8-KLeadership ChangesExhibits & Filings

ELECTRONIC ARTS INC. 8-K Report, Executive Changes (Jun 1, 2011)

Filed June 1, 2011For Securities:EA

Summary

Electronic Arts Inc. (EA) filed an 8-K on June 1, 2011, reporting significant updates to its executive compensation structure. The company's Executive Compensation and Leadership Committee adopted an addendum to the EA Bonus Plan for fiscal year 2012. This addendum modifies how bonuses are determined for named executive officers, with a greater emphasis on company performance metrics, particularly for the CEO. Furthermore, EA approved the terms for performance-based restricted stock unit (RSU) awards for executive vice presidents and higher. These performance-based RSUs are intended to align executive compensation more closely with shareholder interests and company performance. The vesting of these RSUs is tied to EA's total shareholder return (TSR) relative to the NASDAQ-100 Index over a three-year period, with specific performance thresholds for vesting. These changes reflect EA's commitment to linking executive pay to measurable company achievements and shareholder value, a common practice aimed at enhancing corporate governance and incentivizing long-term success. Investors should monitor EA's future performance against these new compensation structures.

Key Highlights

  • 1EA adopted an addendum to its Bonus Plan for fiscal year 2012, altering bonus determination for named executive officers.
  • 2For most executives, 20% of bonuses will be based on company performance and 80% on individual performance/business objectives.
  • 3The CEO's bonus structure is heavily weighted towards company performance (75%), with key metrics including non-GAAP EPS, non-GAAP net revenue, and digital revenue.
  • 4EA approved performance-based Restricted Stock Units (RSUs) for executives at the EVPs level and above.
  • 5The vesting of these performance-based RSUs is contingent on EA's Total Shareholder Return (TSR) relative to the NASDAQ-100 Index over a three-year period (FY2012-FY2014).
  • 6Vesting targets for RSUs are set such that EA's TSR needs to be at the 60th percentile of the NASDAQ-100 to achieve 100% of the target RSUs, aligning executive rewards with outperforming peers.
  • 7The grants for performance-based RSUs are expected on June 16, 2011, and are intended to replace a portion of time-based RSUs.

Frequently Asked Questions

EA has updated its bonus plan and introduced performance-based Restricted Stock Units (RSUs). The bonus plan now places a greater emphasis on company financial performance, especially for the CEO. The new RSUs tie executive equity awards to EA's Total Shareholder Return (TSR) compared to the NASDAQ-100 index over a three-year period, aiming to better align executive pay with shareholder interests.

For fiscal year 2012, 75% of CEO John S. Riccitiello's bonus will be based on the company's financial performance. Key metrics for this portion include non-GAAP earnings per share, non-GAAP net revenue, and digital revenue performance. The remaining 25% will be based on his individual performance and achievement of other financial and operational objectives.

The vesting of these RSUs depends on EA's Total Shareholder Return (TSR) performance relative to the companies in the NASDAQ-100 Index over fiscal years 2012 through 2014. To vest 100% of the target RSUs, EA's TSR must be at the 60th percentile compared to the NASDAQ-100, meaning EA needs to outperform the majority of these companies. Payouts can range from 0% to 200% of the target amount based on relative TSR.

The bonus plan addendum applies to fiscal year 2012 bonuses, which will be payable in June 2012. The performance-based RSUs were approved on May 26, 2011, and are expected to be granted on June 16, 2011, with a three-year performance period running through fiscal year 2014.