

   

 

11

 

Core Director Skills, Expertise, and Attributes

Listed below are the core skills, expertise and attributes that we consider important to have represented on our Board of Directors in light of our current business strategy and structure. We do not believe that each director needs to have all of these skills. Each director’s biography notes his or her relevant skills — see pages 13-20 for more detail.

PAYMENTS, FINANCIAL SERVICES AND FINTECH (8/12 DIRECTORS)

Experience in the payments, financial services, and financial technology (“FinTech”) industries, which is critical to the oversight of PayPal’s business and strategy.

TECHNOLOGY AND INNOVATION (9/12 DIRECTORS)

Experience and knowledge in developing technology businesses, anticipating technological trends, and driving innovation and product development, which are relevant to PayPal as a technology platform and digital payments company.

BUSINESS DEVELOPMENT AND STRATEGY (12/12 DIRECTORS)

Experience in strategy, business development, and acquisitions and other business combinations, which is relevant in helping PayPal grow our business and assessing the fit of potential targets with our strategy and culture.

SENIOR LEADERSHIP (12/12 DIRECTORS)

Senior leadership and/or CEO experience, with a practical understanding of organizations, processes, strategic planning and risk management to assess, develop, and implement our business strategy and operating plan.

LEGAL / REGULATORY / GOVERNMENTAL (10/12 DIRECTORS)

Knowledge or experience with legal issues, regulatory issues, and compliance obligations (including deep engagement with regulators as part of a business), and governmental policy within a company or regulatory body, which is relevant to PayPal as we operate globally in a rapidly evolving legal and regulatory environment where government regulation impacts key aspects of our business.

GLOBAL BUSINESS (12/12 DIRECTORS)

Experience in international markets, with an understanding of diverse business environments, economic conditions, cultures, and regulatory frameworks, which is relevant to PayPal as a global business operating in over 200 markets around the world.

OTHER PUBLIC COMPANY BOARD EXPERIENCE (10/12 DIRECTORS)

Experience as a director of a public company, which provides diversity of perspectives and valuable and relevant experience, including the oversight responsibilities of the Board and Board committees.

FINANCE / ACCOUNTING (11/12 DIRECTORS)

Experience with financial reporting, capital allocation, and accounting, which is relevant to the oversight of PayPal’s capital structure, financing, and investing activities, as well as our financial reporting and internal controls.

CONSUMER, MARKETING AND BRAND MANAGEMENT (8/12 DIRECTORS)

Experience in sales, marketing, and brand management, which is relevant to the growth of PayPal’s business and brand awareness.

CYBERSECURITY / INFORMATION SECURITY (5/12 DIRECTORS)

Expertise in managing cybersecurity and information security risks, which is vital to protecting PayPal’s technology infrastructure and payments platform and maintaining the trust of our customers.

HUMAN CAPITAL MANAGEMENT (12/12 DIRECTORS)

Experience in attracting, motivating, developing, and retaining qualified personnel and succession planning, which is relevant for PayPal’s growth and particularly important within the context of our highly competitive market for employee talent in which we operate.

 

 

www.paypal.com


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12

    

 

Proposal 1

  

 

The directors’ biographies and the skills matrix set forth below note each director’s relevant experience, qualifications, and skills relative to the list above.

 

Experience,

Expertise or Attribute

 

    

 

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Payments, Financial Services and FinTech

 

       

 

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Technology and Innovation

 

  

 

 

 

 

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Business Development and Strategy

  

 

 

 

 

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Senior Leadership

  

 

 

 

 

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Legal / Regulatory / Governmental

  

 

 

 

 

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Global Business

    

 

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Other Public Company Board Service

  

 

 

 

 

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Finance / Accounting

    

 

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Consumer / Marketing / Brand Management

    

 

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Cybersecurity / Information Security

  

 

 

 

 

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Human Capital Management

  

 

 

 

 

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Independence

    

 

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Diversity (Gender, Underrepresented Ethnic Groups)

 

 

    

 

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LOGO       2019 Proxy Statement


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Proposal 1

   

 

13

 

Included in each director nominee’s biography below is a description of select key experience and qualifications of the 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: 60

 

Director since: September 2017

 

Board Committees:

Audit, Risk and Compliance

Governance

 

Other Current Public Company Boards:

Avnet, Inc. (Chairman)

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

  Cybersecurity/Information Security

  Human Capital Management

      
  Biography:

  President of 3RAM Group LLC, a privately held company specializing in capital investments, business consulting services and property management since January 2015

  Former Senior Vice President of International Business Machines Corporation (IBM), a leading manufacturer of information technologies, from 2007 until 2014; in his over 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

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

 

* Mr. Adkins has notified us that he will not be standing for re-election at PPL Corporation and will step down from their board in May 2019.

 
          

 

 

www.paypal.com


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       LOGO           

Wences Casares

Age: 45

 

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

  Cybersecurity/Information Security

  Human Capital Management

 

    

  Biography:

  Founder of Xapo Inc., a bitcoin wallet and vault startup, and has served as its Chief Executive Officer since March 2014

  Founder and Chief Executive Officer of Lemon Inc., a digital wallet platform, from October 2011 to March 2014

  Co-Chief Executive Officer of Bling Nation Ltd., a mobile payments platform, from March 2007 to October 2011

  Serves on the Board of Directors of Endeavor Global

 
     

 

     
       LOGO           

Jonathan Christodoro

Age: 42

 

Director since: July 2015

 

Board Committees:

Compensation

 

Other Current Public Company Boards:

Enzon Pharmaceuticals, Inc.

Herbalife Ltd.

Sandridge Energy, Inc.

Xerox Corporation

 

Key Qualifications and Experience:

  Financial Services

  Business Development and Strategy

  Senior Leadership

  Regulatory and Compliance

  Global Business

  Other Public Company Board Service

  Finance

  Human Capital Management

 

    

  Biography:

  Former eBay board member from March 2015 to July 2015

  Partner at Patriot Global Management, L.P., an investment management firm

  Former Managing Director of Icahn Capital LP, the entity through which Carl C. Icahn manages investment funds, from July 2012 to February 2017

  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

  Began his career as an investment banking analyst at Morgan Stanley, where he focused on merger and acquisition transactions across a variety of industries

  M.B.A. from the University of Pennsylvania’s Wharton School of Business; B.S. in Applied Economics and Management Magna Cum Laude from Cornell University

  Served in the United States Marine Corps

 
     

 

 

LOGO       2019 Proxy Statement


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       LOGO           

John J. Donahoe

Age: 58

 

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

  Cybersecurity/Information Security

  Human Capital Management

 

    

  Biography:

  President and Chief Executive Officer of ServiceNow, Inc., an enterprise cloud company, since April 2017

  Former 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

  Former President, eBay Marketplaces from March 2005 to January 2008

  Former Worldwide Managing Director of Bain & Company from January 2000 to February 2005

  M.B.A. from the Stanford Graduate School of Business; B.A. in Economics from Dartmouth College

 
     

 

 

www.paypal.com


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LOGO         

 

David W. Dorman

Age: 65

 

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

  Cybersecurity/Information Security

  Human Capital Management

 

    

  Biography:

  Served as a board member of eBay from June 2014 to July 2015

  Non-Executive Chairman of the Board of CVS Health Corporation, a pharmacy healthcare provider, since May 2011

  Founding Partner of Centerview Capital Technology Fund, a private investment firm, since July 2013

  Chairman of the Board of InfoWorks, a portfolio company of Centerview as of January 2019

  Former 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

  Former 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

  Former Senior Advisor and Managing Director to Warburg Pincus LLC, a global private equity firm from October 2006 to May 2008

  Former President and a director of AT&T Corporation from November 2005 until January 2006

  Former Chairman of the Board and Chief Executive Officer of AT&T Corporation from November 2002 until November 2005

  Former 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

  Serves as a Trustee for Georgia Tech Foundation, Inc.

  B.S. in industrial management from Georgia Institute of Technology

 
     

 

 

LOGO       2019 Proxy Statement


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       LOGO           

Belinda J. Johnson

Age: 52

 

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

  Human Capital Management

 

    

  Biography:

  Chief Operating Officer of Airbnb, Inc., a global community marketplace which provides access to unique accommodations and experiences, since February 2018

  Former Chief Business Affairs and Legal Officer of Airbnb, Inc., starting in July 2015, having joined as General Counsel in December 2011

  Former Senior Vice President and Deputy General Counsel of Yahoo! Inc., a digital information platform, until August 2011; Ms. Johnson also served in other positions at Yahoo! Inc. from August 1999

  Former General Counsel of Broadcast.com, Inc., an internet broadcasting company from November 1996 to August 1999

  B.A. from The University of Texas at Austin; J.D. from The University of Texas Law School

 
     

 

     
       LOGO           

Gail J. McGovern

Age: 67

 

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, Marketing, and Brand Management

  Human Capital Management

 

    

  Biography:

  Former board member of eBay from March 2015 to July 2015

  President and Chief Executive Officer of the American Red Cross, a humanitarian organization, since June 2008

  Serves as a trustee of John Hopkins Medicine

  B.A. in quantitative sciences from Johns Hopkins University; M.B.A. from Columbia University

 
     

 

 

www.paypal.com


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       LOGO           

Deborah M. Messemer

Age: 61

 

Director since: January 2019

 

Board Committees:

Audit, Risk and Compliance (Audit Committee Financial Expert)

 

Other Current Public Company Boards:

Allogene Therapeutics, Inc.

 

Key Qualifications and Experience:

  Financial Services

  Technology

  Business Development and Strategy

  Senior Leadership

  Regulatory and Compliance

  Global Business

  Other Public Company Board Service

  Finance and Accounting

  Human Capital Management

 

    

  Biography:

  Former Major Market Managing Partner for KPMG, one of the world’s leading professional services firms, from 2008 through her retirement in September 2018

  Started her career in KPMG’s audit practice in 1982 and was admitted into the partnership in 1995; served as Audit Partner or Senior Account Executive for KPMG clients in a variety of industry sectors, including financial services and technology

  Also serves on the Board of Directors of Carbon, Inc.

  B.B.A. (Accounting) from The University of Texas at Arlington

 
     

 

     
      

 

LOGO         

 

David M. Moffett

Age: 67

 

Director since: June 2015

 

Board Committees:

Audit, Risk and Compliance (Chair) (Audit Committee Financial Expert)

 

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

  Human Capital Management

 

    

  Biography:

  Former Lead Independent Director of PayPal from July 2015 through December 2018

  Former board member of eBay from July 2007 to July 2015

  Former Chief Executive Officer of Federal Home Loan Mortgage Corp. (“Freddie Mac”) from September 2008 until his retirement in March 2009

  Former director of Freddie Mac from December 2008 to March 2009

  Former Chief Financial Officer of Star Banc Corporation, a bank holding company, starting in 1993. 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

  Trustee for Columbia Atlantic Mutual Funds and University of Oklahoma Foundation; consultant to various financial services companies

  B.A. from the University of Oklahoma; M.B.A. from Southern Methodist University

 
     

 

 

LOGO       2019 Proxy Statement


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       LOGO           

Ann M. Sarnoff

Age: 57

 

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

  Human Capital Management

 

    

  Biography:

  President of BBC Worldwide Americas, recently renamed BBC Studios Americas, a media company that delivers high- quality, innovative and intelligent programming, since August 2015

  Served as Chief Operating Officer of BBC Worldwide North America from 2010 through July 2015

  Chair of the board of BritBox, a joint venture subscription streaming service launched in partnership with ITV in March of 2017

  Sits on the board, operating committee, and editorial committee of BBC America, a joint venture with AMC Networks

  Former President of Dow Jones Ventures and Senior Vice President of Strategy for Dow Jones & Company, Inc. from June 2006 until joining BBC Worldwide in 2010

  Member of the board of directors of Georgetown University, 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

  Previously served on the Board of HSN, Inc., an interactive multichannel retailer, from December 2012 to December 2017

  B.S. from Georgetown University’s McDonough School of Business; MBA from Harvard Business School

 
     

 

     
       LOGO           

Daniel H. Schulman

Age: 61

 

Director since: July 2015

 

Board Committees:

None

 

Other Current Public Company Boards:

Symantec Corporation

Verizon

 

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

  Cybersecurity/Information Security

  Human Capital Management

 

    

  Biography:

  President and Chief Executive Officer of PayPal since July 2015; served as the President and CEO-Designee of PayPal from September 2014 until July 2015

  Former Group President, Enterprise Group of American Express Company, a financial services company, from August 2010 to August 2014

  Former 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

  B.A. from Middlebury College; M.B.A. from New York University’s Leonard N. Stern School of Business

 
     

 

 

www.paypal.com


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       LOGO           

Frank D. Yeary

Age: 55

 

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

  Human Capital Management

 

    

  Biography:

  Former board member of eBay from January 2015 to July 2015

  Manager at Darwin Capital Advisors, LLC, a private investment firm

  Former Executive Chairman of CamberView Partners, LLC, a corporate advisory firm, until 2018

  Former 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 including as Managing Director, Global Head of Mergers and Acquisitions and as a member of the Management Committee at Citigroup Investment Banking, a financial services company

  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. 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 Amended and Restated Bylaws (“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       2019 Proxy Statement


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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. In keeping with this commitment to inclusion and diversity, 50% of our current Board is comprised of women or underrepresented ethnic groups.

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 compensation consultant regarding market practices and the competitiveness of the non-employee director compensation program in relation to the general market and the Company’s peer group.

2018 DIRECTOR COMPENSATION

For 2018, each non-employee director of the Company received the following annual retainers on the first trading day after January 1, 2018:

 

  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

 

 

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

A non-employee director could 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 was appointed or elected 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 or chair prior to such appointment) following the annual retainer payment date (i.e., the first trading day of the year), the non-employee director received a prorated annual retainer, based on the number of days from the appointment or election date to December 31 of the year.

 

 

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2018 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 2018 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 received $100,000 in PayPal common stock in addition to the $275,000 in PayPal common stock that he received 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.

For 2018, if a non-employee director was appointed or elected at any time other than at an annual stockholders meeting, such director was 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., $275,000 and, with respect to the additional equity award to the Board Chair, $100,000) by a fraction, the numerator of which was 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 was 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.

2019 DIRECTOR COMPENSATION

In late 2018, the Compensation Committee recommended certain adjustments to the annual retainers for the 2019 director compensation program based on market practices. Effective January 1, 2019, each non-employee director of the Company will receive the following annual retainers on the first trading day of the year in which the director serves as a non-employee director of the Company. The Non-Executive Board Chair’s retainer was reduced from $100,000/year to $50,000/year to bring the fees more in line with the Company’s peer group.

 

  2019 Annual Retainers:        

 

  All Non-Employee Directors

  

 

$

 

80,000/year

 

 

 

  Non-Executive Board Chair

  

 

$

 

50,000/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

 

 

2019 Equity Awards:

In late 2018, the Compensation Committee also recommended certain adjustments to the annual equity awards under the 2019 director compensation program based on market practices. In addition to the annual retainers as set forth above, all non-employee directors of the Company will receive the following fully vested stock awards of PayPal common stock following PayPal’s 2019 annual meeting of stockholders. The Non-Executive Board Chair’s annual stock award was reduced from $100,000/year in value to $50,000/year in value to bring the award more in line with the Company’s peer group.

 

 

  All Non-Employee Directors

  

 

 

 

$275,000 in PayPal common stock

 

 

 

  Board Chair1

  

 

 

 

$  50,000 in PayPal common stock

 

 

1 The Board Chair receives $50,000 in PayPal common stock in addition to the $275,000 in PayPal common stock that he receives for services as a non-employee director.

Deferred Compensation

Beginning in 2019, our non-employee directors are eligible to defer compensation earned in 2019 pursuant to the PayPal Holdings, Inc. Deferred Compensation Plan (“DCP”), our non-qualified deferred compensation plan. The DCP allows participants to set aside tax-deferred amounts. The investment return on the deferred cash amounts is linked to the performance of a range of market-based investment choices made available pursuant to the DCP.

 

 

LOGO       2019 Proxy Statement


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2018 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, 2018. Ms. Messemer joined the Board in January 2019 and did not receive any compensation in fiscal year 2018.

 

  Name   

Fees Earned or

Paid in Cash(1)

($)

    

Stock

Awards(2)

($)

    

Option

Awards(3)

($)

    

All Other
Compensation

($)

    

Total

($)

 

 

  Rodney C. Adkins

  

 

 

 

102,658

 

 

  

 

 

 

275,023

 

 

  

 

 

 

 

 

  

 

 

 

 

 

  

 

 

 

377,681

 

 

 

  Wences Casares

  

 

 

 

98,000

 

 

  

 

 

 

275,023

 

 

  

 

 

 

 

 

  

 

 

 

 

 

  

 

 

 

373,023

 

 

 

  Jonathan Christodoro

  

 

 

 

98,000

 

 

  

 

 

 

275,023

 

 

  

 

 

 

 

 

  

 

 

 

 

 

  

 

 

 

373,023

 

 

 

  John J. Donahoe

  

 

 

 

180,000

 

 

  

 

 

 

375,076

 

 

  

 

 

 

67,487

 

 

     

 

 

 

622,563

 

 

 

  David W. Dorman

  

 

 

 

110,000

 

 

  

 

 

 

275,023

 

 

  

 

 

 

 

 

  

 

 

 

 

 

  

 

 

 

385,023

 

 

 

  Belinda J. Johnson

  

 

 

 

100,000

 

 

  

 

 

 

275,023

 

 

  

 

 

 

 

 

  

 

 

 

 

 

  

 

 

 

375,023

 

 

 

  Gail J. McGovern

  

 

 

 

118,000

 

 

  

 

 

 

275,023

 

 

  

 

 

 

 

 

  

 

 

 

 

 

  

 

 

 

393,023

 

 

 

  David M. Moffett

  

 

 

 

195,000

 

 

  

 

 

 

275,023

 

 

  

 

 

 

 

 

  

 

 

 

 

 

  

 

 

 

470,023

 

 

 

  Ann M. Sarnoff

  

 

 

 

100,000

 

 

  

 

 

 

275,023

 

 

  

 

 

 

 

 

  

 

 

 

 

 

  

 

 

 

375,023

 

 

 

  Frank D. Yeary

  

 

 

 

100,000

 

 

  

 

 

 

275,023

 

 

  

 

 

 

 

 

  

 

 

 

 

 

  

 

 

 

375,023

 

 

1 The amounts reported in the Fees Earned or Paid in Cash column reflect the cash fees earned by each non-employee director in 2018, which includes fees with respect to which the following directors elected to receive fully vested shares of PayPal common stock in lieu of cash:

 

  Name   

Fees

Forgone

($)

    

Shares

Received

(#)

 

 

  Wences Casares

  

 

 

 

98,000

 

 

  

 

 

 

1,328

 

 

 

  John J. Donahoe

  

 

 

 

180,000

 

 

  

 

 

 

2,438

 

 

 

  David W. Dorman

  

 

 

 

110,000

 

 

  

 

 

 

1,490

 

 

 

  Ann M. Sarnoff

  

 

 

 

100,000

 

 

  

 

 

 

1,355

 

 

 

  Frank D. Yeary

  

 

 

 

100,000

 

 

  

 

 

 

1,355

 

 

2 Amounts shown represent the grant date fair value of the stock awards granted on May 23, 2018 to our non-employee directors following our 2018 annual meeting of stockholders, as computed in accordance with FASB ASC Topic 718. As of December 31, 2018, our non-employee directors held the following deferred stock units (“DSUs”) and stock options:

 

  Name   

Total

DSUs Held

as of 12/31/18

(#)

    

Total

Options Held

as of 12/31/18

(#)

 

 

  Rodney C. Adkins

  

 

 

 

 

 

  

 

 

 

 

 

 

  Wences Casares

  

 

 

 

 

 

  

 

 

 

 

 

 

  Jonathan Christodoro

  

 

 

 

5,353

 

 

  

 

 

 

 

 

 

  John J. Donahoe

  

 

 

 

2,464

 

 

  

 

 

 

 

 

 

  David W. Dorman

  

 

 

 

9,488

 

 

  

 

 

 

 

 

 

  Belinda J. Johnson

  

 

 

 

 

 

  

 

 

 

 

 

 

  Gail J. McGovern

  

 

 

 

3,711

 

 

  

 

 

 

 

 

 

  David M. Moffett

  

 

 

 

49,001

 

 

  

 

 

 

 

 

 

  Ann M. Sarnoff

  

 

 

 

 

 

  

 

 

 

 

 

 

  Frank D. Yeary

  

 

 

 

5,460

 

 

  

 

 

 

 

 

3 The amount shown for Mr. Donahoe in this column represents the incremental fair value related to an extension of the exercise period (from July 17, 2018 to December 31, 2018) for stock options granted on April 1, 2014 and January 15, 2015. The incremental fair value with respect to the award was computed as of the modification date in accordance with FASB ASC Topic 718.

 

 

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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 long-term success.

Stockholder Engagement

We recognize the value of a robust stockholder outreach program and engaging in a regular, constructive dialogue with our stockholders on governance, executive compensation, and environmental and social issues relevant to our business so we can better understand their views and interests, solicit their feedback, and share our perspective on these important subjects. Following our 2018 annual meeting, we proactively reached out to our institutional investors representing approximately 60% of our common stock, and ultimately engaged with holders of almost 35% of our common stock. In addition to this governance-focused outreach, our Investor Relations team extensively engages with our stockholders throughout the year, frequently together with our CEO or our CFO. Feedback received from stockholders is shared with the Board and its principal committees throughout the year and serves as an input in our Board’s deliberations and decision-making process.

An overview of the key areas of focus and feedback provided by our stockholders during these meetings is provided in the table below:

 

    Key Areas of Focus and Feedback Received
     Business Strategy        Governance        Executive Compensation        Sustainability      
 

   Stockholders highlighted and appreciated PayPal’s innovative and strategic business initiatives

   

   Overall satisfaction with PayPal’s governance and Board practices

   

   Stockholders appreciated the Compensation Committee’s focus on emphasizing performance-based compensation elements

   

   Support for release of PayPal’s first comprehensive ESG report, the 2017 Global Impact Report (GIR)

  
 

   Discussed PayPal’s capital allocation strategy and priorities, including acquisitions completed in 2018

   

   Appreciated diversity of the Board and discussed director selection process and recent additions to the Board

   

   Discussed the Compensation Committee’s metric selection process

   

   Discussed next steps in building out PayPal’s sustainability (ESG) strategy and program

  
 

   Discussed the Board’s role in overseeing execution of company strategy

   

   Stockholders wanted to better understand the Board’s skill sets and rationale behind the current composition

   

   Discussed current peer group and the various criteria used in determining PayPal peers

   

   Appreciated PayPal’s leadership in fostering inclusion and highlighted the value of a diverse workforce

  

The Board has adopted the Corporate Governance Guidelines of the Board of Directors (“Corporate Governance Guidelines”) to serve as a framework within which the Board conducts its business. Our Corporate Governance Guidelines, charters of our principal Board committees, our Code of Business Conduct and Ethics (“Code of Business Conduct”), and other 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.

STRATEGIC OVERSIGHT

One of the Board’s primary responsibilities is overseeing management’s establishment and execution of the Company’s strategy. The Board works with management to respond to the dynamically changing, competitive environment in which PayPal operates. At least quarterly, the CEO and senior executives provide detailed business and strategy updates to the Board. At least annually, the Board conducts an even more in-depth review of the Company’s overall strategy. At these reviews, the Board engages with the Senior Leadership Team and other business leaders regarding, among other topics, business objectives; the Company’s budget, capital allocation plan, and financial and operating performance; the competitive landscape; product and technology updates; and

 

 

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potential mergers and acquisitions. The Board looks to the focused expertise of its committees to inform strategic oversight in their areas of focus.

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.

While the full Board has overall responsibility for risk oversight, the Board has delegated to the Audit, Risk and Compliance Committee (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 and Compliance 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-wide risk and compliance management program (the “ERCM Program”). The ERCM Program sets forth the Company’s programmatic approach to identifying, measuring, managing, monitoring, and reporting key risks facing our Company, including financial crime compliance, regulatory compliance, technology, cybersecurity, information security, privacy, operational, credit, capital structure, strategic, and reputational risk. The ERCM Program 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 and approves the framework policy for the ERCM Program 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 ERCM Program. The ARC Committee reports to the full 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 and general ESG activities.

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. Board self-evaluation results are discussed by the full Board and committee self-evaluation results are discussed by each committee, in each case in executive session.

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 experts to attend Board meetings to provide, educational briefings to the Board on business, corporate governance, regulatory, and other matters to help enhance skills and knowledge relevant to their service as a director of the Company. 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 our 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

 

 

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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 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: Mr. Adkins, Mr. Casares, Mr. Christodoro, Mr. Donahoe, Mr. Dorman, Ms. Johnson, Ms. McGovern, Ms. Messemer, Mr. Moffett, Ms. Sarnoff, and Mr. Yeary. Because Mr. Schulman is employed by PayPal, he does not qualify as independent.

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 Chairman of the Board 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.

Board Leadership

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.

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. In December 2018, the Board reviewed Mr. Donahoe’s independence and concluded that Mr. Donahoe was an independent director under the listing standards of Nasdaq and the Corporate Governance Guidelines. In connection with Mr. Donahoe’s designation as an independent director, Mr. Moffett stepped down from his role as Lead Independent Director in accordance with the Corporate Governance Guidelines.

Mr. Donahoe currently serves as our Independent Chairman. In this role, he is responsible for, among other things:

 

 

Calling meetings of the Board and independent directors;

 

Setting the agenda for Board meetings in consultation with other directors, the CEO, and the corporate secretary;

 

Providing management with input as to the quality, quantity, and timeliness of the flow of information that is necessary for the independent directors to effectively and responsibly perform their duties;

 

Chairing executive sessions of the independent directors;

 

Acting as a liaison between the independent directors and the CEO on sensitive issues;

 

Leading the full Board in the annual CEO performance evaluation;

 

Leading the Board in its review of the results of the annual self-assessment process, including acting on director feedback as needed; and

 

 

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Conducting interviews with existing directors in connection with the director nomination process set forth in the Corporate Governance Guidelines section entitled “Nomination of Directors”

Board Committees

The Board has three principal standing committees: the Audit, Risk and Compliance (ARC) Committee, the Compensation Committee, and the Governance Committee. Each committee has a written charter, available in 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       Member

  Wences Casares

      Member   

  Jonathan Christodoro

      Member   

  John J. Donahoe

        

  David W. Dorman

      Chair    Member

  Belinda J. Johnson

   Member      

  Gail J. McGovern

      Member    Chair

  Deborah M. Messemer

   Member*      

  David M. Moffett

   Chair*      

  Ann M. Sarnoff

   Member      

  Daniel H. Schulman

        

 

  Frank D. Yeary

 

  

 

Member

 

  

 

 

  

 

 

* Audit Committee Financial Expert

Below is a description of each principal committee of the Board. The Board has adopted a written charter for each principal Board committee, which is available on our website at https://investor.paypal-corp.com/corporate-governance.cfm. Each committee’s charter addresses, among other matters, the committee’s purposes and policy, composition and organization, duties and responsibilities, and meetings. Each committee annually conducts and reviews an evaluation of its performance.

 

 

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Audit, Risk and Compliance

(ARC) Committee                     

  

 

  

 

Members:

David M. Moffett (Chair)

Rodney C. Adkins

Belinda J. Johnson

Deborah M. Messemer (since Jan. 2019)

Ann M. Sarnoff

Frank D. Yeary

 

Committee Meetings in 2018: 10

   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 and Ms. Messemer are each an “audit committee financial expert” as defined by SEC rules.

 

 

Compensation Committee    

     

Members:

David W. Dorman (Chair)

Wences Casares

Jonathan Christodoro

Gail J. McGovern

 

Committee Meetings in 2018: 6

 

   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;
      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;
      Review and consider the results of any advisory stockholder votes on executive compensation; and
      Oversee and monitor compliance with the Company’s stock ownership guidelines applicable to directors and executive officers.
  

 

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 consultant 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.”

 

 

 

 

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Governance Committee    

     

Members:

Gail J. McGovern (Chair)

Rodney C. Adkins (since Sept. 2018)

David W. Dorman

 

Committee Meetings in 2018: 4

 

   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 any vacancy (including a 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 Corporate Governance Guidelines;
      Review our Corporate Governance Guidelines at least annually;
      Establish procedures to exercise oversight of the evaluation of the Board and management;
      Lead an annual evaluation of the Board and senior management;
      General oversight of the Company’s ESG activities; and
      Review and discuss with management, at least annually, PayPal’s political contributions and expenditures, and lobbying activities.
  

 

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 typically holds eight regularly scheduled meetings in addition 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 independent directors have the opportunity to meet without our management or the other directors as part of each regularly scheduled Board meeting. The Board expects that its members rigorously prepare for, attend and participate in, all Board and applicable Board committee meetings.

Our Board met seven times during 2018. Each director nominee who served in 2018 attended at least 75% of all of our Board meetings and committee meetings for committees on which he or she served in 2018.

All directors are encouraged to attend the Annual Meeting. Last year, nine of the 11 directors serving on our Board at the time of our 2018 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. The policy, which is administered by the ARC Committee, applies to any transaction or series of transactions in which (1) the Company or its consolidated subsidiary is a participant, (2) the amount involved is or is reasonably expected to be more than $120,000, and (3) 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 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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The Company also has practices that address potential conflicts in circumstances where a non-employee director is a control person of one or more investment funds 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

Two immediate family members of Gary Marino, our former Executive Vice President, Chief Commercial Officer, were employed by the Company during 2018. Mr. Marino’s son, Steve Marino, is a project manager in credit technology and received total compensation of approximately $163,086 in 2018. Mr. Marino’s daughter-in-law (and Steve Marino’s spouse), Kerri Marino, is a product marketer and received total compensation of approximately $126,614 in 2018. Both Steve Marino and Kerri Marino received standard benefits applicable to similarly situated employees. These related person transactions were approved by the ARC.

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 other transactions required to be reported in this proxy statement since the beginning of fiscal 2018 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 Street, 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

 

 

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Environmental and Social Sustainability Oversight

 

 

PayPal recognizes its responsibility as a global citizen to operate in a responsible and sustainable manner aligned with our mission, vision, and values to build a more financially inclusive and interconnected world. The management of key non-financial risks and opportunities, such as workforce inclusion and development, social impact, and environmental sustainability, are critical components in the Company’s long-term performance and strategy.

Over the past year, we formalized the Board’s oversight, executive leadership and operationalization of our Environmental, Social and Governance (ESG) efforts:

 

 

The Corporate Governance and Nominating Committee of the Board is responsible for overseeing general ESG activities.

 

Our Chief Business Affairs and Legal Officer directs and manages the execution of our overall ESG strategy.

 

We implemented an internal governance framework to facilitate cross-functional ESG program development.

In 2018, we published our first annual ESG report, the 2017 Global Impact Report, which highlights four key priority areas of our ESG program:

 

 

Social Impact — including reporting on annual impact metrics, product and service enhancements, and partnerships to improve financial health, power charitable giving and strengthen local communities

 

Employees and Culture — including executing an effective human capital management strategy to ensure the recruitment, retention and development of our workforce, and diversity and inclusion metrics that demonstrate our commitment to equality and inclusion

 

Environmental Responsibility including conducting our first enterprise-wide environmental footprint assessment and committing to further action in this area

 

Responsible Business Practices — including establishing policies and practices to safeguard trust, ensuring ethical and compliant business operations, and securing and protecting customer information

To access the full 2017 Global Impact Report, visit: www.paypal.com/us/webapps/mpp/about/responsible-practices.

The Company is committed to regular communication of corporate governance and sustainability topics. As our ESG efforts continue to evolve, we are committed to sharing progress through subsequent reports and updates.

 

 

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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 the Record Date.

 

  Name

 

  

Age

 

    

Position

 

  

Biography

 

 

  Daniel H. Schulman

  

 

 

 

61

 

 

  

 

President and Chief Executive Officer

  

 

Mr. Schulman’s biography is set forth on page 19 under the heading “Proposal 1 — Election of Directors — Director Nominees.”

 

 

  Jonathan Auerbach

  

 

 

 

56

 

 

  

 

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.

 

 

  Mark Britto

  

 

 

 

54

 

 

  

 

Executive Vice President, Global Sales and Credit

  

 

Mr. Britto has served PayPal as Executive Vice President of Global Sales and Credit since February 2019. From July 2017 until his appointment to his current position, Mr. Britto served as PayPal’s Senior Vice President of Global Credit and Markets.

 

From January 2009 until joining PayPal in 2017, he was co-founder and CEO of Boku, Inc., the world’s largest independent carrier billing company. Prior to Boku, Mr. Britto served as CEO of Ingenio, a service marketplace and performance advertising company, which he led to a 2007 acquisition by AT&T. Mr. Britto served for four years as Senior Vice President of Worldwide Services and Sales at Amazon following the acquisition in 1999 of his first company, Accept.com, which served as the primary backbone of Amazon’s global payments platform. Mark began his career in senior credit and risk management roles at leading national banks FirstUSA and Bank of America. Mr. Britto currently serves as non-executive Chairman of Boku, Inc.

 

 

  Allison Johnson

  

 

 

 

58

 

 

  

 

Executive Vice President, Chief Marketing Officer

  

 

Ms. Johnson has served as Executive Vice President, Chief Marking Officer, since January 2019.

 

From 2011 through March 2018, she was a founder and managing partner at West, a hybrid marketing and venture capital firm that worked with startups to accelerate product/market fit. Her clients included Braintree, prior to its acquisition by PayPal. From 2005 to 2011, Johnson served as Apple’s vice president of worldwide marketing communications. Prior to her work with Apple, Johnson was senior vice president of global brand marketing at HP.

 

 

  Aaron Karczmer

  

 

 

 

47

 

 

  

 

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.

 

 

 

LOGO       2019 Proxy Statement


Table of Contents
         
 

 

Our Executive Officers

   

 

33

 

  Name

 

  

Age

 

    

Position

 

  

Biography

 

        

 

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.

 

 

  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.

 

 

  John D. Rainey

  

 

 

 

48

 

 

  

 

Chief Financial Officer, Executive Vice President, Global Customer Operations

  

 

Mr. Rainey has served PayPal as its Chief Financial Officer and EVP, 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, he served as Executive Vice President and Chief Financial Officer at United Continental Holdings, Inc., an airline holding company. Mr. Rainey also served as Chief Financial Officer and Executive Vice President of United Airlines, as 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 serves on the board of directors of Nasdaq, Inc.

 

 

  William J. Ready

  

 

 

 

39

 

 

  

 

Executive Vice President, Chief Operating Officer

  

 

Mr. Ready has served as Executive Vice President, Chief Operating Officer since September 2016. From January 2015 to September 2016, he served as Senior Vice President, Global Head of Product & Engineering and SVP of PayPal. Mr. Ready was the Chief Executive Officer of Braintree, an online payments provider, from August 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. From 2008 to 2011, Mr. Ready was the President of iPay Technologies, Inc., a payment services provider. Mr. Ready serves on the board of directors of Automatic Data Processing, Inc.

 

Former Executive Officer and Named Executive Officer for 2018:

 

 

  Gary J. Marino

  

 

 

 

61

 

 

  

 

Former Executive Vice President, Chief Commercial Officer

  

 

Mr. Marino served PayPal as Executive Vice President, Chief Commercial Officer from September 2016 through April 5, 2019. From July 2015 to September 2016, he served as Senior Vice President, Global Credit and the Americas. Prior to July 2015, Mr. Marino served in a number of senior leadership roles for PayPal following eBay’s acquisition of Bill Me Later, Inc.

 

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

 

 

 

www.paypal.com


Table of Contents
           

 

34

    

 

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 the Record Date by (1) each stockholder known to us to be the beneficial owner of more than 5% of our common stock, (2) each director and director nominee, (3) each executive officer named in the 2018 Summary Compensation Table included in this proxy statement, 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

 

 

 

  5% Stockholders:

 

     

 

  The Vanguard Group2

 

  

 

 

 

 

87,540,511

 

 

 

 

  

 

 

 

 

7.4

 

 

 

 

  FMR LLC3

 

  

 

 

 

 

80,430,015

 

 

 

 

  

 

 

 

 

6.8

 

 

 

 

  BlackRock, Inc.4

 

  

 

 

 

 

74,772,548

 

 

 

 

  

 

 

 

 

6.3

 

 

 

 

  Named Executive Officers and Directors:

 

     

 

  Daniel H. Schulman5

 

  

 

 

 

 

719,297

 

 

 

 

  

 

 

 

 

*

 

 

 

 

 

  John D. Rainey6

 

  

 

 

 

 

131,914

 

 

 

 

  

 

 

 

 

*

 

 

 

 

 

  Gary J. Marino7

 

  

 

 

 

 

128,383

 

 

 

 

  

 

 

 

 

*

 

 

 

 

 

  Louise Pentland8

 

  

 

 

 

 

106,028

 

 

 

 

  

 

 

 

 

*

 

 

 

 

 

  William J. Ready9

 

  

 

 

 

 

121,082

 

 

 

 

  

 

 

 

 

*

 

 

 

 

 

  Rodney C. Adkins

 

  

 

 

 

 

13,541

 

 

 

 

  

 

 

 

 

*

 

 

 

 

 

  Wences Casares

 

  

 

 

 

 

18,882

 

 

 

 

  

 

 

 

 

*

 

 

 

 

 

  Jonathan Christodoro

 

  

 

 

 

 

19,319

 

 

 

 

  

 

 

 

 

*

 

 

 

 

 

  John J. Donahoe

 

  

 

 

 

 

92,320

 

 

 

 

  

 

 

 

 

*

 

 

 

 

 

  David W. Dorman

 

  

 

 

 

 

38,066

 

 

 

 

  

 

 

 

 

*

 

 

 

 

 

  Belinda J. Johnson

 

  

 

 

 

 

11,994

 

 

 

 

  

 

 

 

 

*

 

 

 

 

 

  Gail J. McGovern

 

  

 

 

 

 

14,839

 

 

 

 

  

 

 

 

 

*

 

 

 

 

 

  Deborah M. Messemer

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

*

 

 

 

 

 

  David M. Moffett

 

  

 

 

 

 

71,112

 

 

 

 

  

 

 

 

 

*

 

 

 

 

 

  Ann M. Sarnoff

 

  

 

 

 

 

11,204

 

 

 

 

  

 

 

 

 

*

 

 

 

 

 

  Frank D. Yeary

 

  

 

 

 

 

21,956

 

 

 

 

  

 

 

 

 

*

 

 

 

 

 

  All directors and executive officers as a group (19 persons)10

 

  

 

 

 

 

1,776,602

 

 

 

 

  

 

 

 

 

*

 

 

 

 

* 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 March 29, 2019, and restricted stock units (“RSUs”) that are scheduled to vest within 60 days of March 29, 2019 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 1,172,192,687 shares of common stock outstanding as of March 29, 2019.

2 Based solely on information on Schedule 13G/A (Amendment No. 3) filed with the SEC on February 12, 2019. The Vanguard Group has sole voting power of 1,439,193 shares of the Company’s common stock, shared voting power of 251,338 shares of the Company’s common stock, sole dispositive power of 85,878,791 shares of the Company’s common stock, and shared dispositive power of 1,661,720 shares of the Company’s common stock. The address for The Vanguard Group is 100 Vanguard Blvd., Malvern, PA 19355.

3 Based solely on information on Schedule 13G/A (Amendment No. 1) filed with the SEC on February 13, 2019. FMR LLC has sole voting power of 13,299,935 shares of the Company’s common stock and sole dispositive power of 80,430,015 shares of the Company’s common stock. The address for FMR LLC is 245 Summer Street, Boston, Massachusetts 02210.

4 Based solely on information on Schedule 13G/A (Amendment No. 1) filed with the SEC on February 6, 2019. BlackRock, Inc. has sole voting power of 64,521,289 shares of the Company’s common stock, and sole dispositive power of 74,772,548 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 144,448 shares Mr. Schulman has the right to acquire pursuant to outstanding options exercisable within 60 days of March 29, 2019, and 72,709 RSUs scheduled to vest within 60 days of March 29, 2019.

6 Mr. Rainey is our Chief Financial Officer and Executive Vice President, Global Customer Operations. Includes 7,283 shares Mr. Rainey has the right to acquire pursuant to outstanding options exercisable within 60 days of March 29, 2019, and 16,786 RSUs scheduled to vest within 60 days of March 29, 2019.

 

 

LOGO       2019 Proxy Statement


Table of Contents
         
 

 

Stock Ownership Information

   

 

35

 

7 Mr. Marino is our former Executive Vice President, Chief Commercial Officer. Mr. Marino’s employment with the Company terminated on April 5, 2019. Includes 1,010 shares Mr. Marino has the right to acquire pursuant to outstanding options exercisable within 60 days of March 29, 2019 and 18,640 RSUs scheduled to vest within 60 days of March 29, 2019.

8 Ms. Pentland is our Executive Vice President, Chief Business Affairs and Legal Officer. Includes 3,057 shares Ms. Pentland has the right to acquire pursuant to outstanding options exercisable within 60 days of March 29, 2019, and 50,064 RSUs scheduled to vest within 60 days of March 29, 2019.

9 Mr. Ready is our Executive Vice President, Chief Operating Officer. Includes 7,397 shares Mr. Ready has the right to acquire pursuant to outstanding options exercisable within 60 days of March 29, 2019 and 22,918 RSUs scheduled to vest within 60 days of March 29, 2019.

10 Includes 244,693 shares subject to options exercisable within 60 days of March 29, 2019, and 228,961 RSUs scheduled to vest within 60 days of March 29, 2019.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our directors and executive officers, among other things, 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 for the fiscal year ended December 31, 2018, all of our directors and executive officers complied with all applicable Section 16(a) filing requirements, except that one Form 4 was filed late for Frank D. Yeary, a director of the Company.

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 and executive officers.

 

 

www.paypal.com


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36

    

 

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 2019 Annual Meeting of Stockholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the 2018 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 2020 annual meeting of stockholders.

 

The Board Recommends a Vote FOR Proposal 2.

 

 

LOGO       2019 Proxy Statement


Table of Contents
         
 

 

Letter from the Compensation Committee

   

 

37

 

 

LOGO

Letter from the Compensation Committee

Dear PayPal Stockholder:

The Compensation Committee strives to maintain an executive compensation program that aligns with the key drivers of profitable short- and long-term growth, and ultimately with the interests of our stockholders. The program has been designed to properly incentivize and reward our executives for performance that exceeds expectations, while providing transparency for both executives and stockholders — demonstrated through our pay philosophy of Simplicity, Transparency, and Clarity. As we focus on these factors, we are also mindful of the need to effectively retain, compete for, and win top talent within the unique landscape of the financial technology (“FinTech”) market and the increasingly competitive environment for executive talent.

In 2018, we completed our third full year as an independent public company. During that time, we have strengthened our technology platform, invested in compliance, and reorganized customer operations to strengthen the foundation of our business. In addition, we have continued to drive future growth and put our customers at the center of everything we do by expanding our value proposition through acquisitions, partnerships, and launching innovative products and services. As a result of these initiatives, 2018 was a strong year for PayPal. Our business delivered strong revenue and non-GAAP operating margin performance.

The Compensation Committee’s decisions over the past year, and the results of our performance-based incentive programs, reflect the healthy progress that PayPal has made and the contributions of our leadership team that have made our achievements possible. In the course of evaluating the compensation program for 2018 and our goals for the next five years, the Compensation Committee looked at the core strategy, which is reflected in our annual short- and long-term incentive program, and also considered a set of stretch goals for share price performance. Recognizing the value to stockholders in achieving those stretch goals, the Compensation Committee determined to make a special incentive award to our CEO that would reward him if he were able to achieve significant sustained share price increases over a five-year performance period. At the time of the grant, our shares were trading at an average closing stock price for the 90 trading days prior to the grant date of $77.84; the full award can only be earned if we deliver greater than a 60% return during the measurement period. To ensure that the award focused on long-term value creation rather than short-term share price movements, we implemented several safeguards, including: backloaded vesting (earned shares cannot vest earlier than 2021; even if the shares are earned early in the performance period, they will vest across a multi-year vesting schedule that runs through 2023); and a required holding period (all earned and vested shares must be retained until the end of the five-year performance period).

We appreciate the feedback that we have received from our stockholders on our compensation program over the past year, and remain focused on ensuring that our existing pay arrangements serve to support our growth strategy and continue to align with long-term stockholder value creation.

The Compensation Committee of the Board of Directors

David W. Dorman (Chair)

Wences Casares

Jonathan Christodoro

Gail J. McGovern

 

 

www.paypal.com


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38

    

 

Compensation Discussion and Analysis

  

 

Compensation Discussion and Analysis

 

 

   NAMED EXECUTIVE OFFICERS

 

  

 

 

 

 

38

 

 

 

 

 

   EXECUTIVE SUMMARY

 

  

 

 

 

 

39

 

 

 

 

 

   2018 PERFORMANCE HIGHLIGHTS

 

  

 

 

 

 

39

 

 

 

 

 

   EXECUTIVE COMPENSATION PROGRAM DESIGN

 

  

 

 

 

 

40

 

 

 

 

 

   COMPENSATION ALIGNED WITH PERFORMANCE RESULTS

 

  

 

 

 

 

40

 

 

 

 

 

   Investor Feedback

 

  

 

 

 

 

41

 

 

 

 

 

   2018 NEO Compensation Program Elements

 

  

 

 

 

 

41

 

 

 

 

 

   CEO PSU Award

 

  

 

 

 

 

42

 

 

 

 

 

   Pay Mix

 

  

 

 

 

 

44

 

 

 

 

 

   KEY 2018 COMPENSATION OUTCOMES

 

  

 

 

 

 

45

 

 

 

 

 

   2018 AIP

 

  

 

 

 

 

45

 

 

 

 

 

   2016-2018 PBRSUs

 

  

 

 

 

 

45

 

 

 

 

 

   Key Compensation Policies and Practices

 

  

 

 

 

 

45

 

 

 

 

 

   COMPENSATION FRAMEWORK

 

  

 

 

 

 

47

 

 

 

 

 

   INCENTIVE (PERFORMANCE-BASED) COMPENSATION FOR 2018

 

  

 

 

 

 

47

 

 

 

 

 

   Annual Incentive Plan

 

  

 

 

 

 

47

 

 

 

 

 

   Long-Term Incentive Components

 

  

 

 

 

 

51

 

 

 

 

 

   CEO PSU Award

 

  

 

 

 

 

54

 

 

 

 

 

   OTHER COMPENSATION ELEMENTS

 

  

 

 

 

 

56

 

 

 

 

 

   Base Salary

 

  

 

 

 

 

56

 

 

 

 

 

   Deferred Compensation

 

  

 

 

 

 

57

 

 

 

 

 

   Other Benefits

 

  

 

 

 

 

57

 

 

 

 

 

   OTHER COMPENSATION PRACTICES AND POLICIES

 

  

 

 

 

 

58

 

 

 

 

 

   ROLES AND RESPONSIBILITIES

 

  

 

 

 

 

58

 

 

 

 

 

   Compensation Committee

 

  

 

 

 

 

58

 

 

 

 

 

   Compensation Consultant

 

  

 

 

 

 

58

 

 

 

 

 

   CEO and the Human Resources Department

 

  

 

 

 

 

58

 

 

 

 

 

   OUR COMPENSATION PEER GROUP

 

  

 

 

 

 

59

 

 

 

 

 

   STOCK OWNERSHIP GUIDELINES

 

  

 

 

 

 

60

 

 

 

 

 

   HEDGING AND PLEDGING POLICY

 

  

 

 

 

 

61

 

 

 

 

 

   CLAWBACK POLICY

 

  

 

 

 

 

61

 

 

 

 

 

   TAX AND ACCOUNTING CONSIDERATIONS

 

  

 

 

 

 

61

 

 

 

 

 

   COMPENSATION COMMITTEE REPORT

 

  

 

 

 

 

62

 

 

 

 

Named Executive Officers

 

 

This Compensation Discussion and Analysis (“CD&A”) describes the material compensation elements for each of PayPal’s named executive officers (“NEOs”) and provides an overview of our executive compensation policies and practices applicable to our NEOs.

 

For 2018, 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. Marino1

 

Former Executive Vice President, Chief Commercial Officer

   Louise Pentland

 

Executive Vice President, Chief Business Affairs and Legal Officer

   William J. Ready

 

 

Executive Vice President, Chief Operating Officer

 

1 Mr. Marino served as Executive Vice President, Chief Commercial Officer of the Company throughout 2018 and retired effective as of April 5, 2019.

 

 

LOGO       2019 Proxy Statement


Table of Contents
         
 

 

Compensation Discussion and Analysis

   

 

39

 

Executive Summary

2018 PERFORMANCE HIGHLIGHTS

In 2018, we completed our third full year as an independent public company after our separation from eBay in 2015. Our business delivered strong revenue and non-GAAP operating margin performance. We set new benchmarks for revenue, net new active accounts, transactions, and engagement, strengthened our strategic positioning through a combination of innovation, acquisitions, and partnerships, and greatly bolstered our platform capabilities. We continued to focus on the long-term growth of our business by executing on a broad transformation of our culture and business model to strengthen and expand our customer choice initiatives and partnerships across the ecosystem.

The following summarizes our key financial and operational performance results for 2018. 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

Performance Highlights Revenue Non-GAAP Operating Margin1 Free Cash Flow1 Expanding Our Base: Active Accounts of 267 Million Up 17% from 2017 Driving Customer Engagement: 9.9 Billion Payment Transactions Up 27% from 2017 Gaining Share: Total Payment Volume of $578 Billion Up 27% from 2017

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 section titled “Non-GAAP Financial Information” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2018 Annual Report on Form 10-K filed with the SEC on February 7, 2019, which section is incorporated herein by reference.

2 Free Cash Flow for 2017 and 2018 reflect the impact of held for sale accounting treatment in connection with the sale of the Company’s U.S. consumer credit receivables portfolio, which reduced free cash flow for 2017 by approximately $1.3 billion and increased free cash flow for 2018 by approximately $1.4 billion. Normalizing for this impact, free cash flow for 2017 and 2018 would have been approximately $3.2 billion and $3.3 billion, respectively.

 

 

www.paypal.com


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40

    

 

Compensation Discussion and Analysis

  

 

In addition to our strong financial and operational results, we also achieved the following in 2018:

 

 

Our three-year total stockholder return (measured from December 31, 2015 to December 31, 2018) was 132% and our one-year total stockholder return (measured from December 29, 2017 to December 31, 2018) was 14%.

   

We significantly outperformed the S&P 500 Index’s three-year total stockholder return of 23% and one-year total stockholder return of -6%.

 

Completed the acquisitions of Hyperwallet, iZettle, Jetlore, and Simility and the sale of our U.S. consumer credit receivables portfolio.

 

Continued to partner with many of the largest and most influential companies in finance, retail, and technology, and have secured partnerships with top-tier global financial institutions.

 

Launched new products like PayPal Checkout with Smart Payment Buttons, Funds Now, and PayPal for Partners that strengthened our merchant value proposition.

EXECUTIVE COMPENSATION PROGRAM DESIGN

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

In designing our executive compensation program, the Compensation Committee prioritized the following compensation philosophy and goals:

 

 

Simplicity, Transparency, and Clarity – enable executives to see the direct link between Company and individual performance and their pay, and enable stockholders to see the direct link between returns on their investment and pay outcomes for the executive team;

 

One Team – maintain unified goals and objectives of the annual short- and long-term incentive program 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.

COMPENSATION ALIGNED WITH PERFORMANCE RESULTS

The following chart demonstrates the alignment between each of our Revenue and Indexed TSR, with our CEO Pay (as shown in the “2018 Summary Compensation Table”) during 2018, 2017, and 2016. Revenue is a key measure of our financial performance. Indexed TSR is defined as the total stockholder return on our common stock during the period from December 31, 2015 through December 31, 2018, assuming $100 was invested on December 31, 2015.

 

LOGO   

LOGO

CEO Pay Revenue

 

 

LOGO       2019 Proxy Statement


Table of Contents
         
 

 

Compensation Discussion and Analysis

   

 

41

 

Investor Feedback

At our 2018 annual meeting of stockholders (the “2018 Annual Meeting”), we received more than 88% support of the votes cast on our say-on-pay proposal. Following the 2018 Annual Meeting, we engaged in proactive outreach efforts with major institutional investors holding approximately 60% of our stock focused on corporate governance, executive compensation, and ESG matters. For a complete discussion of our engagement efforts and feedback received through these conversations, please see “Corporate Governance — Stockholder Engagement”.

After considering our 2018 say-on-pay voting results as well as the generally positive feedback received during our stockholder engagement efforts, the Compensation Committee determined that it was appropriate to maintain the core design of our 2018 executive compensation program and did not make any significant changes to our executive compensation program. The Compensation 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.

2018 NEO Compensation Program Elements

 

      Form of
Payment
   Performance
Period
   Performance Criteria    Objectives

Salary

   Cash    Ongoing   

   Alignment of salary with performance is evaluated on an annual basis

  

 

   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

 

Annual

Incentive

Plan (“AIP”)

   Performance-Based Restricted Stock Units (“PBRSUs”)
(75%)
   One year   

   Revenue and Non-GAAP Operating Margin, with Net New Actives modifier

  

 

 

   Compensates for successful annual performance

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

   Significant equity portion to further align with stockholder interests

   Attracts highly capable leaders in an extremely competitive talent market

 

  

Cash (25%)

 

  

   Individual Performance

 

Long-Term
Incentive

Plan (“LTI”)

   PBRSUs (50%)    Three years   

   FX-Neutral Revenue Compound Annual Growth Rate (“CAGR”)

   Free Cash Flow CAGR

  

 

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

   Intended to satisfy long-term retention objectives

   Attracts highly capable leaders in an extremely competitive talent market

   Restricted Stock Units (“RSUs”) (50%)    Vests annually over three years   

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

  

   Compensates for the creation of long-term value of Company

   Recognizes potential future contributions

   Intended to satisfy long-term retention objectives

   Attracts highly capable leaders in an extremely competitive talent market

 

 

 

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Compensation Discussion and Analysis

  

 

CEO PSU Award

In addition to the annual long-term incentive award, in 2018 the Compensation Committee granted a performance-based equity award (the “CEO PSU Award”) to Mr. Schulman which will be earned only if meaningful and sustained stock price performance targets are achieved during a five-year performance period. This award is consistent with PayPal’s “pay for performance” philosophy to further incentivize Mr. Schulman to drive long-term stockholder value creation. The CEO PSU Award has longer vesting periods than PayPal’s annual long-term incentive awards, further emphasizing the desire to align Mr. Schulman’s interests with those of stockholders over the longer-term.

The Compensation Committee considered the following factors as it contemplated Mr. Schulman’s executive compensation in early 2018:

 

 

The instrumental role that Mr. Schulman continues to play in PayPal’s strategic transformation, including by:

   

Expanding the Company’s value proposition following its separation from eBay and becoming an independent public company in July 2015

   

Empowering customer choice

   

Actively partnering within the ecosystem with credit card networks, financial institutions, and technology companies

   

Increasing PayPal’s addressable market

   

Transforming PayPal from a payments button to an open payments platform

 

PayPal’s strong financial and operational performance under Mr. Schulman’s leadership, including strong growth in both revenue and earnings, as well as payment volume, net new active accounts, and engagement

 

Mr. Schulman is uniquely qualified to lead PayPal given his:

   

Deep expertise in payments, mobile technology, innovation, and regulatory and cybersecurity matters

   

Leadership experience and vision in growing large, complex businesses

   

Experience transforming financial services, while driving cultural change and instilling a values-based environment that champions diversity and inclusion

 

Employee retention is one of our core business risks and competition for proven CEO talent is particularly intense. The Compensation Committee believed Mr. Schulman’s leadership would enable PayPal to continue to execute on its multi-year strategic plan and deliver sustainable, long-term growth

 

An award based on meaningful stock price targets over a five-year period was consistent with PayPal’s “pay for performance” philosophy and:

   

Complements PayPal’s existing executive compensation program

   

Further incentivizes Mr. Schulman to drive stockholder value creation over a longer time frame

   

Helps ensure that Mr. Schulman’s interests are aligned with those of long-term stockholders

   

Aligns with the Board’s stretch share price performance goals for Mr. Schulman that were not directly addressed in the core compensation program, because the Compensation Committee believed that as the CEO and leader of PayPal’s strategic transformation, Mr. Schulman was uniquely positioned to directly affect our share price with his performance and execution of his strategic vision for PayPal

 

The importance of implementing appropriate stockholder-friendly safeguards in the design of any award outside of our standard annual long-term incentive program.

 

 

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PayPal has performed extremely well since becoming an independent public company in July 2015 both on an absolute basis and relative to the broader market. Around the time the CEO PSU Award was granted, PayPal’s stock price was at its highest since becoming an independent public company. In a broader market context, the Board recognized that the grant was being made during the longest bull market in history for the S&P 500 Index, and that the market environment could change, putting increased pressure on share price. Achievement of the stretch performance goals established under the CEO PSU Award will require sustaining PayPal’s strong performance over the next several years and continuing to grow and create stockholder value over the long term.

Stock Price Performance from Separation (July 2015) to CEO PSU Award Grant Date1

 

 

LOGO

1 Reflects stock price performance from July 20, 2015 (the first day of “regular way” trading as an independent public company) to March 29, 2018 (the last trading day immediately prior to the grant date of April 1, 2018 for the CEO PSU Award).

2 Peer group figure presented is a market cap weighted index value; peers include companies listed on page 60.

 

 

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Compensation Discussion and Analysis

  

 

 

    

Form of

Payment

 

  

Performance

Period

 

  

Performance Alignment

 

  

Objectives

 

  CEO PSU Award   PSUs (100%)    Five years   

 

   Awards granted when the average closing stock price for the 90 trading days prior to grant date was $77.84

   50% earned if PayPal achieves a 90-trading day average closing stock price target of $105, approximately 38% increase over the price at grant date

   50% earned if PayPal achieves a 90-trading day average closing stock price target of $125, approximately 65% increase over the price at grant date

   Backloaded vesting, with earned awards vesting on the third, fourth, and fifth anniversaries of grant date; no vesting if goals are not met

   Earned shares generally required to be held until the fifth anniversary of the grant date

 

 

  

 

   Serve as a complement to PayPal’s existing executive compensation program, recognizing that compensation outside of a standard incentive program should be carefully designed with appropriate stockholder-friendly safeguards

   Incentivize stockholder value creation over a longer time frame than under our standard incentive program

   Closely align Mr. Schulman’s interests with those of long-term stockholders

   Require more significant performance results for Mr. Schulman to earn the award

   Address risks associated with a highly competitive market for proven executive talent

 

The Compensation Committee worked closely with its independent compensation consultant to design the CEO PSU Award for Mr. Schulman, which was granted in April 2018. Below is a summary of the key details and features of the CEO PSU Award:

 

 

The CEO PSU Award was granted with a grant date fair value of $16 million.

 

The CEO PSU Award features an extended five-year performance period:

   

50% of the shares subject to the CEO PSU Award may be earned if PayPal achieves a stock price target of $105 based on a 90-trading day average closing price;

   

The remaining 50% of the shares subject to the award may be earned if PayPal achieves a stock price target of $125 based on a 90-trading day average closing price.

 

The CEO PSU Award features backloaded vesting.

   

If any portion of the award is earned before the third anniversary of the grant date, the earned award will vest ratably on the third, fourth, and fifth anniversaries of the grant date, subject to Mr. Schulman’s continued service through the applicable vesting date.

   

Any portion of the award earned after the third anniversary of the grant date but before the fourth anniversary of the grant date will vest one-third on the date such portion is earned, and one-third on each of the fourth and fifth anniversaries of the grant date.

   

Two-thirds of any portion of the CEO PSU Award that is earned after the fourth anniversary of the grant date will vest on the date such portion is earned, with the remaining one-third vesting on the fifth anniversary of the grant date.

 

Earned and vested shares under the CEO PSU Award are generally required to be held until the fifth anniversary of the grant date.

 

The award is subject to forfeiture if the stock price targets are not met over the performance period (see footnote 5 to the table under the “Potential Payments Upon Termination or Change in Control” below for a description of the treatment of the CEO PSU Award upon a termination of employment or change in control).

Pay Mix

The Compensation Committee believes that long-term equity incentives should comprise the majority of the target total direct compensation opportunity for our NEOs. We believe that our executive compensation program was effective at incentivizing results in 2018 by appropriately aligning pay and performance. The following charts show the 2018 Target Total Direct Compensation mix for our CEO, Mr. Schulman, and the average 2018 Target Total Direct Compensation mix for our other NEOs. Target Total Direct Compensation is the sum of (i) 2018 base salary, (ii) target 2018 annual incentive award (based on the grant

 

 

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date fair value for the portion of the award delivered as PBRSUs), and (iii) target annual long-term incentive award (based on the grant date fair value). For our CEO, Total Target Direct Compensation also includes the CEO PSU Award (based on the grant date fair value—see “Compensation Discussion and Analysis—Compensation Framework—Incentive (Performance-Based) Compensation for 2018—CEO PSU Award” for further details).

 

 

LOGO

KEY 2018 COMPENSATION OUTCOMES

2018 AIP

In early 2019, the Compensation Committee approved specific awards of annual incentives earned under the 2018 AIP based upon Company performance with respect to Revenue, Non-GAAP Operating Margin, and Net New Actives performance, as well as each executive’s individual performance, as further discussed under “Compensation Framework — Incentive (Performance-Based) Compensation for 2018 — Annual Incentive Plan.” Based on our 2018 financial results, the Compensation Committee determined that the achievement level of the Company performance component under the 2018 AIP was 130% of target. The 2018 AIP payments were higher than target due to our strong financial and operational performance during the year, which exceeded our approved budget and operating plan for 2018 and the midpoint of full year guidance provided to the investment community in January 2018.

2016-2018 PBRSUs

In early 2016, the Compensation Committee granted our NEOs long-term performance-based incentive awards in the form of PBRSUs (the “2016-2018 PBRSUs”) subject to a three-year performance period from January 1, 2016 to December 31, 2018. The performance measures were comprised of the compound annual growth rates of FX-Neutral Revenue and Free Cash Flow over the three-year performance period as equally-weighted measures, as further discussed under “Compensation Framework — Incentive (Performance-Based) Compensation for 2018 — Long-Term Incentive Components”. Based on our financial results, the Compensation Committee determined in early 2019 that the achievement level of the 2016-2018 PBRSUs was 200% of target.

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’ Target Total Direct Compensation is 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.

 

 

 

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What We Do

 

 

Independent Compensation Consultant

 

  

 

LOGO

 

 

 

 

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

 

 

Annual Compensation Peer Group Review

 

  

 

LOGO

 

 

 

The Compensation Committee, with the assistance of its compensation consultant, reviews the composition of our compensation peer group annually and makes adjustments to the composition of that peer group, if deemed appropriate based on our executive compensation philosophy and principles.

 

 

Annual Say-on-Pay Vote

 

  

 

 

LOGO

 

 

 

 

We conduct an annual advisory (non-binding) vote on the compensation of our NEOs (a “say-on-pay” vote). At our 2018 Annual Meeting, more than 88% of the votes cast on the say-on-pay proposal were voted in support of the 2017 compensation of our NEOs.

 

 

Investor Engagement

 

  

 

LOGO

 

 

 

In addition to conducting an 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.

 

 

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.

 

 

Clawback Policy

 

  

 

LOGO

 

 

 

Each of our NEOs is subject to a clawback policy, which permits the Compensation Committee to require forfeiture or reimbursement of incentive compensation paid or awarded to the NEO in certain circumstances.

 

 

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 promote the Company’s commitment to sound corporate governance. Our guidelines require ownership of shares of PayPal common stock with a value 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 our executive officers until his or her requisite ownership level is reached.

 

 

Prohibition of Hedging and Pledging Transactions

 

  

 

LOGO

 

 

 

Our Insider Trading Policy prohibits all Board members, officers, and employees from entering into any hedging or monetization transactions relating to our securities, including the use of PayPal derivative securities as collateral in a margin account or for any loan or extension of credit, or otherwise trading in any instrument relating to the future price of our securities. In addition, no Board member or executive officer may pledge our securities as collateral for loans.

 

What We Don’t Do

 

 

No Excise Tax Gross-Ups on CIC Payments

 

  

 

LOGO

 

 

 

We do not provide our NEOs with any excise tax 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 any 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 entirely performance-based and our NEOs are not guaranteed any minimum levels of payment.

 

 

 

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Compensation Framework

INCENTIVE (PERFORMANCE-BASED) COMPENSATION FOR 2018

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

 

 

leadership;

 

performance against financial performance measures;

 

defining and executing against strategy and roadmaps for the business unit or function;

 

achievements in advancing the Company’s set of core values, centered on collaboration, innovation, wellness, and inclusion;

 

organizational development, including hiring, development, and retention for the business unit or function;

 

improving and supporting innovation and execution for the business unit or function;

 

negotiating, closing, and integrating or implementing strategic transactions and partnerships; and

 

achievement of strategic and operational objectives, and executing against budgets.

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

Annual Incentive Plan

The 2018 AIP provided each of our NEOs with the opportunity to earn annual incentive compensation based on Company performance and individual performance.

The Compensation 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 2018 annual incentive target (expressed as a percentage of base salary) for each NEO was determined:

 

with reference to the Compensation Committee’s assessment of data from public filings of our compensation peer group companies and general industry data for comparable technology companies that were included in proprietary third-party compensation surveys (the specific identity of the respondents of which are not provided to the Compensation Committee or the Company);

 

based on each NEO’s position within the Company; and

 

taking into account the Incentive Compensation Factors.

For 2018, the Compensation Committee did not make any changes to the target annual incentive opportunity percentages set for 2017 for each NEO. The following table sets forth the 2018 AIP target annual incentive opportunity (the “Target Incentive Amount”) for each of our NEOs, expressed as a percentage of 2018 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%

 

 

 

 

 

 

 

 

 

750,000

 

 

 

 

 

  Gary J. Marino

 

 

 

 

 

 

100%

 

 

 

 

 

 

 

 

 

700,000

 

 

 

 

 

  Louise Pentland

 

 

 

 

 

 

100%

 

 

 

 

 

 

 

 

 

750,000

 

 

 

 

 

  William J. Ready

 

 

 

 

 

 

100%

 

 

 

 

 

 

 

 

 

750,000

 

 

 

 

Seventy-five percent (75%) of the Target Incentive Amount for each NEO was allocated to Company performance, with the remaining 25% allocated to individual performance.

 

 

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The Company performance portion of the 2018 AIP was paid out in the form of PBRSUs with a one-year performance period (calendar year 2018). The PBRSUs were granted on February 15, 2018. The following table sets forth the Target Incentive Amount under the 2018 AIP for each of our NEOs; the Company performance portion is expressed as the target number of PBRSUs and the individual performance portion is expressed as the 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

 

 

 

 

  

 

 

 

 

18,826

 

 

 

 

  

 

 

 

 

500,000

 

 

 

 

 

  John D. Rainey

 

  

 

 

 

 

750,000

 

 

 

 

  

 

 

 

 

7,060

 

 

 

 

  

 

 

 

 

187,500

 

 

 

 

 

  Gary J. Marino

 

  

 

 

 

 

700,000

 

 

 

 

  

 

 

 

 

6,589

 

 

 

 

  

 

 

 

 

175,000

 

 

 

 

 

  Louise Pentland

 

  

 

 

 

 

750,000

 

 

 

 

  

 

 

 

 

7,060

 

 

 

 

  

 

 

 

 

187,500

 

 

 

 

 

  William J. Ready

 

  

 

 

 

 

750,000

 

 

 

 

  

 

 

 

 

7,060

 

 

 

 

  

 

 

 

 

187,500

 

 

 

 

1 The target number of PBRSUs was determined by dividing (i) the value of the target award allocated to the Company performance portion by (ii) the average closing price of 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, 2018.

Company Performance Measures

In early 2018, the Compensation Committee set the Company performance measures under the 2018 AIP to create strong alignment between Company performance and NEO incentive payouts, as described in the following table:

 

  Measure

 

  

Definition

 

  

Purpose

 

 

  Revenue

  (50% Weighting)

  

 

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

  

 

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

 

The Compensation Committee also included Revenue as one of the equally-weighted Company performance measures used to determine the payout with respect to the Company performance component because the Compensation 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 Form 10-K.

  

 

The Compensation 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 within our peer group. 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”)

  

 

Measures the net change in the number of organic active customer accounts compared to target. NNAs measurement excludes the impact of any mergers and acquisitions.

 

  

 

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

 

 

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The Compensation Committee determined that the 2018 AIP Funding Threshold (which must be achieved in order for the 2018 AIP to be funded) would be a minimum Revenue threshold of $14.18 billion. In addition, at least one of the minimum thresholds for Revenue and Non-GAAP Operating Margin would need to be met to trigger any payments under the Company performance component of the 2018 AIP. If the 2018 AIP Funding Threshold was met, Revenue and Non-GAAP Operating Margin would be applied as equally weighted Company performance measures for determining the payout of the Company performance component of the 2018 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 would serve as a modifier to adjust the Company performance payout one percentage point for each 2.5 million increase of NNAs above the target. The Company performance payment level may not exceed 200% of the target applicable to the Company performance component of the 2018 AIP. If the 2018 AIP Funding Threshold was met, 75% of the Target Incentive Amount would be determined based on our Revenue and Non-GAAP Operating Margin financial performance as measured against the pre-established performance levels, subject to the NNA modifier, and the remaining 25% of the Target Incentive Amount would be determined based on individual performance.

The table below shows the following with respect to the 2018 AIP Company performance measures:

 

 

The threshold, target, and maximum performance levels established by the Compensation Committee. These performance levels were set in January 2018 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 2018. Our 2018 AIP targets were rigorous and required performance better than 2017 actual performance, with the Revenue target 17% higher than 2017 actual performance and the Non-GAAP Operating Margin target four basis points higher than 2017 actual performance;

 

The actual performance levels achieved in 2018; and

 

The resulting Company Performance Score, defined as a payout percentage based on our performance as measured against the pre-established performance levels for the 2018 AIP.

 

  Company Measure1    Threshold     Target     Maximum     2018 Actual     Percentage
of Target
Achieved2
 

 

  Revenue3

     $14.75     $ 15.25     $ 15.75     $ 15.45       140%  

 

  Non-GAAP Operating Margin

     20.5     21.5     22.5     21.7     117%  

 

  Net New Actives

       33         36       1%  

 

  Company Performance Score

                                     130%  

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

2 For 2018, no adjustments were made to any of the performance measures.

3 The 2018 AIP Funding Threshold was $14.18 billion.

Individual Performance Measures

To facilitate differentiation based on individual performance, 25% of the Target Incentive Amount for our NEOs was based on an individual performance score which could range from 0% to 200% (the “Individual Performance Score”). To determine each NEO’s Individual Performance Score in early 2019, Mr. Schulman presented to the Compensation Committee his assessment of each NEO’s individual performance during 2018, and the Compensation Committee assessed Mr. Schulman’s individual performance during 2018, in each case, with respect to one or more individual performance factors (collectively, the “Performance Factors”).

 

 

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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 a strong year of financial performance.
      Led a comprehensive strategic review of PayPal’s business portfolio that resulted in the acquisitions of Hyperwallet, iZettle, Jetlore, and Simility, which were announced and completed in calendar year 2018.
      Continued to deepen and strengthen PayPal’s mission and vision to be a true Customer Champion and support 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.

      Expanded role to lead the new Global Customer Operations organization, consisting of the customer services and operations functions in a complex customer-facing organization.
      Continued to implement programs and processes to facilitate cost savings and operational efficiencies across the business.
      Executed financial plans designed to meet or exceed growth, margin, and cash flow targets.
      Successfully managed corporate capital allocation decisions consistent with creation of stockholder value.
      Maintained high level of integrity over financial reporting and led efforts to further enhance control environment.
      Led effective Investor Relations activities, including 2018 Investor Day.

 

  Gary J. Marino

  

 

  

 

Led the transformation of our sales and marketing organization from a regional design to global sales and marketing and customer segments teams, with overall responsibility for all front-end activities for our businesses worldwide.

      Delivered significant top-tier growth and expansion in high growth markets.
      Oversaw PayPal’s marketing strategy and provided leadership on brand expansion strategies.

 

  Louise Pentland

  

 

  

 

Led Business Affairs function, which includes legal and global human resources, and the Corporate Affairs function, comprised of communications, government relations, and social innovation.

      Drove achievements and advancements of Company core cultural values, centered on diversity and inclusion, oversaw the development of ESG strategy and reporting, and drove enterprise-wide corporate governance initiatives to reflect best practices.
      Led enterprise-wide organizational transformations of business affairs and human resources.
      Provided distinctive leadership and judgment in ongoing litigation strategy, mergers and acquisitions, and business matters.

 

  William J. Ready

  

 

  

 

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

      Enhanced end-to-end customer experience through the rollout of product innovations and initiatives to drive efficiencies.
      Led enhancement of our business intelligence capabilities and products, including the globalization of One Touch.
      Drove significant cost savings initiatives while maintaining high levels of customer satisfaction through supporting customer choice and being a true Customer Champion.
        Led product strategy as a core competency of the business.

In determining the Individual Performance Score for each NEO, Mr. Schulman and the Compensation Committee did not place specific weightings on the Performance Factors, and instead 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 Compensation Committee each NEO’s Individual Performance Score other than his own.

 

 

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After considering Mr. Schulman’s recommendations regarding the other NEOs’ Individual Performance Scores, 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 Compensation Committee made a final determination, in its sole discretion, as to the Individual Performance Score for each NEO. The Compensation Committee approved an Individual Performance Score of 175%, as recommended by Mr. Schulman, for each of Messrs. Rainey, Marino, and Ready and Ms. Pentland. For Mr. Schulman, the Compensation Committee approved an Individual Performance Score of 175%.

2018 AIP Payment

The actual amount of an NEO’s 2018 AIP award was determined by the following formula:

 

 

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2018 AIP Base Salary Target Incentive % Company Performance 75% Weight Revenue 0-200% Payout Non-GAAP Operating Margin 0-200% Payout Net New Actives +1% for every 2.5 million increase of NNAs above target = 2018 AIP Payout CAPPED AT 200%

 

The following table shows the 2018 AIP PBRSU Payout (in shares of Company common stock) and the 2018 AIP Cash Payout (in dollars) for each NEO.

 

  NEO   

Target
PBRSUs
(75% of
Target
Incentive
Amount)

(in Shares)

     x      75%
(Company
Performance
Score)
     =      (a) 2018 AIP
PBRSU
Payout (in
Shares)1
     +     

Target Cash
(25% of
Target
Incentive
Amount)

($)

     x      25%
(Individual
Performance
Score)
     =     

(b) 2018
AIP Cash
Payout

($)

 

  Daniel H. Schulman

  

 

18,826

 

     

 

130%

 

     

 

24,474

 

     

 

500,000

 

     

 

175%

 

     

 

875,000

 

  John D. Rainey

  

 

7,060

 

     

 

130%

 

     

 

9,178

 

     

 

187,500

 

     

 

175%

 

     

 

328,125

 

  Gary J. Marino

  

 

6,589

 

     

 

130%

 

     

 

8,566

 

     

 

175,000

 

     

 

175%

 

     

 

306,250

 

  Louise Pentland

  

 

7,060

 

     

 

130%

 

     

 

9,178

 

     

 

187,500

 

     

 

175%

 

     

 

328,125

 

  William J. Ready

  

 

7,060

 

           

 

130%

 

           

 

9,178

 

           

 

187,500

 

           

 

175%

 

           

 

328,125

 

1 The PBRSUs vested on February  15, 2019 based on the Company Performance Score of 130%.

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 2018, the Compensation 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 compensation peer group, as disclosed in their public filings (see “Other Compensation Practices and Policies – Our Compensation Peer Group” below for our 2018 peer group) and in proprietary third-party compensation surveys (the specific identity of the respondents of which are not provided to the Compensation Committee or the Company);

 

individual performance and potential;

 

the Incentive Compensation Factors;

 

expansion of scope of role and responsibilities; and

 

the need to retain individuals in a highly competitive market for proven executive talent and based on their prospective contributions to the Company.

 

 

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Compensation Discussion and Analysis

  

 

Based on these guidelines, the Compensation Committee approved the following annual target values (in dollars) for the 2018 LTI awards for each NEO:

 

  NEO   

2018 LTI

Grant Value

($)

 

  Daniel H. Schulman1

  

 

18,000,000

 

  John D. Rainey2

  

 

8,000,000

 

  Gary J. Marino3

  

 

7,000,000

 

  Louise Pentland4

  

 

8,000,000

 

  William J. Ready

  

 

8,000,000

 

1 For 2018, the Compensation 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 2017 due to the expansion of his role and responsibilities, which included assuming the role of leading the global customer services operations functions; the design and execution of financial plans designed to meet or exceed 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 2017 due to the expansion of his role and responsibilities, which included assuming the role of leading the global sales and marketing team and a newly-created global customer segments team, with associated global responsibilities for all front-end activities for our businesses worldwide, and his pay relative to internal and external peers.

4 Ms. Pentland’s LTI annual target value increased from 2017 due to her pay relative to internal and external peers.

Once the annual target values for the 2018 LTI awards were set for each NEO, the grant value was allocated equally between PBRSUs and service-based restricted stock units (“RSUs”).

 

 

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2018 Annual Vesting over Three Years 50% RSUs 50% PBRSUs Three-Year Performance Period

The table below shows the resulting number of shares of Company common stock subject to the 2018 LTI target PBRSUs and RSUs:

 

  NEO    2018 Target PBRSUs1      2018 RSUs1  

 

  Daniel H. Schulman

  

 

113,173

 

  

 

113,173

 

 

  John D. Rainey

  

 

50,300

 

  

 

50,300

 

 

  Gary J. Marino

  

 

44,012

 

  

 

44,012

 

 

  Louise Pentland

  

 

50,300

 

  

 

50,300

 

 

  William J. Ready

  

 

50,300

 

  

 

50,300

 

1 The number of RSUs and target number of PBRSUs granted were determined by dividing the value of the award by the Average Company Closing Price. The RSUs and PBRSUs were granted on March 1, 2018.

The following describes the two components of our 2018 LTI program: PBRSUs and RSUs.

Performance-Based Restricted Stock Units (PBRSUs)

In January 2018, the Compensation Committee approved the structure for the PBRSUs granted in 2018. To emphasize the importance of long-term, sustained strategic growth, the Compensation Committee approved a three-year performance period from January 1, 2018 through December 31, 2020, with each award to be settled for the number of shares of Company common stock earned pursuant to the award following the end of the performance period, subject to the Compensation Committee’s approval of the level of achievement against the pre-established target levels for the selected performance measures (the “2018-2020 PBRSUs”).

 

 

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Performance Measures and Rationales

The Compensation Committee approved the 2018-2020 PBRSU performance measures, which are the CAGR of FX-Neutral Revenue and Free Cash Flow over the three-year performance period from January 1, 2018 to December 31, 2020, as equally-weighted measures. The Compensation Committee believes that measuring CAGR over the three-year performance period is an appropriate performance measure as it is aligned with our long-term goal of growing our revenue and free cash flow.

The following table summarizes the performance measures for the 2018-2020 PBRSUs and the Compensation 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 Compensation Committee believes that the FX-Neutral Revenue measure should be used to help ensure that our executive officers are accountable for driving profitable growth while making appropriate tradeoffs between investments that increase future revenue growth and operating expense.

 

 

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 Compensation Committee believes that the Free Cash Flow measure should be used to reinforce the importance of 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 Compensation Committee set the target levels for the 2018-2020 PBRSUs, they were intended to be challenging but attainable, and to provide appropriate incentives for our executive officers to continue to grow our business. The Compensation Committee believes that achievement of maximum performance against the target levels would require sustained exceptional performance over the performance period.

While the performance