Activision Blizzard, Inc.
Activision Blizzard, Inc. (Form: DEF 14A, Received: 04/21/2017 16:35:19)

UNITED STATES

 

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )

 

   Filed by the Registrant    Filed by a Party other than the Registrant
   
Check the appropriate box:
Preliminary Proxy Statement
CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material Pursuant to §240.14a-12

 

ACTIVISION BLIZZARD, INC.

 

 

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

   
Payment of Filing Fee (Check the appropriate box):
  No fee required.
  Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
  (1) Title of each class of securities to which transaction applies:
  (2) Aggregate number of securities to which transaction applies:
 

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

  (4) Proposed maximum aggregate value of transaction:
  (5) Total fee paid:

 


 

3100 Ocean Park Boulevard

Santa Monica, California 90405

 

 

Dear Fellow Stockholders:

I cordially invite you to join me and the other members of Activision Blizzard, Inc.’s Board of Directors at the company’s 2017 annual meeting of stockholders. This proxy statement contains information about the meeting and will serve as your guide to the matters on which you will be asked to vote.

At Activision Blizzard, we know that feedback from our stockholders is essential to our continued success. Regardless of the number of shares you own, this meeting is a wonderful opportunity for you to learn more about developments at the company and, more importantly, to express your opinions and play a part in Activision Blizzard’s future. If you can’t attend the meeting, please share your thoughts or concerns with us by email at ir@activision.com or in care of our Corporate Secretary at Activision Blizzard, Inc., 3100 Ocean Park Boulevard, Santa Monica, California 90405.

Thank you for your continued support of Activision Blizzard.

Sincerely,

Robert A. Kotick

President and Chief Executive Officer

April 21, 2017

 

 

 

 

 

The proxy statement and our 2016 annual report to stockholders are each available at:
http://www.cstproxy.com/activisionblizzard/2017

 

 

 

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 1


 


 

3100 Ocean Park Boulevard

Santa Monica, California 90405

 

Notice of 2017 Annual Meeting of Stockholders

Thursday, June 1, 2017

9:00 a.m.

The Annual Meeting of Stockholders of Activision Blizzard, Inc. will be held at the Equity Office facilities at 3200 Ocean Park Boulevard, Santa Monica, California 90405, on Thursday, June 1, 2017, at 9:00 a.m., Pacific Daylight Time.

The purposes of this year’s annual meeting are to:

1.

elect nine directors for a one-year term;

2.

request advisory approval of our executive compensation;

3.

hold an advisory vote on the frequency of future advisory votes on our executive compensation; and

4.

ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for 2017.

The Activision Blizzard, Inc. Board of Directors has fixed April 7, 2017, as the record date for determining the stockholders entitled to receive notice of, and to vote at, the annual meeting.

Whether or not you plan to attend the meeting, I urge you to promptly vote your shares by proxy by following the instructions beginning on page 17 of the enclosed proxy statement. If you are able to attend the meeting and wish to vote in person, you may withdraw your proxy at that time. If you do plan to attend the meeting, please see page 17 of the enclosed proxy statement for information regarding what you must bring with you to gain admittance.

 

By Order of the Board of Directors

Jeffrey A. Brown

Corporate Secr etary

 

April 21, 2017

ACTIVISION - 2017 Proxy Statement - 3


Table of Contents

PROXY SUMMARY

7

Voting Matters and Board Recommendations

7

Director Nominees

7

Executive Compensation Highlights

8

Corporate Governance Highlights

12

Incorporation of Stockholder Feedback

13

PROXY STATEMENT

14

GENERAL

14

PROCEDURAL MATTERS

15

19

CORPORATE GOVERNANCE MATTERS

24

Overview

24

Board of Directors and Committees

24

Compensation Risk Management

30

Political Activities

31

Code of Conduct

31

Additional Corporate Governance Documentation

31

Executive Officers

31

EXECUTIVE COMPENSATION

32

Compensation Discussion and Analysis

32

Overview

32

Decision-Making Approach to Compensation for Executive Officers

39

Elements of Our Executive Compensation Program for 2016

41

Stock Ownership Guidelines

48

Impact of Tax and Accounting Considerations

48

Compensation Committee Report

49

Summary Compensation Table

50

Grants of Plan-Based Awards for 2016

52

Outstanding Equity Awards at December 31, 2016

55

Option Exercises and Stock Vested for 2016

56

Employment Agreements

57

Potential Payments upon Termination or Change of Control

64

72

73

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 4


Back to Contents

DIRECTOR COMPENSATION

74

General

74

Cash Compensation

74

Equity Compensation

74

Stock Ownership Guidelines

75

Indemnification

75

Compensation for 2016

75

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

77

Policies and Procedures

77

Relationships and Transactions

78

AUDIT-RELATED MATTERS

81

Independent Registered Public Accounting Firm Fees

81

Pre-Approval Policies and Procedures

81

Audit Committee Report

82

83

BENEFICIAL OWNERSHIP MATTERS

85

Security Ownership of our Officers and Directors

85

Security Ownership of Holders of More Than 5% of Our Common Stock

87

Section 16(a) Beneficial Ownership Reporting Compliance

87

EQUITY COMPENSATION PLAN INFORMATION

88

DIRECTOR NOMINATIONS AND OTHER STOCKHOLDER PROPOSALS FOR 2018 ANNUAL MEETING; COMMUNICATING WITH OUR BOARD

89

AVAILABILITY OF PROXY MATERIALS ON THE INTERNET; DELIVERY OF DOCUMENTS TO SECURITY HOLDERS SHARING AN ADDRESS; FINANCIAL AND OTHER INFORMATION

91

OTHER MATTERS

93

HELPFUL RESOURCES

94

95

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 5


Back to Contents

 

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 6


Back to Contents

 

Proxy Summary

This summary highlights information contained elsewhere in this proxy statement for the 2017 annual meeting of the stockholders of Activision Blizzard, Inc., a Delaware corporation (the “Company”). This summary does not contain all of the information that you should consider, and you should read the entire proxy statement before voting. For more complete information regarding the Company’s 2016 performance, please review the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

Voting Matters and Board Recommendations

Stockholders are being asked to vote on the following matters at the 2017 Annual Meeting of Stockholders.

Our Board’s Recommendation

Item 1. Election of Directors (page 19 )

FOR each Director Nominee

Our Board and its Nominating and Corporate Governance Committee believe that our nine director nominees possess the qualifications necessary to provide proper oversight of the Company’s business for the benefit of the Company’s stakeholders.

Item 2. Advisory vote to approve our executive compensation (page 72)

FOR

Our Board and its Compensation Committee believe that our compensation policies and practices are effective in enabling us to achieve our financial, operational and strategic goals and that the compensation paid to our named executive officers has allowed, and will continue to allow, us to attract, retain and motivate the key executive talent responsible for our recent and long-term success.

Item 3. Advisory vote on frequency of future advisory votes on our executive compensation (page 73)

1 YEAR

Our Board and its Compensation Committee believe that an annual advisory vote on our executive compensation is consistent with our practice of regularly seeking input and engaging in dialogue with our stockholders about our executive compensation philosophy, policies and practices.

Item 4. Ratify the appointment of our independent registered public accounting firm (page [83])

FOR

Our Board and its Audit Committee believe that continued retention of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm is in the best interests of the Company and its stockholders.

Director Nominees

Set forth below is certain information about the nominees for election to our Board of Directors, each of whom currently serves on our Board:

Name

Age

Director

Since

Principal Occupation

Independent

Other Public

Boards

Committee Memberships

Audit

Committee

Compensation

Committee

Nominating

and Corporate

Governance

Committee

Robert Corti

67

2003

Retired CFO of Avon Products

 

 

Hendrik Hartong III

50

2015

Chairman and CEO of Brynwood Partners

 

 

Brian G. Kelly

54

1995

Chairman of the Board of Activision Blizzard

 

 

 

Robert A. Kotick

54

1991

President and CEO of Activision Blizzard

1

 

 

 

Barry Meyer

73

2014

Retired Chairman and CEO of Warner Bros. Entertainment

 

 

Robert Morgado

74

1997

Retired Chairman and CEO of Warner Music Group

Peter Nolan

58

2013

Senior Advisor to Leonard Green & Partners

 

 

Casey Wasserman

42

2015

Chairman and CEO of Wasserman

1

 

 

Elaine Wynn

74

2013

Co-founder of Wynn Resorts

 

 

Chairperson

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 7


Back to Contents

 

Executive Compensation Highlights

Our employees are our most valuable asset. Our industry is intensely competitive and constantly evolving. Our executives and many of our highly skilled employees are often sought after by our competitors, both established and new. As such, it is necessary for us to offer our executives highly competitive total compensation to attract, retain and motivate them.

Our compensation philosophy has allowed us to recruit, retain and motivate the best talent in our industry, as evidenced by our performance. Our executive compensation program, designed to be consistent with that philosophy, has three primary components: (1) base salary; (2) annual cash incentives; and (3) equity awards, including stock options and restricted share units, primarily with performance-based vesting criteria. We aim to incentivize our executives to drive corporate financial performance by basing a significant portion of their compensation on achieving financial and individual strategic objectives, thereby linking payment to performance.

 

 

Highlights of our executive compensation program for 2016 with respect to our named executive officers included in the “Summary Compensation Table” are described below.

 

Salary

Salary increases for our named executive officers ranged from 4.0% to 5.0% during the 2016 annual review of executive base salaries, reflecting individual performance and the Compensation Committee’s assessment of the competitive market. Please see “Executive Compensation—Compensation Discussion and Analysis—Elements of Our Executive Compensation Program for 2016—Salary” below.

 

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 8


Back to Contents

Performance-Based Annual Cash Incentives and Other Bonuses

Corporate Annual Incentive Plan

Actual 2016 performance measured against financial objectives and the performance goals established by our Compensation Committee during the first quarter of the year for our named executive officers participating in our Corporate Annual Incentive Plan (i.e., our CAIP) ranged from 118% to 127% of target.

For each of our named executive officers eligible for a bonus under the CAIP, 60% of his target opportunity under the CAIP was weighted based on financial measures (specifically, operating income, earnings per share and/or free cash flow), and 40% of his target opportunity was based on four specific, measurable and non-subjective individual strategic objectives that the Compensation Committee believes supported the Company’s overall strategy and the officer’s business objectives for the year. For 2016, the Compensation Committee did not apply incremental judgment or discretion in determining CAIP bonus payouts and such awards directly reflected performance against the specific objectives established at the beginning of the year.

Had our adjusted 2016 non-GAAP (as previously defined) operating income not been 85% or more of the adjusted non-GAAP (as previously defined) operating income target for the year as set forth in our 2016 annual operating plan (i.e., our AOP), the Compensation Committee would have reduced or eliminated all bonuses under the CAIP, including those paid to our participating named executive officers. Our Compensation Committee also established limits on the payments made under the CAIP for “overachievement”—payments in respect of the specific, measurable and non-subjective individual strategic objectives were capped at 120% of the underlying target amount and payments in respect of financial performance measures were capped at 150% to 200% of target, depending on the specific metric. Please see “Executive Compensation—Compensation Discussion and Analysis—Elements of Our Executive Compensation Program for 2016—Corporate Annual Incentive Plan and Other Performance-Based Bonuses” below.

Profit Sharing Plans

In accordance with the employment agreement we entered into with Mr. Morhaime in 2008 in connection with the Vivendi Games Combination (as defined herein) and consistent with past years, he earned an award for 2016 under the Morhaime Profit Sharing Plan. Please see “Executive Compensation—Compensation Discussion and Analysis—Elements of Our Executive Compensation Program for 2016—Corporate Annual Incentive Plan and Other Performance-Based Bonuses—Profit Sharing Plans” below.

Similarly, in accordance with the employment agreement we entered into with Mr. Zacconi in 2015 in connection with the King Acquisition (as defined herein), he earned an award for 2016 under the King Profit Sharing Plan. Please see “Executive Compensation—Compensation Discussion and Analysis—Elements of Our Executive Compensation Program for 2016—Corporate Annual Incentive Plan and Other Performance-Based Bonuses—Profit Sharing Plans” below.

Other Cash Programs or Contractual Awards

In accordance with the employment agreement we entered into with Mr. Morhaime in 2008 in connection with the Vivendi Games Combination and consistent with past years, he received a payment for 2016 under the Blizzard Holiday Plan.

Emphasis on Performance-Based Equity Awards

In November 2016, we entered into an employment agreement to extend the employment of Robert A. Kotick, our President and Chief Executive Officer, through December 2021. Pursuant to that agreement, in 2016, Mr. Kotick, received performance-based vesting restricted share units. He did not receive any time-based vesting awards. Please see “Executive Compensation—Employment Agreements—Robert A. Kotick” below.

Neither Mr. Durkin nor Mr. Tippl received an equity award during 2016 (although the Summary Compensation Table reflects the portion of a performance-based award made to Mr. Tippl in 2014, the underlying metrics for which were established in 2016).

On February 23, 2016, pursuant to the employment agreement we entered into with Riccardo Zacconi in 2015 in connection with the King Acquisition, the unvested awards with respect to King ordinary shares that Mr. Zacconi held at that time were converted into awards of the same type with respect to shares of our Common Stock. In addition, the performance metrics underlying a portion of his options were replaced with metrics with respect to King’s post-acquisition performance. As such, Mr. Zacconi held performance-based vesting stock options, time-based vesting stock options and time-based vesting restricted share units as of the beginning of his employment with the Company. Please see “Executive Compensation—Employment Agreements—Riccardo Zacconi” below.

Pursuant to Mr. Morhaime’s previous employment agreement, which was negotiated in connection with the Vivendi Games Combination, consistent with the compensation Mr. Morhaime received at Vivendi Games (as defined herein) prior to the consummation of the Vivendi Games Combination, he received time-based vesting restricted share units and stock options. Please see “Executive Compensation—Employment Agreements—Michael Morhaime” below.

 

 

 

 

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 9


Back to Contents

The following table sets forth certain summarized information with respect to the compensation earned by named executive officers during 2016. For the complete Summary Compensation Table, including the notes that accompany it, along with compensation for prior years, please see page 50.

Name and Principal Position

Salary

($)

Bonus

($)

Stock

Awards

($)

Option

Awards

($)

Non-Equity

Incentive Plan

Compensation

($)

All Other

Compensation

($)

Total

($)

Robert A. Kotick
President and Chief Executive Officer

2,375,858

24,932,065

5,590,414

167,223

33,065,560

Dennis Durkin
Chief Financial Officer

787,185

941,451

17,955

1,746,591

Thomas Tippl
Chief Operating Officer

1,360,000

7,163,582

2,399,207

34,069

10,956,858

Michael Morhaime
President and Chief Executive
Officer, Blizzard

957,378

355,018

2,833,600

2,532,666

5,330,175

69,839

12,078,676

Riccardo Zacconi
Chief Executive
Officer, King

415,928

4,249,877

7,700,057

133,614

12,499,476

 

Chief Executive Officer’s New Employment Agreement

Given our strong business and financial performance, as well as Mr. Kotick’s continued exceptional leadership of the Company for over 25 years, we took the opportunity to extend his employment as our Chief Executive Officer through December 31, 2021. In doing so, we considered feedback we received from our stockholders with respect to our compensation practices. Please see “Executive Compensation—Compensation Discussion and Analysis—Overview—Chief Executive Officer’s New Employment Agreement” below.

2016 Financial and Operational Highlights

 

 

2016 was another successful year for the Company. During 2016 (1) :

our consolidated net revenues increased 42% to $6.6 billion, inclusive of King’s results of operations since the closing of the King Acquisition in February 2016;

our revenues from digital online channels (2) increased 94% to $4.9 billion;

our revenues from in-game content increased 126% to $3.6 billion;

Blizzard achieved all-time high segment revenues of $2.4 billion and generated an all-time high $1 billion in segment operating income;

Activision achieved all-time high segment operating margin of 35%;

King contributed more than the originally planned 30% earnings per share accretion;

we generated cash flows from operating activities of approximately $2.2 billion, an increase of 71%;

our consolidated operating income increased 7% to $1.4 billion;

our non-GAAP consolidated operating income increased 63% to $2.3 billion;

our consolidated net income increased 8% to $966 million;

 

(1)

For information on the calculation and reconciliation of GAAP measures to non-GAAP measures, please see Appendix A attached to this proxy statement.

(2)

Net revenues from digital online channels represents revenues from digitally- distributed subscriptions, licensing royalties, value-added services, downloadable content, micro-transactions and products.

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 10


Back to Contents

our non-GAAP consolidated net income increased 70% to $1.7 billion;

our earnings per diluted share increased 8% to $1.28; and

our non-GAAP earnings per diluted share increased 68% to $2.18.

Our financial performance was driven by our strong operational execution. During 2016 (3) :

Consumers spent approximately 43 billion hours playing and watching our content, and we had 447 million monthly active users (“MAUs”) (4) in the fourth quarter of the year;

Overwatch became Blizzard’s fastest game ever to reach over 25 million players globally and received 55 “Game of the Year” awards;

Blizzard’s World of Warcraft MAUs grew 20% year-over-year for the fourth quarter following the successful launch of the expansion, Legion , in August 2016;

Blizzard’s Hearthstone had its highest annual MAUs, growing more than 20%, in part due to the fourth quarter expansion, Mean Streets of Gadgetzan ;

Activision’s Call of Duty was the #1 console franchise globally, and was the #1 franchise in North America for the eighth year in a row;

King had two of the top 10 highest-grossing titles in the U.S. mobile app stores for the thirteenth quarter in a row;

Activision Blizzard Studios, in partnership with Netflix, debuted Skylanders Academy , a new TV series based on the Skylanders franchise; and

Our esports network, Major League Gaming, extended its viewer reach on social platforms like Facebook and Instagram by 50% year-over-year.

This performance was a direct result of the focused and disciplined approach followed by our top leadership prior to and during 2016, including continued investment in our established franchises, like Call of Duty and World of Warcraft, selectively introducing new franchises, like Destiny, Hearthstone and Overwatch, and managing our costs prudently. At the same time, the Company has made selective and prudent investments in esports, advertising, film and television and consumer products to accelerate the Company’s global growth strategy and leverage its iconic content, franchises and characters across new and existing opportunities.

 

Measurement of Compensation-Related Performance Metrics Continues to Be Based on Non-GAAP (as Previously Defined) Financial Measures

Consistent with past practices, the compensation-related performance objectives established by the Compensation Committee at the beginning of 2016 were based on non-GAAP (as previously defined) financial measures. Internally, our management uses these non-GAAP (as previously defined) financial measures in assessing our operating results, as well as in planning and forecasting. In particular, our management believes these measures facilitate comparison of operating performance between periods and allow for a better understanding of our operating results by excluding certain items that may not be indicative of our core business, operating results or future outlook. During 2016, in accordance with the updated Compliance and Disclosure Interpretations issued by the SEC staff in May 2016, the Company began reporting our non-GAAP financial results in a redefined manner (referred to herein, as “non-GAAP”). The only difference between the two measures is the inclusion (in non-GAAP) or exclusion (in non-GAAP (as previously defined)) of the impact from revenue deferrals accounting treatment on certain of our online-enabled products. Since the compensation-related performance objectives for 2016 were established based upon non-GAAP (as previously defined) financial measures, in assessing and describing performance against the established 2016 compensation-related measures we utilize non-GAAP (as previously defined) financial measures. Further, as our management and our Compensation Committee continue to believe that non-GAAP (as previously defined) financial measures are the best way to internally assess our operating performance, the Company currently expects to continue utilizing non-GAAP (as previously defined) financial measures for purposes of compensation-related performance objectives in the future. Please see “General — Financial Merrics Used in this Proxy Statement” for more information.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3)

According to The NPD Group, GfK Chart-Track, App Annie Intelligence and Activision Blizzard internal estimates, as the case may be.

(4)

We monitor MAUs as a key measure of the overall size of our user base and their regular engagement with our portfolio of games. MAUs are the number of individuals who played a particular game in a given month. We calculate average MAUs in a period by adding the total number of MAUs in each of the months in a given period and dividing that total by the number of months in the period. An individual who plays two of our games would be counted as two users. In addition, due to technical limitations, for Activision and King, an individual who plays the same game on two platforms or devices in the relevant period would be counted as two users. For Blizzard, an individual who plays the same game on two platforms or devices in the relevant period would generally be counted as a single user.

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 11


Back to Contents

Corporate Governance Highlights

The Company is committed to adopting and following strong corporate governance practices that benefit all of our stakeholders. We believe that a foundation of good corporate governance creates an environment of accountability for our Board and senior management and otherwise promotes the long-term interests of our stakeholders. Our Board continues to monitor emerging best practices in corporate governance and adopts measures when it determines them to be in the best interests of our stakeholders. Highlights of our corporate governance program include:

 

 

 

Accountability

We elect all directors on an annual basis.

Page 19

 

Our common stock is our only outstanding class of voting stock, and our governance documents do not contain any supermajority voting requirements.

 

 

For each share of our stock outstanding and entitled to vote that a stockholder holds, he or she is entitled to one vote on each matter presented for action.

Page 15

 

Our bylaws have a majority voting standard for uncontested elections and a plurality standard for contested elections. Any director failing to receive majority support in an uncontested election must tender his or her resignation.

Page 25

 

We do not have a poison pill or similar anti-takeover provision in place.

 

 

We hold “say-on-pay” votes annually.

 

Board Composition

Seven of our nine director nominees are independent.

Page 25

 

We have a separate chairman and chief executive officer.

Page 25

 

If our Board were to select our chief executive officer to also serve as chairman, the independent directors would, in accordance with our Corporate Governance Principles and Policies, consider the appointment of a lead independent director.

Page 25

 

Our independent directors met in executive session four times during 2016.

Page 26

Stock Ownership Guidelines

Our chief executive officer is expected to beneficially own shares of our common stock with a value at least equal to ten times his or her then-current annual base salary.

Page 48

 

Each other executive officer is expected to, within a certain period of time, beneficially own shares of our common stock with a value at least equal to his or her then-current annual base salary.

Page 48

 

Each Board member not employed by us or any of our subsidiaries is required to, within four years following his or her election to our Board, beneficially own shares of our common stock with a value at least equal to five times the annual cash retainer we then pay him or her for regular service on our Board.

Page 75

“Clawback” Policy

In the event of an earnings restatement, we may “claw back” performance-based compensation (including both annual and long-term incentive awards) paid to executives.

Page 36

Anti-Hedging Policy

We prohibit hedging of Company stock by our employees and directors.

Page 36

Board Oversight of Risk Strategy

Our Board takes an active role in overseeing risk management and providing strategic guidance to the Company.

Page 29

 

Our Board annually reviews the conclusions and recommendations of our management with respect to current and future potential strategic enterprise-level risks, as well as the strategies used to mitigate such risks.

Page 30

 

Our Board delegates certain risk management oversight functions to standing committees, each of which regularly reports to our Board.

Page 30

Board Self-Evaluation

Our Board annually reviews its performance, as well as the performance of each of our standing committees.

Page 26

Board Committees

All of the members of each of our three standing Board committees—our Audit Committee, our Compensation Committee and our Nominating and Corporate Governance Committee—are independent.

Page 27

Active Stockholder Engagement

During 2016, we expanded our ongoing stockholder outreach relating to executive compensation, governance, and other matters.

Page 36

Succession Planning

Our Board actively engages in chief executive officer succession planning and reviews succession plans for our other senior-most officers annually.

 

 

Our Nominating and Corporate Governance Committee oversees risks associated with overall governance and succession planning.

 

Limitations on Pledging Company Stock

Currently, none of our executive officers or directors have any shares of Company stock pledged.

 

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 12


Back to Contents

Incorporation of Stockholder Feedback

The Company regularly engages with key stockholders to solicit feedback and to ensure we remain aware of our stockholders’ perspectives with respect to our executive compensation and governance practices, as well as other matters. During 2016, members of our management conducted an extensive stockholder outreach effort. In doing so, we reached out to stockholders who collectively held approximately 62% of the outstanding shares of our Common Stock, and spoke with each such holder who agreed to speak with us. This effort supplemented the ongoing communications we have with our stockholders regarding our financial performance, and expanded upon the outreach to stockholders that we have conducted in connection with our annual meetings for the last several years. Please see “Executive Compensation—Compensation Discussion and Analysis—Overview—Actions in Response to Our Recent Stockholder Advisory Votes on Executive Compensation” below.

The Company reviews feedback sent to us from each of our stockholders, no matter the size of its holdings. If you would like to communicate directly with our full Board, our independent directors, any committee of our Board, any other group of directors or any individual director, you may send written correspondence addressed to such director or directors in care of our Corporate Secretary at Activision Blizzard, Inc., 3100 Ocean Park Boulevard, Santa Monica, California 90405.

Our Compensation Committee takes the feedback received from stockholders seriously and will continue to incorporate such feedback into its decision-making process. We believe that the actions we have taken and continued dialogue with our stockholders advance our compensation practices in a manner that is both responsive to the input we receive and appropriate for the Company.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 13


Back to Contents

PROXY STATEMENT

GENERAL

Purpose of this Proxy Statement

This proxy statement is furnished in connection with the solicitation by our Board of Directors (our “Board”) of proxies from holders of issued and outstanding shares of the Company’s common stock, par value $0.000001 per share (“Common Stock”). The proxies being solicited will be used at the annual meeting of our stockholders to be held on Thursday, June 1, 2017, at the Equity Office facilities at 3200 Ocean Park Boulevard, Santa Monica, California 90405, at 9:00 a.m., Pacific Daylight Time, and at any adjournment or postponement of the meeting (the “Annual Meeting”). All references in this proxy statement to “the Company”, “we”, “us”, “our”, and “Activision Blizzard” refer to Activision Blizzard, Inc.

Notice of Internet Availability of Proxy Materials

We will be mailing a notice regarding the internet availability of these proxy materials (containing instructions on how to access the proxy materials and vote shares through the internet) to stockholders on or about April 21, 2017.

Financial Metrics Used in this Proxy Statement

All financial metrics used in this proxy statement are presented in accordance with generally accepted accounting principles (“GAAP”), unless explicitly identified as non-GAAP, which may include non-GAAP (as previously defined). For information on the calculation and reconciliation of GAAP measures to non-GAAP measures, please see Appendix A attached to this proxy statement. Internally, our management uses the financial measures identified herein as non-GAAP in assessing our operating results, as well as in planning and forecasting. In particular, our management believes these measures facilitate comparison of operating performance between periods and allow for a better understanding of the operating results of Activision Blizzard by excluding certain items that may not be indicative of the Company’s core business, operating results or future outlook. Further, our management believes that the presentation of these non-GAAP financial measures provides additional useful information to measure Activision Blizzard’s financial and operating performance. These non-GAAP financial measures are not intended to be considered in isolation from, as a substitute for or as more important than the financial information prepared and presented in accordance with GAAP. In addition, these non-GAAP measures have limitations in that they do not reflect all of the items associated with the Company’s results of operations as determined in accordance with GAAP. In the future, Activision Blizzard may also consider whether other significant non-recurring items should also be excluded in calculating the non-GAAP financial measures used by the Company.

Our non-GAAP financial measures are not based on a comprehensive set of accounting rules or principles, and the terms non-GAAP net revenues, non-GAAP net income, non-GAAP diluted earnings per share, non-GAAP operating margin and non-GAAP free cash flow do not have a standardized meaning. Therefore, other companies may use the same or similarly named measures, but exclude different items, which may not provide investors a comparable view of Activision Blizzard’s performance in relation to other companies.

Consistent with past years and in an effort to effectively assess financial performance for compensation purposes, for 2016 our management and Compensation Committee utilized measures referred to as “non-GAAP (as previously defined),” rather than GAAP or the non-GAAP measures we began using in mid-2016 when reporting our financial results. The only difference between the two measures is the inclusion (in redefined non-GAAP) or exclusion (in non-GAAP (as previously defined)) of the impact from revenue deferrals accounting treatment on certain of our online-enabled products. Some of our games’ online functionality represents an essential component of gameplay and, as a result, a more-than-inconsequential separate deliverable. As a result, for GAAP purposes (and for non-GAAP measures as used when we have reported our financial results since mid-2016), we recognize revenues attributed to these game titles over their estimated service periods, which is generally less than a year. The related cost of revenues is deferred and recognized as an expense as the related revenues are recognized.

Internally, our management excludes the impact of this change in deferred revenues and related cost of revenues when evaluating the company’s operating performance, when planning, forecasting and analyzing future periods, and when assessing the performance of its management team. Our management believes this is appropriate because doing so enables an analysis of performance based on the timing of actual transactions with our customers. In addition, our management believes excluding the change in deferred revenues and the related cost of revenues provides a much more timely indication of trends in our operating results. We refer to these measures as “non-GAAP (as previously defined)”.

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 14


Back to Contents

PROCEDURAL MATTERS

Who may vote at the Annual Meeting?

Only stockholders of record at the close of business on April 7, 2017, are entitled to notice of, or to vote at, the Annual Meeting. There were 753,566,760 shares of our Common Stock outstanding and entitled to vote on the record date.

A list of the stockholders entitled to vote at the Annual Meeting will be available for examination by any stockholder, for any purpose germane to the Annual Meeting, at the Annual Meeting and during ordinary business hours at our offices at 3100 Ocean Park Boulevard, Santa Monica, California 90405 for the 10 days prior to the Annual Meeting.

How many votes may I cast?

For each share of our Common Stock outstanding and entitled to vote that a stockholder holds on the record date, he or she is entitled to one vote on each matter presented for action at the Annual Meeting.

What if I hold my shares through a broker? What is the difference between holding shares as a “stockholder of record” and as a “beneficial owner”?

If your shares are held through a broker, bank or any other nominee, you hold your shares in “street name”, and you are considered the “beneficial owner” of those shares. This proxy statement and any accompanying materials have been provided to you by your broker, bank or other holder of record. As a beneficial owner, you are entitled to direct the firm that holds your shares how to vote your shares.

If your shares are registered in your name with our stock transfer agent, Continental Stock Transfer & Trust, you are the “stockholder of record”. This proxy statement and any accompanying materials have been provided to you directly by Activision Blizzard.

Can my broker vote my shares without my instruction? What are “broker non-votes”?

If you are a beneficial owner and you do not provide voting instructions to the broker, bank or other nominee that holds your shares in its name, that firm is only allowed to exercise its discretion to vote your shares on “routine” matters, but will not be allowed to vote your shares with respect to any “non-discretionary” items, resulting in a so-called “broker non-vote” with respect to such items. Proposal 4—the ratification of PricewaterhouseCoopers LLP (“PwC”) as the Company’s independent registered public accounting firm—is the only matter for consideration at the Annual Meeting considered to be routine. For all matters other than proposal 4, you must submit voting instructions to the firm that holds your shares if you want your vote to count. A broker non-vote will occur if you do not provide instructions to your broker, bank or other nominee with respect to proposals 1, 2 or 3.

How many votes must be present in order for business to be conducted?

In order for business to be conducted at the Annual Meeting, a quorum must be present. A quorum consists of the presence, in person or by proxy, of a majority of the shares of our Common Stock entitled to vote at the Annual Meeting. Both abstentions and broker non-votes will be included for purposes of determining whether a quorum is present at the Annual Meeting.

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 15


Back to Contents

What are my voting options with respect to each proposal and how many votes are required to approve each proposal?

Proposal

Voting Options

Vote Required to Adopt

Proposal

Broker

Discretionary

Voting

Allowed

Effect of

Broker

Non-Votes

Effect of

Abstentions

Effect of

Present but

Not Voted

Shares

Election of Directors
—Proposal 1

For, against or abstain with respect to each nominee

The number of votes cast “for” the nominee exceeds the number of votes cast “against” him or her by the holders of shares present in person or by proxy and entitled to vote at the Annual Meeting

No

No Effect

Against

Against

Advisory Vote to Approve Executive Compensation
—Proposal
2

For, against or abstain

Affirmative vote of the holders of a majority of the shares present in person or by proxy and entitled to vote at the Annual Meeting

No

No Effect

Against

Against

Advisory Vote on Frequency of Future Advisory Votes on Executive Compensation
—Proposal 3

1 year, 2 years, 3 years or abstain

The vote frequency that receives the greatest number of votes cast will be considered to be the vote frequency that is selected.

No

No Effect

No Effect

No Effect

Ratification of Appointment of Independent Registered Public Accounting Firm
—Proposal 4

For, against or abstain

Affirmative vote of the holders of a majority of the shares present in person or by proxy and entitled to vote at the Annual Meeting

Yes

N/A

Against

Against

What are the ways I can vote?

Stockholders at the close of business on April 7, 2017, can vote at the Annual Meeting in person or via proxy in the manner described herein. Any stockholder who holds shares in street name through a broker, bank or other nominee will receive separate instructions from the firm holding his or her shares describing the procedures for instructing the voting of those shares.

How do I vote in person at the Annual Meeting?

Stockholders who wish to vote in person at the Annual Meeting must request a ballot at the meeting. Further, any street-name holder who wishes to vote in person at the Annual Meeting will need to obtain a proxy from the broker, bank or other nominee that is the record holder of his or her shares in order to cast a ballot at the meeting.

What does it mean to vote by proxy? Who represents my shares at the Annual Meeting?

A vote via proxy authorizes Robert A. Kotick (our Chief Executive Officer), Thomas Tippl (our Chief Operating Officer) and Dennis Durkin (our Chief Financial Officer), and each of them, with full power of substitution, to vote and otherwise represent all of the shares that you are entitled to vote at the Annual Meeting, in accordance with your instructions, with the same effect as if you were present at the meeting and voting such shares.

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 16


Back to Contents

How do I vote by proxy?

Stockholders of record may vote by proxy in three ways:

Vote by Internet. Record holders can vote online prior to 4:00 p.m., Pacific Daylight Time, on May 31, 2017. Go to www.cstproxyvote.com, which is available 24 hours a day until the deadline. You will need your “company ID”, “proxy number” and “account number”, all of which appear on the notice of internet availability of proxy materials or proxy card you received.

Vote by Telephone . Record holders can vote by phone prior to 4:00 p.m., Pacific Daylight Time, on May 31, 2017. Call (866) 894-0537, which is available 24 hours a day until the deadline. You will need your “company ID”, “proxy number” and “account number”, all of which appear on the notice of internet availability of proxy materials or proxy card you received.  

Vote by Mail. Record holders can vote by mail if they received a printed copy of the proxy card. Complete and return that proxy card in the postage-paid envelope provided. If you are a stockholder of record and you choose to vote by mail, your vote will be counted so long as it is received prior to the closing of the polls at the meeting, but we urge you to complete, sign, date and return the proxy card as soon as possible.

 

You need only vote in one way (e.g., if you vote by internet or telephone, you need not return the proxy card).

What if I vote by proxy but do not provide specific instructions for some or all of the items?

The shares of our Common Stock represented by all valid proxies we receive prior to the Annual Meeting that are not properly revoked prior to being voted at the Annual Meeting will be voted at the Annual Meeting as directed. If no directions are specified, those proxies will be voted FOR each of the nine director nominees named in this proxy statement (proposal 1), FOR the advisory approval of the Company’s executive compensation, as disclosed in this proxy statement (proposal 2), for ONE YEAR as the frequency of future advisory votes on executive compensation (proposal 3) and FOR the ratification of PwC as the Company’s independent registered public accounting firm for 2017 (proposal 4).

If I have voted by proxy, can I change my vote?

Any stockholder of record may revoke or change that stockholder’s proxy at any time before the proxy is voted at the Annual Meeting by: (1) sending a written notice of revocation of the proxy to our Corporate Secretary at Activision Blizzard, Inc., 3100 Ocean Park Boulevard, Santa Monica, California 90405; (2) properly delivering a subsequently dated proxy; or (3) voting in person at the Annual Meeting.

What do I need to do if I want to attend the Annual Meeting?

You should be prepared to present a valid form of photo identification, such as a driver’s license, state-issued ID card or passport, to gain admittance to the Annual Meeting. In addition, if you are a stockholder of record, your ownership as of the record date must be verified by reference to our records prior to admittance into the Annual Meeting. If you hold shares in street name through a broker, bank or other nominee, you must provide proof of beneficial ownership as of the record date, such as a brokerage account statement or similar evidence of ownership. If you do not provide valid photo identification and otherwise comply with the procedures outlined above, you may not be admitted to the Annual Meeting. Directions to the Annual Meeting can be obtained by contacting our Investor Relations department via phone at (310) 255-2000 or via email at ir@activision.com.

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 17


Back to Contents

Will I have dissenters’ rights in connection with the business being considered?

Stockholders have no dissenters’ rights or rights of appraisal under Delaware law, our Certificate of Incorporation or our Bylaws in connection with the election of directors (proposal 1) or proposals 2, 3 or 4.

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 18


Back to Contents

PROPOSAL 1

ELECTION OF DIRECTORS

General

Stockholders will elect nine directors at the Annual Meeting. Those elected will serve one-year terms and until their respective successors are duly elected or appointed and qualified or until the earlier of their death, resignation or removal. Except where otherwise instructed, proxies solicited by this proxy statement will be voted for the election of each nominee. However, if any nominee becomes unable to stand for election as a director at the Annual Meeting, the proxy may be voted for a substitute designated in accordance with our Bylaws.

Director Nominees

In order to have a knowledgeable Board comprised of individuals with distinguished records of leadership and success, the Nominating and Corporate Governance Committee has established criteria and assessed each director nominee’s capabilities to identify the contributions he or she can make to our Board. As a company with a global customer base in the interactive entertainment industry, we consider leadership abilities gained from senior roles as executive officers or board members of large, global corporations in the entertainment field to be particularly relevant to the business of the Company. We believe that our directors bring to our Board the practical wisdom and strong professional characteristics, judgment and leadership abilities necessary to keep our Company performing competitively in the market. For more about the qualifications we require our directors (and director nominees) to have, see “Corporate Governance Matters—Board of Directors and Committees— Identification of Candidates for Election to our Board—Experience, Skills and Other Characteristics of our Director Candidates” below.

The following are biographical summaries of our director nominees, which describe their noteworthy experience. Also described below are certain individual qualifications and skills of each of our directors that we believe contribute to our Board’s effectiveness and success. For information regarding each nominee’s current Board committee membership, if any, see “Corporate Governance Matters—Board of Directors and Committees—Board Committees” below.

 

ROBERT CORTI

Mr. Corti, age 67, worked at Avon Products, a global manufacturer and marketer of beauty and related products, for more than 25 years. He joined Avon Products’ tax department as a tax associate in 1976 and held positions of increasing responsibility in the company’s finance department throughout his tenure there, including serving as an executive vice president and the chief financial officer of Avon Products from 1998 until he retired from the chief financial officer role in November 2005 and as an executive vice president in March 2006.

Retired Chief Financial Officer of Avon Products

Director Since: 2003

Activision Blizzard Committee:

Audit (Chair)

Private Company Directorships:

Bacardi Limited

Involvement with Other Organizations:

Avon Foundation (board member)

Manhattan Chapter of the Cystic Fibrosis Foundation (board member)

 

 

Key Experience/Qualifications:

Financial expertise, particularly accounting and tax experience, gleaned in part from his long tenure in Avon’s finance department

Unique perspective of having helped to guide a large public company with international operations through the changing economic and competitive landscape for over two and a half decades, gained from having served Avon for more than 25 years and working his way up to increasingly senior roles within that organization

Consumer products industry experience from his tenure at Avon

Certified public accountant

Qualifies as an “audit committee financial expert” and is “financially sophisticated”

B.A. in accounting from Queens College and M.B.A. in taxation from St. John’s University

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 19


Back to Contents

HENDRIK HARTONG III

Mr. Hartong, age 50, joined Brynwood Partners, a private equity firm specializing in the consumer products sector, in 2004, as a managing partner. Mr. Hartong was the president and chief executive officer of Lincoln Snacks Company, a food products company, from 1998, at which point the company was publicly traded, until 2004, when Brynwood Partners divested its ownership in Lincoln Snacks. Prior to joining Lincoln Snacks, Mr. Hartong held various sales and marketing positions of increasing responsibility with Baskin Robbins USA Co. and Nestlé USA, Inc., both of which are food products companies, and, from 1996 to 1998, and with Activision Publishing, Inc. (“Activision”), one of our principal business units.

Chairman and Chief Executive Officer of Brynwood Partners

Director Since: 2015

Activision Blizzard Board Committee:

Audit

Private Company Directorships:

Brynwood Partners (chairman and chairman of executive committee)

Back to Nature Foods Company, LLC (chairman) (a company in which Brynwood Partners has a controlling ownership interest)

Harvest Hill Beverage Company (chairman) (a company in which Brynwood Partners has a controlling ownership interest)

Joseph’s Gourmet Pasta Company (chairman) (a company in which Brynwood Partners has a controlling ownership interest)

Pearson Candy Company (chairman) (a company in which Brynwood Partners has a controlling ownership interest)

 

Key Experience/Qualifications:

Financial expertise, in particular, from having served as president and chief executive officer of then-publicly traded Lincoln Snacks for six years

Wealth of experience in the consumer products industry from his experience guiding Lincoln Snacks and the portfolio companies of Brynwood Partners

Qualifies as “audit committee financial expert” and is “financially sophisticated”

B.A. in history from Lafayette College and M.B.A. from Harvard University

BRIAN G. KELLY

Mr. Kelly, age 54, has held various positions of responsibility with Activision Blizzard since 1991, including serving as a director of the Company since July 1995, the co-chairman of our Board of Directors from October 1998 until the consummation of the Vivendi Share Repurchase Transaction (as defined herein), and as chairman of our Board of Directors since that time.

Chairman of the Board of Activision Blizzard

Director Since: 1995

Involvement with Other Organizations:

Call of Duty Endowment (co-founder)

 

Key Experience/Qualifications:

Depth of institutional knowledge and understanding of our organization, which he possesses by virtue of his service as an executive of the Company from 1991 until the Vivendi Games Combination (as defined herein) and as a director for more than 20 years

Superior leadership skills, devotion to the Company and commitment to helping to ensure our ongoing success

B.A. in accounting from Rutgers University and J.D. from Fordham University School of Law

ROBERT A. KOTICK

Mr. Kotick, age 54, has been a director of Activision Blizzard since February 1991, following his purchase of a significant interest in the Company, which was then on the verge of insolvency. Mr. Kotick was our Chairman and Chief Executive Officer from February 1991 until July 2008, when he became our President and Chief Executive Officer in connection with the Vivendi Games Combination.

President and Chief Executive Officer of Activision Blizzard

Director Since: 1991

Other Public Company Directorships:

The Coca-Cola Company (since 2012)

Involvement with Other Organizations:

Call of Duty Endowment (co-founder and co-chairman)

Los Angeles County Museum of Art (vice chairman of board and chairman of committee of trustees)

The Center for Early Education (member of board of trustees)

Harvard-Westlake School (member of board of trustees)

 

Key Experience/Qualifications:

Depth of institutional knowledge and understanding of our organization, as well as practical experience in a chief executive officer role, that he possesses by virtue of his 25 years of service to the Company, including as our President and Chief Executive Officer and, previously, as the Chairman of our Board

Perspective as a board member at a variety of other organizations and his experience in helping those organizations achieve their diverse goals and overcome a wide range of challenges through changing economic and social times

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 20


Back to Contents

BARRY MEYER

Mr. Meyer, age 73, retired as the chairman of Warner Bros. Entertainment Inc., an American producer of film, television and music, at the end of 2013. He joined Warner Bros. as a director of business affairs in 1971 and held positions of increasing responsibility throughout his tenure there, eventually serving as Warner Bros.’ chief executive officer and chairman from October 1999 until March 2013 and as chairman through December 2013. Mr. Meyer founded the consulting firm North Ten Mile Associates following his retirement from Warner Bros., and currently serves as the manager and co-chief executive officer of that firm.

Retired Chairman and Chief Executive Officer of Warner Bros. Entertainment

Director Since: 2014

Activision Blizzard Board Committee:

Nominating and Corporate Governance Committee

Involvement with Other Organizations:

Federal Reserve Bank of San Francisco (deputy chairman)

Smithsonian National Museum of American History (advisory board)

Human Rights Watch (director emeritus)

Academy of Motion Picture Arts & Sciences (member)

Academy of Television Arts & Sciences (member and former governor)

Hollywood Radio and Television Society (member)

USC School of Cinematic Arts (member of board of councilors)

 

Key Experience/Qualifications:

Over 40 years of leadership and managerial experience in one of the largest entertainment production companies in the world, including serving as its chief executive officer

In-depth knowledge of both the business and creative aspects of the entertainment industry, both from his years at Warner Bros. and the leadership positions he held in various cultural institutions dedicated to visual and cinematic arts

Wealth of experience in nearly every facet of the entertainment industry

Deep understanding of the unique challenges faced by large, multinational public companies

B.A. in English from the University of Rochester and J.D. from Case Western Reserve University School of Law

ROBERT MORGADO

Mr. Morgado, age 74, is chairman of Maroley Media Group, a media entertainment investment company he established in 1995. He previously served as the chairman and the chief executive officer of Warner Music Group, a music content company comprised of recorded music and music publishing businesses, from 1985 to 1995.

Retired Chairman and Chief Executive Officer of Warner Music Group

Director Since: 1997

Activision Blizzard Board Committees:

Nominating and Corporate Governance Committee (Chair)

Compensation Committee (Chair)

Audit Committee

Private Company Directorships:

Nest Top (controlling shareholder of Nest Family and Nest Learning Systems)

Kaanapali Kai (chairman)

Involvement with Other Organizations:

Maui Arts & Cultural Center (board member)

 

Key Experience/Qualifications:

Extensive experience as a chief executive officer and a director at a variety of media and entertainment companies

Perspective as the founder and chairman of a media entertainment investment company

Qualifies as an “audit committee financial expert” and is “financially sophisticated”

B.A. in history and philosophy from Chaminade University of Honolulu and M.P.A. from The State University of New York

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 21


Back to Contents

PETER NOLAN

Mr. Nolan, age 58, is the Chairman of Nolan Capital, a private investment company, and is also a senior advisor to Leonard Green & Partners, L.P., a private equity firm, and was previously the managing partner of Leonard Green & Partners. Prior to becoming a partner at Leonard Green & Partners in 1997, Mr. Nolan served as a managing director and the co-head of Donaldson, Lufkin and Jenrette’s Los Angeles Investment Banking Division from 1990 to 1997, as a first vice president in corporate finance at Drexel Burnham Lambert from 1986 to 1990, and as a vice president at Prudential Securities, Inc. from 1982 to 1986. Prior to 1982, Mr. Nolan was an associate at Manufacturers Hanover Trust Company. Mr. Nolan served on the Company’s Board from December 2003 until July 2008, when he resigned in connection with the consummation of the Vivendi Games Combination.

Senior Advisor to Leonard Green & Partners

Director Since: 2013 (and from 2003 to 2008)

Activision Blizzard Board Committee:

Nominating and Corporate Governance Committee

Private Company Directorships:

AerSale Holdings, Inc. (a company in which Leonard Green & Partners has an ownership interest)

Motorsport Aftermarket Group (a company in which Leonard Green & Partners has an ownership interest)

 

Key Experience/Qualifications:

Extensive experience in corporate finance and investment banking, including leadership roles at large international corporations with worldwide operations

Extensive and wide-ranging experience is demonstrated by his current directorships in other companies operating in various industries

Depth of institutional knowledge about the Company from his service on our Board from 2003 to 2008

B.S. in agricultural economics and finance and M.B.A., both from Cornell University

CASEY WASSERMAN

Mr. Wasserman, age 42, is the chairman and chief executive officer of Wasserman, a sports, entertainment and lifestyle marketing and management agency that he founded in 2002. Mr. Wasserman also serves as the president and chief executive officer of the Wasserman Foundation.

Chairman and Chief Executive Officer of Wasserman

Director Since: 2015

Activision Blizzard Board Committee:

Compensation Committee

Other Public Company Directorships:

Saban Capital Acquisition Corp. (since March 2017)

Private Company Directorships:

Vox Media

Involvement in Other Organizations:

LA24 Exploratory Committee to Bring the 2024 Olympic and Paralympic Games to Los Angeles (chairman)

Los Angeles County Museum of Art (member of board of trustees)

UCLA Centennial Campaign (member of executive committee)

 

Key Experience/Qualifications:

Extensive management expertise in entertainment, sports and lifestyle marketing gained from his work as chairman and chief executive officer of Wasserman, which represents brands, properties and talent on a global basis

B.A. in political science from the University of California at Los Angeles

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 22


Back to Contents

ELAINE WYNN

Ms. Wynn, age 74, is a co-founder of Wynn Resorts, a developer and operator of high-end hotels and casinos, and served as a director of Wynn Resorts from its inception in 2002 to May 2015. Prior to that, Ms. Wynn served in a similar capacity as a director of Mirage Resorts from 1976 to 2000.

Co-founder of Wynn Resorts

Director Since: 2013

Activision Blizzard Board Committee:

Compensation Committee

Other Public Company Directorships:

Wynn Resorts (from 2002 to 2015)

Involvement in Other Organizations:

Kennedy Center for the Performing Arts (member of board of trustees)

Los Angeles County Museum of Art (member of board of trustees)

Nevada State Board of Education (president)

Communities in Schools (chairman of the national board)

Communities in Schools of Nevada (founding chairman)

Basketball Hall of Fame (member of the board of governors)

 

Key Experience/Qualifications:

Extensive experience in the entertainment field, stemming from her lengthy service as a director of one of the top resort and casino companies in the world

Strong leadership skills, illustrated by her numerous chairmanships in state and national-level organizations dedicated to educational reform, where she has received numerous accolades for her service

Strong and practical leadership experience, as well as in-depth knowledge about the operation of a large, international public company

B.A. in political science from George Washington University

Required Vote and Board Recommendation

In accordance with our Bylaws, a director nominee will be elected only if he or she receives a majority of the votes cast with respect to his or her election in an uncontested election (that is, the number of shares voted “for” that nominee exceeds the total number of shares that are voted “against” that nominee, that are present and not voted or that abstain from voting). For more information, see “Procedural Matters—How can I cast my vote with respect to each proposal and how many votes are required to approve each proposal” above and “Corporate Governance Matters—Board of Directors and Committees—Offer of Resignation in Connection with Failure to Receive More ‘For’ than ‘Against’ Votes” below.

Your Board unanimously recommends that you vote FOR the election of each nominee for director.

 

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 23


Back to Contents

CORPORATE GOVERNANCE MATTERS

Overview

Our Board has long adhered to governance principles designed to assure its continued vitality and excellence in the execution of its duties. Our Board has responsibility for management oversight and providing strategic guidance to the Company. Our Board believes that it must remain well informed about the issues, risks and opportunities facing the Company so that our Board members can exercise their fiduciary responsibilities to all of our stockholders. Our Board recognizes the importance of constantly improving our corporate governance practices and is committed to regularly reviewing the specific elements of our corporate governance framework and making changes to them when our Board deems them to be in the best interests of the Company and its stakeholders.

Board of Directors and Committees

Identification of Candidates for Election to our Board

 

Nominating and Corporate Governance Committee Process

Pursuant to our Corporate Governance Principles and Policies and the Nominating and Corporate Governance Committee’s charter, both of which can be viewed on our website at http://investor.activision.com/corporate-governance.cfm , the Nominating and Corporate Governance Committee identifies and evaluates potential candidates to serve as members of our Board. The committee may consider candidates suggested by its members, other directors, senior management or stockholders and may, at the Company’s expense, retain search firms, consultants and other advisors to identify, screen and/or evaluate candidates. Candidates may be interviewed in person by directors and management.

The Nominating and Corporate Governance Committee will consider nominating persons who are submitted by stockholders, subject to the limitations described immediately below.

Stockholder Recommendation of Director Candidates

Our stockholders may recommend persons who qualify as independent under the NASDAQ Rules to serve as directors. In accordance with our Corporate Governance Principles and Policies, the Nominating and Corporate Governance Committee will review the qualifications of, and make recommendations to our Board regarding, any such stockholder recommendation that is submitted to us in writing and includes the following information:

the name, address, phone number and email address of the stockholder and evidence of the stockholder’s ownership of our Common Stock, including the number of shares beneficially owned by such person and the length of time of such ownership;

the name of the director candidate, the candidate’s address, phone number and email address, the candidate’s resume or a list of his or her qualifications to be a director of Activision Blizzard and the candidate’s consent to be named a director, if nominated, and to serve as a director, if elected; and

a description of any agreements, arrangements, understandings or relationships between the stockholder and the director candidate and any other persons (including those persons’ names), pursuant to which the recommendation is made.

In addition, stockholders may submit candidates for election as directors in accordance with our Bylaws, as described under “Director Nominations and Other Stockholder Proposals for 2018 Annual Meeting; Communicating with our Board” below.

Experience, Skills and Other Characteristics of Our Director Candidates

In accordance with our Corporate Governance Principles and Policies, all director nominees, whether or not they are incumbent directors, are expected to have the appropriate experience, skills and other characteristics essential to serving as an effective Board member, assessed in the context of the perceived needs of our Board at the time, including:

Experience and Skills

Accounting/finance

Corporate governance

Entertainment industry background

Legal and regulatory knowledge

Strategic planning

International operations

In accordance with the Nominating and Corporate Governance Committee’s charter, the Nominating and Corporate Governance Committee, in its selection of director candidates, considers the following attributes, among others: experience; knowledge; skills; expertise; personal and professional integrity; character; business judgment; time availability in light of other commitments; dedication; and independence. The committee evaluates each director nominee’s experience, skills and other characteristics to ensure that they are consistent with the interests of our stockholders and complementary with the existing Board’s composition and

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 24


Back to Contents

needs. In doing so, it considers whether the nominee has experience or skills in the areas of entertainment, international operations, strategic planning, corporate governance, accounting and finance, law or other areas that are relevant to our activities and our Board’s effectiveness. Although our nominating procedures and policies do not prescribe specific standards for diversity, the committee also takes diversity into account, seeking to ensure a representation of diverse perspectives and experience.

Additionally, in accordance with its charter, the Nominating and Corporate Governance Committee annually oversees evaluations of our Board, our Board’s committees and individual directors which assess the experience, skills, qualifications and contributions of each individual director, as well as the performance of each standing committee of our Board and our Board as a whole.

Independence Determinations

 

In making its determination regarding director independence, our Board reviews and discusses all relevant information regarding each director’s relationships, transactions or arrangements, as required by the independence guidelines of the NASDAQ Rules, including current and prior relationships that each director or any of his or her family members has with the Company, our executive management and our independent accounting firm. To assist our Board in making these determinations, each director is required to complete a questionnaire on an annual basis.

Based on the information provided by each director concerning his or her background, employment and affiliations, our Board affirmatively determined that each of Messrs. Corti, Hartong, Meyer, Morgado, Nolan and Wasserman and Ms. Wynn is an independent director within the meaning of the NASDAQ Rules. Accordingly, our Board believes there are no relationships or activities between the Company and any of these directors that require further review by our Board or that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director, as none of these directors has a direct or indirect material relationship with the Company.

Board Leadership Structure

 

Our chief executive officer does not serve as the chairman of our Board. Our Board believes that the division between the role of the chief executive officer and the chairman of the Board is appropriate because our chief executive officer is responsible for the day-to-day management of the Company, while the responsibility of our Board is to oversee the chief executive officer’s performance of his or her function. Having different individuals serve as the chairman and the chief executive officer allows the chief executive officer to focus on his or her operational responsibilities, while keeping a measure of independence between the oversight function of our Board and those operating decisions. If our Board were to select our chief executive officer to serve as chairman, the independent directors would, in accordance with our Corporate Governance Principles and Policies, consider the appointment of a lead independent director.

Other Directorships

 

Pursuant to our Corporate Governance Principles and Policies, our directors must obtain the approval of the Nominating and Corporate Governance Committee before accepting any board membership at another publicly held company, and in no case can any director serve on the boards of more than four other publicly held companies.

Offer of Resignation in Connection with Failure to Receive More “For” than “Against” Votes

 

Pursuant to our Bylaws, a director nominee will be elected only if he or she receives a majority of the votes cast with respect to his or her election in an uncontested election (that is, the number of shares voted “for” that nominee exceeds the number of shares voted “against” that nominee that are present and not voted or that abstain from voting). If a nominee who currently serves as a director is not re-elected, Delaware law and our Bylaws provide that the director will continue to serve on our Board as a “holdover director” (i.e., until his or her successor has been duly elected and qualified, or until the earlier of his or her death, resignation or removal). Pursuant to our Corporate Governance Principles and Policies, if a director fails to receive the required number of votes for re-election, he or she must offer to resign from our Board.

Our Board or, in our Board’s discretion, the Nominating and Corporate Governance Committee, without the participation of the director offering his or her resignation, will consider whether the continued service of any director so offering to resign is appropriate, by considering any factors it deems relevant (e.g., the underlying reasons for the “against” votes, the length of service and qualifications of the director, that director’s contributions to our Company and the skills and characteristics of that director) and, if our Board or the Nominating and Corporate Governance Committee, as the case may be, determines that the director continues to contribute significantly to the Company, his or her membership on our Board may continue.

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 25


Back to Contents

Offer of Resignation Upon Change in Professional Role

 

Pursuant to our Corporate Governance Principles and Policies, unless the Nominating and Corporate Governance Committee determines otherwise, if an independent director retires, changes employment or otherwise has a significant change in his or her professional role or responsibilities that may reasonably be seen to affect his or her ability to serve, he or she must offer to resign from our Board. Similarly, unless our Board or the Nominating and Corporate Governance Committee determines otherwise, or he or she has an agreement with us to the contrary, if a director who is employed by us retires, resigns or otherwise has a significant change in his or her professional role or responsibilities, he or she must offer his or her resignation from our Board.

Our Board or, in our Board’s discretion, the Nominating and Corporate Governance Committee, without, in either case, the participation of the director offering his or her resignation, will consider whether the continued service of any director so offering to resign is appropriate in light of that change and, if our Board or the Nominating and Corporate Governance Committee, as the case may be, determines that the director continues to contribute significantly to the Company, his or her membership on our Board may continue.

Board Meetings

 

In accordance with our Corporate Governance Principles and Policies, our Board generally meets at least quarterly, as well as in conjunction with the annual meeting of our stockholders. Our Board met eight times during 2016, including at least once per quarter and in conjunction with the 2016 annual meeting of our stockholders. Each person who served on our Board during 2016 attended at least 75% of the aggregate of (1) the total number of meetings held by our Board during the period for which he or she was a director and (2) the total number of meetings held by each committee on which he or she served during the period in which he or she so served during the year.

Our Corporate Governance Principles and Policies also require that the independent directors meet in executive session outside of the presence of our management at least two times per year. Four such executive sessions took place during 2016.

In accordance with our Corporate Governance Principles and Policies, all directors are expected to attend annual meetings of our stockholders. In 2016, eight of the nine persons serving as directors at the time attended the annual meeting.

Annual Board, Committee and Director Self-Evaluations

 

The Nominating and Corporate Governance Committee annually evaluates our Board’s overall performance, the overall performance of each of our Board’s standing committees and the performance of each individual director.

Director Orientation and Continuing Education

 

Board Orientation. New directors are provided with a comprehensive director orientation manual upon joining our Board that provides them with important information about the Company, our Board and the general roles and responsibilities of directors of publicly traded companies. Each new director is also invited to attend an “onboarding day”, during which he or she meets with our executives and other key members of our senior management.

Continuing Education. We recognize the benefit of continuing education for our directors. In addition to the education routinely provided to our directors by our executives and other key members of our senior management at meetings of our Board and its committees on topics impacting the Company, including emerging risks, industry trends, technological developments, economic forecasts and competitive challenges, we may engage third parties to provide in-boardroom education. To supplement the education we provide, we encourage our directors to attend external programs and provide financial and administrate support to the directors in connection therewith.

Board Committees

 

Our Board has three standing committees—the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee—each of which operates under a written charter approved by our Board. Further, from time to time, our Board forms special or ad hoc committees to which our Board delegates authority to administer certain of its duties.

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 26


Back to Contents

The following table shows the current membership of our Board’s standing committees. Each current committee member served in the role shown below at all times during and since 2016.

Name

Audit

Committee

Compensation

Committee

Nominating and Corporate

Governance Committee

Robert Corti

 

 

Brian G. Kelly

 

 

 

Hendrik Hartong III

 

 

Robert A. Kotick

 

 

 

Barry Meyer

 

 

Robert Morgado

Peter Nolan

 

 

Casey Wasserman

 

 

Elaine Wynn

 

 

Chairperson

Audit Committee

Our Audit Committee’s charter, which describes the composition and responsibilities of the committee, may be viewed on our website at http://investor.activision.com/corporate-governance.cfm.

With respect to membership on the Audit Committee, the charter currently provides that the committee must have at least three members and that:

all Audit Committee members must be determined by our Board to be independent directors under the NASDAQ Rules and the rules of the SEC and otherwise satisfy the NASDAQ Rules and the rules of the SEC with respect to audit committee membership;

no director may serve as a member of the Audit Committee if that director serves on the audit committees of more than two other public companies, unless our Board determines that the simultaneous service would not impair the ability of that director to effectively serve on the Audit Committee;

all Audit Committee members must understand fundamental financial statements;

at least one Audit Committee member must be designated by the Board as an “audit committee financial expert” as defined in the applicable rules of the SEC; and

no Audit Committee member can have participated in the preparation of the financial statements of Activision Blizzard or any of our current subsidiaries at any time during the three years prior to the proposed appointment of that Audit Committee member.

Further, the NASDAQ Rules require that at least one Audit Committee member meets the financial sophistication requirements set forth in those rules.

The current members of the Audit Committee are Messrs. Corti, Hartong and Morgado. Based upon information provided by each director concerning his background, employment and affiliations, our Board has determined that each member of the Audit Committee is an independent director under the NASDAQ Rules and the rules of the SEC and that each otherwise satisfies the NASDAQ requirements for audit committee membership (including that each meets the independence criteria set forth in Exchange Act Rule 10A-3 and is able to read and understand fundamental financial statements). Our Board has also determined that each Audit Committee member is an “audit committee financial expert” as defined in the applicable rules of the SEC and that each is “financially sophisticated” within the meaning of the NASDAQ Rules.

The purpose of the Audit Committee is to oversee the accounting and financial reporting processes of Activision Blizzard and our subsidiaries, the audits of our financial statements and our internal control over financial reporting. The Audit Committee’s responsibilities include:

selecting, evaluating and overseeing our independent registered public accounting firm, including determining that firm’s compensation and evaluating that firm’s independence;

overseeing the annual audits and quarterly reviews of our financial statements and our internal control over financial reporting by our independent registered public accounting firm;

overseeing our financial reporting process and internal control, including:

reviewing the adequacy of our system of internal control over financial reporting, the framework used to make the assessment and our management’s conclusions on the effectiveness of our internal control over financial reporting;

reviewing, and discussing with the independent registered public accounting firm, the results of the annual audit of our financial statements, including any comments or recommendations of our independent registered public accounting firm, and, based on that review and discussions and other considerations, recommending to our Board whether those financial statements should be included in our Annual Report on Form 10-K;

reviewing, and discussing with our management, our internal audit projects and the performance of our internal audit function;

discussing with our management the Company’s process for assessing and managing our exposure to risk; and

meeting periodically with our management, including our Chief Financial Officer, our Chief Accounting Officer, our chief

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 27


Back to Contents

internal audit executive, and our independent registered public accounting firm in separate executive sessions, to discuss any matters that the Audit Committee or any of the above persons or firms believe warrants Audit Committee attention.

overseeing policies regarding hiring employees from our independent registered public accounting firm and establishing procedures for the receipt and retention of accounting-related complaints and concerns; and

overseeing our policies relating to the ethical handling of conflicts of interest, including related party transactions (see “Certain Relationships and Related Transactions—Policies and Procedures—Review, Approval or Ratification of Transactions with Related Persons”).

In accordance with our Corporate Governance Principles and Policies and the Audit Committee’s charter, the Audit Committee must meet at least quarterly. The Audit Committee met six times during 2016, including at least once each quarter.

Our independent registered public accounting firm reports directly to the Audit Committee.

Before we or any of our subsidiaries engage our independent registered public accounting firm to render audit or non-audit services, the Audit Committee must pre-approve the engagement. See “Audit-Related Matters—Pre-Approval Policies and Procedures” below for further detail.

The Audit Committee’s charter authorizes it to engage independent counsel or other consultants or advisors, as it deems appropriate.

Compensation Committee

Our Compensation Committee’s charter, which describes the composition and responsibilities of the committee, may be viewed on our website at http://investor.activision.com/corporate-governance.cfm.

Membership and Responsibilities

With respect to membership on the Compensation Committee, the charter currently provides that the committee must have at least two members, and that all committee members must be:

“non-employee directors” as defined in Rule 16b-3 under the Exchange Act;

“outside directors” as defined under Section 162(m) (“Section 162(m)”) of the Internal Revenue Code, as amended (the “Internal Revenue Code”); and

determined by our Board to be independent directors under the NASDAQ Rules, including the requirements with respect to compensation committee composition.

The current members of the Compensation Committee are Messrs. Morgado and Wasserman and Ms. Wynn. Based upon information provided by each director concerning his or her background, employment and affiliations, our Board has determined that each member of the Compensation Committee is an outside director as defined under Section 162(m), a non-employee director as defined in Rule 16b-3 under the Exchange Act and an independent director under the NASDAQ Rules. Our Board has also determined that none of the members of the Compensation Committee has a relationship to the Company that is material to such director’s ability to be independent from management in connection with the duties of a Compensation Committee member.

The Compensation Committee discharges our Board’s responsibilities relating to compensation paid to our directors and executive officers and oversight of compensation under our equity incentive plans and other compensation policies, programs, agreements and arrangements. Please see “Executive Compensation—Compensation Discussion and Analysis—Decision-Making Approach to Compensation for Executive Officers—Roles of the Key Participants in the Executive Compensation Decision-Making Process” and “—Compensation Risk Management” below for a description of such responsibilities. The Compensation Committee is also responsible for:

reviewing, and discussing with our management, the compensation-related disclosure included in our proxy statement and Annual Report on Form 10-K; and

overseeing any proposals we submit to our stockholders on matters relating to executive compensation, including advisory votes on compensation and the frequency of such votes and approval of compensatory plans and any amendments to such plans.

As further described in “Executive Compensation—Compensation Discussion and Analysis—Decision-Making Approach to Compensation for Executive Officers—Roles of the Key Participants in the Executive Compensation Decision-Making Process”, the Compensation Committee consults with our management in formulating compensation plans, but ultimately the Compensation Committee exercises independent judgment in approving the compensation of our executive officers.

In accordance with our Corporate Governance Principles and Policies, the Compensation Committee must meet at least four times annually. The Compensation Committee met seven times during 2016.

Engagement of Compensation Consultants

The Compensation Committee’s charter authorizes it to engage independent counsel or other consultants or advisors, including compensation consultants, to advise the Compensation Committee with respect to compensation and benefits for our directors and our executive officers and other employees. Since October 2013, the Compensation Committee has engaged Exequity LLP (“Exequity”) to act as its independent compensation consultant. In accordance with its charter and the NASDAQ Rules, in connection with the engagement of any compensation consultant, the committee assesses whether any potential conflicts of interest existed with the compensation consultant, using the following factors: other services, if any, the compensation consultant provided to the Company; the significance of the fees paid by the Company as a percentage of the compensation consultant’s total revenues; the compensation consultant’s policies and procedures designed to prevent conflicts of interest; any business or personal relationships between the compensation consultant professionals engaged to advise our Compensation Committee and the members of our Compensation Committee; ownership of any Company stock by the compensation consultant professionals engaged to advise the Company; and any business or personal relationships between the compensation consultant professionals engaged to advise our Compensation Committee and our executive officers. Based on the evaluation of these factors, including information received from the compensation

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 28


Back to Contents

consultant addressing these factors, the committee concluded that Exequity’s service to the committee did not raise any conflicts of interest.

For additional information regarding the Compensation Committee, including its use of consultants, see “Executive Compensation—Compensation Discussion and Analysis” below.

Compensation Committee Interlocks and Insider Participation

No member of our Compensation Committee is or has been an executive officer or other employee of the Company. Additionally, in 2016, none of our executive officers served on the board of directors of any entity that had one or more of its executive officers serving on our Board.

Nominating and Corporate Governance Committee

Our Nominating and Corporate Governance Committee’s charter, which describes the composition and responsibilities of the committee, may be viewed on our website at http://investor.activision.com/corporate-governance.cfm.

The charter currently provides that the Nominating and Corporate Governance Committee must consist of at least two directors.

The current members of the Nominating and Corporate Governance Committee are Messrs. Meyer, Morgado and Nolan. Based upon information provided by each director concerning his background, employment and affiliations, our Board has determined that each member of the Nominating and Corporate Governance Committee is an independent director under the NASDAQ Rules.

The Nominating and Corporate Governance Committee’s responsibilities include:

assisting in identifying and recruiting director nominees;

periodically evaluating the size of our Board and recommending to our Board any appropriate increase or decrease;

making recommendations to our Board regarding the size and composition of each standing committee of our Board;

overseeing the evaluation of our Board and its committees;

providing oversight of our corporate governance affairs and those of our Board; and

determining the appropriate engagement with stockholder groups and proxy advisory firms on our submissions to our stockholders (which, in the case of matters relating to executive compensation, will be done in conjunction with the Compensation Committee).

In accordance with our Corporate Governance Principles and Policies, our Nominating and Corporate Governance Committee is also responsible for evaluating any stockholder proposals submitted to us for inclusion in any proxy statement for, and for consideration at, any meeting of our stockholders (which, in the case of stockholder proposals relating to the compensation of our directors or employees, will be done in conjunction with the Compensation Committee).

The Nominating and Corporate Governance Committee’s charter authorizes it to engage independent counsel or other consultants or advisors as it deems appropriate, including a search firm to assist in the identification of director candidates.

In accordance with our Corporate Governance Principles and Policies and the Nominating and Corporate Governance Committee’s charter, the Nominating and Corporate Governance Committee must meet at least twice annually. The Nominating and Corporate Governance Committee met three times during 2016.

Our Board’s Role in Risk Oversight

 

It is the responsibility of our senior management to develop and implement the Company’s financial, operating and strategic plans, and identify, evaluate, manage and mitigate the risks inherent in those plans. It is our Board’s responsibility to understand and oversee those plans, the associated risks and the steps that senior management is taking to manage and mitigate those risks. Our Board, its standing committees and our senior management exercise this risk-oversight function in a variety of ways, including:

 

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 29


Back to Contents

Compensation Risk Management

The Compensation Committee, together with its independent compensation consultant, legal counsel and members of our human resources team, reviews the Company’s incentive compensation plans and practices annually to determine if they encourage employees to take risks that are reasonably likely to have a material adverse effect on the Company. In 2017, as in previous years, this review consisted of an analysis of each of our incentive compensation programs for our executives and other employees, including eligibility, performance measures, payment targets and maximum payments, payment timing and governance (including the applicable approval process). We concluded our compensation programs do not incentivize employees to take such risks.

The incentive compensation plans in which our employees are eligible to participate are designed to encourage achievement of challenging targets aligned with our overall corporate strategy with upside opportunity for higher levels of performance, while mitigating potential risks. The following factors help mitigate risk:

performance objectives underlying awards are designed to focus executive performance on long-term stockholder value creation and balance between financial, operational and qualitative targets and short-and long-term time horizons for achievement;

cash bonuses to our executives and other employees represent just one element of our employees’ total compensation;

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 30


Back to Contents

cash bonuses to our executives and other employees are only paid if established performance metrics are acheived and/or the underlying business unit is profitable;

our stockholder-approved incentive plan limits the size and/or value of the short- and long-term incentive awards made thereunder that any individual may receive for any given year; and

equity awards, which represent a meaningful portion of the compensation paid to our executives, are subject to multi-year vesting schedules, and any vesting in respect of underlying performance measures is capped at 100% to 250% of target.

We also have a number of governance policies in place that mitigate compensation-related risks, including:

cash- and equity-based incentive awards generally require at least two levels of approval (including, in the case of any award to an executive officer, Compensation Committee approval and, for any executive other than the chief executive officer, his approval) and all equity-based awards to any employee require Compensation Committee approval in addition to any management-level approval;

written documentation underlying all of our cash-based incentive programs for our principal business units;

our Compensation Committee annually reviews and approves the equity award guidelines for all eligible employees of the Company;

our “clawback policy”, pursuant to which performance-based compensation to an executive may be recovered in the event of an earnings restatement due to his misconduct to the extent to which the amounts paid were in excess of what would have been paid had the restated numbers been used to determine payments;

provisions in our equity award agreements pursuant to which, should an executive officer breach his or her employment agreement with the Company, including his or her post-termination obligations, certain realized gain in respect of his or her awards may be recovered;

stock ownership guidelines for our executive officers, which require each executive to obtain and maintain equity ownership with a value equal to a specified multiple of his or her base salary (which guidelines are expected to be satisfied within five years of the executive officer’s election);

our insider trading policies, which prohibit “shorting” our securities, engaging in “puts”, “calls” or other hedging transactions involving our securities or using margin accounts with our securities; and

our Code of Conduct, compliance with which must be certified by every employee on an annual basis.

Political Activities

Pursuant to our Code of Conduct, Company resources may not be used for employees’ personal political activities, and lobbying activities are permitted only in compliance with applicable law and by individuals designated to represent the Company in such capacity. Trade associations of which the Company is a member may take a stance on legislative matters or engage in lobbying on specific issues.

Code of Conduct

We have a code of ethics, our Code of Conduct, which applies to all of our directors and employees worldwide, including our chairman, chief executive officer, chief financial officer and chief accounting officer. We also have a chief compliance officer, who administers our ethics and compliance program. You can access our Code of Conduct on our website at http://investor.activision.com/corporate-governance.cfm. Furthermore, we will post any amendments to, or waivers of, the Code of Conduct that apply to our chairman, chief executive officer, chief financial officer or chief accounting officer, and any other related information, on that website .

Additional Corporate Governance Documentation

In addition to finding our Corporate Governance Principles and Policies, Audit Committee Charter, Compensation Committee Charter, Nominating and Corporate Governance Committee Charter and Code of Conduct on our website at http://investor.activision.com/corporate-governance.cfm, you can also find many of our other corporate governance documents. Please see “Helpful Resources” below for more information.

Executive Officers

Biographical summaries for our executive officers (other than Mr. Kotick, for whom a biographical summary is set forth under “Proposal 1—Election of Directors” above) can be found in Item 1 of our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on February 28, 2017.

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 31


Back to Contents

EXECUTIVE COMPENSATION

The following discussion and tables set forth information with regard to compensation for services rendered by the named executive officers included in the “Summary Compensation Table” below (collectively, our “named executive officers” or “NEOs”) in all capacities to us and our subsidiaries during 2016.

Compensation Discussion and Analysis

This Compensation Discussion and Analysis describes the material elements of our executive compensation program and the rationale for the program elements and decisions, through:

describing the business environment in which we operate and the resulting requirements for talent;

summarizing our compensation philosophy and objectives;

outlining our decision-making approach related to executive compensation; and

describing the elements and rationale behind our compensation programs and awards for 2016, as well as changes made for 2017.

This CD&A includes:

Overview (page 32 );

Compensation Philosophy and Objectives (page 38 );

Decision-Making Approach to Compensation for Executive Officers (page 39 );

Elements of Our Executive Compensation Program for 2016 (page 41 );

Stock Ownership Guidelines (page 48 ); and

Impact of Tax and Accounting Considerations (page 48 ).

Overview

 

The Compensation Committee oversees Activision Blizzard’s compensation plans and policies, approves compensation for our executive officers and administers our stock compensation plans. This Compensation Discussion and Analysis describes our executive compensation philosophy and programs, as well as compensation-related actions taken during 2016 for our named executive officers. For 2016, our named executive officers are:

Robert A. Kotick, our President and Chief Executive Officer;

Dennis Durkin, our Chief Financial Officer;

Thomas Tippl, our Chief Operating Officer;

Michael Morhaime, the President and Chief Executive Officer of Blizzard Entertainment, Inc. (“Blizzard”), one of our principal business units; and

Riccardo Zacconi, the Chief Executive Officer of King Digital Entertainment Limited (“King”), another of our principal business units.

 

2016 Financial Highlights

2016 was another successful year for the Company. During 2016 (1) :

our consolidated net revenues increased 42% to $6.6 billion, inclusive of King’s results of operations since our acquisition of King on February 23, 2016 (the “King Acquisition”);

our revenues from digital online channels (2) increased 94% to $4.9 billion;

our revenues from in-game content increased 126% to $3.6 billion;

Blizzard achieved all-time high segment revenues of $2.4 billion and generated an all-time high $1 billion in segment operating income;

Activision achieved all-time high segment operating margin of 35%;

King contributed more than the originally planned 30% earnings per share accretion;

we generated cash flows from operating activities of approximately $2.2 billion, an increase of 71%;

our consolidated operating income increased 7% to $1.4 billion;



(1)

For information on the calculation and reconciliation of GAAP measures to non-GAAP measures, please see Appendix A attached to this proxy statement.

(2)

Net revenues from digital online channels represents revenues from digitally-distributed subscriptions, licensing royalties, value-added services, downloadable content, micro-transactions and products.

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 32


Back to Contents

our non-GAAP consolidated operating income increased 63% to $2.3 billion;

our consolidated net income increased 8% to $966 million;

our non-GAAP consolidated net income increased 70% to $1.7 billion;

our earnings per diluted share increased 8% to $1.28; and

our non-GAAP earnings per diluted share increased 68% to $2.18.

2016 Operational Highlights

Our financial performance was driven by our strong operational execution. During 2016 (1) :

Consumers spent approximately 43 billion hours playing and watching our content, and we had 447 million MAUs (2) in the fourth quarter of the year;

Overwatch became Blizzard’s fastest game ever to reach over 25 million players globally and received 55 “Game of the Year” awards;

Blizzard’s World of Warcraft MAUs grew 20% year-over-year in the fourth quarter following the successful launch of the expansion, Legion , in August 2016;

Blizzard’s Hearthstone had its highest annual MAUs, growing more than 20%, in part due to the fourth quarter expansion, Mean Streets of Gadgetzan ;

Activision’s Call of Duty was the number one console franchise globally, and was the #1 franchise in North America for the eighth year in a row;

King had two of the top 10 highest-grossing titles in the U.S. mobile app stores for the thirteenth quarter in a row;

Activision Blizzard Studios, in partnership with Netflix, debuted Skylanders Academy , a new TV series based on the Skylanders franchise; and

Our esports network, Major League Gaming, extended its viewer reach on social platforms like Facebook and Instagram by 50% year-over-year.

This performance was a direct result of the focused and disciplined approach followed by our top leadership prior to and during 2016, including continued investment in our established franchises, like Call of Duty and World of Warcraft, selectively introducing new franchises, like Destiny, Hearthstone and Overwatch, and managing our costs prudently. At the same time, the Company has made selective and prudent investments in esports, advertising, film and television and consumer products to accelerate the Company’s global growth strategy and leverage its iconic content, franchises and characters across new and existing opportunities.

Measurement of Compensation-Related Performance Metrics Continues to Be Based on Non-GAAP (as Previously Defined) Financial Measures

Consistent with past practices, the compensation-related performance objectives established by the Compensation Committee at the beginning of 2016 were based on non-GAAP (as previously defined) financial measures. Internally, our management uses these non-GAAP (as previously defined) financial measures in assessing our operating results, as well as in planning and forecasting. In particular, our management believes these measures facilitate comparison of operating performance between periods and allow for a better understanding of our operating results by excluding certain items that may not be indicative of our core business, operating results or future outlook. During 2016, in accordance with the updated Compliance and Disclosure Interpretations issued by the SEC staff in May 2016, the Company began reporting our non-GAAP financial results in a redefined manner (referred to herein, as “non-GAAP”). The only difference between the two measures is the inclusion (in non-GAAP) or exclusion (in non-GAAP (as previously defined)) of the impact from revenue deferrals accounting treatment on certain of our online-enabled products. Since the compensation-related performance objectives for 2016 were established based upon non-GAAP (as previously defined) financial measures, in assessing and describing performance against the established 2016 compensation-related measures we utilize non-GAAP (as previously defined) financial measures. Further, as our management and our Compensation Committee continue to believe that non-GAAP (as previously defined) financial measures are the best way to internally assess our operating performance, the Company currently expects to continue utilizing non-GAAP (as previously defined) financial measures for purposes of compensation-related performance objectives in the future.



(1)

According to The NPD Group, GfK Chart-Track, App Annie Intelligence and Activision Blizzard internal estimates, as the case may be.

(2)

We monitor MAUs as a key measure of the overall size of our user base and their regular engagement with our portfolio of games. MAUs are the number of individuals who played a particular game in a given month. We calculate average MAUs in a period by adding the total number of MAUs in each of the months in a given period and dividing that total by the number of months in the period. An individual who plays two of our games would be counted as two users. In addition, due to technical limitations, for Activision and King, an individual who plays the same game on two platforms or devices in the relevant period would be counted as two users. For Blizzard, an individual who plays the same game on two platforms or devices in the relevant period would generally be counted as a single user.

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 33


Back to Contents

Relative Total Shareholder Return

The following graph compares the cumulative total shareholder return on our Common Stock, the NASDAQ Composite Index, the S&P 500 Index, and the RDG Technology Composite Index. The graph assumes that $100 was invested on December 31, 2011 and that dividends were reinvested daily. The stock price performance on the following graph is not necessarily indicative of future stock price performance.

 

This performance graph shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of Activision Blizzard, Inc. under the Exchange Act or the Securities Act of 1933.

Aligning Pay with Performance

Our executive compensation program is designed with the intent of aligning the interests of our executive officers with those of our stockholders by providing a significant portion of compensation in the form of performance-based bonuses and equity awards.

A portion of the potential annual cash compensation of each of our executive officers is the payment he may receive under the CAIP (other than Mr. Zacconi, who participates in the King Profit Sharing Plan). That compensation, in turn, is contingent upon the executive officer achieving the financial and specific, measurable and non-subjective individual strategic objectives set for him at the beginning of the relevant year. The following tables illustrate the relationship between the Company’s 2016 performance, as measured by three of our key financial metrics used for this purpose, and the 2016 CAIP payments awarded to our participating executive officers, as compared to the range of potential payments:

 

(1)

Maximum payout potential as a percentage of target as shown above represents the maximum bonus a participating named executive officer was eligible to receive under the CAIP with regard to the relevant metric. For further detail on the 2016 bonus opportunities under the CAIP for our participating named executive officers, please see “—Elements of Our Executive Compensation Program for 2016—Corporate Annual Incentive Plan and Other Performance-Based Bonuses” below. Targets are based on non-GAAP (as previously defined) metrics.

(2)

The actual payout as a percentage of target shown above for each participating named executive officer represents the bonus amount specifically related to performance measured against his 2016 CAIP opportunity.

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 34


Back to Contents

For 2016, we exceeded our earnings per share objective by 24%, exceeded our free cash flow objective by 39%, and exceeded our operating income objective by 14%. However, payments under the CAIP for 2016 to our participating named executive officers were between 118% and 127% of target, reflecting the difficulty of the specific, measurable and non-subjective individual strategic objectives underlying their bonus opportunities. Please see “—Elements of Our Executive Compensation Program for 2016—Corporate Annual Incentive Plan and Other Performance-Based Bonuses—2016 Incentive Opportunities under the CAIP” below for more information.

Further, a portion of the potential annual compensation of each of the chief executive officers of two of our principal operating units—Blizzard and King—is the payment he may receive under that business unit’s profit sharing plan. That compensation, in turn, is contingent upon his business unit’s performance. Subject to his right to a specified minimum percentage of any profit sharing pool, any profit sharing payment either of these officers receives also depends on the Compensation Committee’s assessment of his contributions to that business unit’s performance. For 2016, both Mr. Morhaime and Mr. Zacconi received a profit sharing payment. Please see “—Elements of Our Executive Compensation Program for 2016—Corporate Annual Incentive Plan and Other Performance-Based Bonuses—Profit Sharing Plans” below for more information.

Additionally, our equity incentive program consists of restricted share units, primarily with performance-based vesting criteria, and stock options. Our chief executive officer, Mr. Kotick, who was the only named executive officer whose employment agreement was entered into or amended in 2016, received performance-based vesting restricted share units and did not receive any time-based vesting awards in connection with the extension of his employment. Please see “—Elements of Our Executive Compensation Program for 2016—Equity Awards” below for more information.

Chief Executive Officer’s New Employment Agreement

Given the Company’s strong business and financial performance highlighted above, as well as Mr. Kotick’s continued exceptional leadership of the Company for over 25 years, on November 22, 2016, we took the opportunity to extend Mr. Kotick’s employment as our Chief Executive Officer through December 31, 2021.

Under the successful leadership of Mr. Kotick, Activision Blizzard has reported consistent, strong financial results and grown into the world’s most successful standalone interactive entertainment company. Since 1991, under Mr. Kotick’s leadership we have delivered a total shareholder return of over 3,300%, as compared to the S&P 500 return of less than 1,000%. Mr. Kotick has successfully navigated the shifting dynamics in the media, entertainment and technology industries with a series of strategic and operating actions that were instrumental in the Company harnessing opportunities in emerging sub-sectors, and capturing additional growth from our intellectual property. As one of the longest serving chief executives in the technology industry, Mr. Kotick’s collective leadership experience and operational expertise continue to provide uniquely valuable perspectives and insights to the Company.

Over the past five years, under Mr. Kotick’s leadership, the Company successfully acquired King Digital Entertainment and Major League Gaming, which have strategically expanded the Company’s position in the mobile gaming and esports categories, respectively. During that time, the Company also launched a film and television studio and a consumer products division, each designed to accelerate the Company’s global growth strategy by leveraging its iconic content, franchises and characters across new and existing opportunities in the entertainment industry. Mr. Kotick has overseen seven distinct billion-dollar franchises, as well as the launch of three new franchises—Hearthstone, Destiny and Overwatch—in the past three years alone. Mr. Kotick has also fostered a unique culture of innovation, creativity and passion at Activision Blizzard, which has resulted in the Company being recognized, for the past three years, as one of Fortune’s “100 Best Companies to Work For®”.

The terms of Mr. Kotick’s new employment agreement are designed to align Mr. Kotick’s interests with those of our stockholders and reflect feedback we received from our stockholders with respect to our compensation practices.

In connection with Mr. Kotick’s new employment agreement, among other things, we:

decreased his base salary by 26% as of January 1, 2017;

eliminated his entitlement to any guaranteed base salary increases;

decreased the target value of his annual bonus opportunity for 2017 by 26% from his 2016 target opportunity;

moved away from “upfront” equity awards to an annual grant cadence without any guarantee with respect to the form, amount or terms of future equity awards;

eliminated all “single-trigger” change-of-control protection;

eliminated the gross-up provision in respect of any excise taxes imposed under Section 280G of the Internal Revenue Code in connection with certain change-of-control payments;

utilized operating income as the metric underlying both his 2016 grant of performance-based restricted share units and the 2021 long-term incentive;

the Compensation Committee believes that operating income is a strong indicator of the Company’s performance, as it measures our profitability while accounting for the revenue fluctuations from the year-over-year variance in the number of game titles we release;

the 2016 award is based upon non-GAAP (as previously defined) operating income targets for three independent one-year periods (as well as on achieving an earnings per share objective);

the 2021 long-term incentive is contingent upon cumulative non-GAAP (as previously defined) operating income over the five-year period from 2017 to 2021 and, if at least 90% of the cumulative target for the period is not acheived, the award will be canceled (unless his employment is terminated in certain circumstances following a change of control);

utilized total shareholder return (“TSR”) as the performance metric underlying the 2020 long-term incentive award;

targeting 36% total shareholder return over the four-year period from 2017 to 2020; and

should our cumulative TSR fall below a certain threshold, the award will also be measured relative to the S&P 500, so that, if there is downturn in the overall market, this award will still incentivize Mr. Kotick’s performance.

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 35


Back to Contents

Further, more than 90% of the value underlying the compensation decisions made to date under Mr. Kotick’s new employment agreement have been directly tied to performance objectives.

For further details about Mr. Kotick’s new employment agreement, please see “—Employment Agreements—Robert A. Kotick” below.

Our Compensation Program Best Practices

We continue to implement and maintain best practices in our executive compensation programs and policies. These practices include:

Performance-Based Vesting of Equity Awards —We generally include performance-based vesting conditions for a significant portion of the equity awards made to our senior officers;

Multi-Year Vesting of Equity Awards —We make equity awards to our executive officers that vest over multiple years, which encourages a focus on long-term stockholder value creation;

No Guaranteed Incentive Bonuses —The Compensation Committee exercises discretion in determining final award payments under the CAIP, and no bonuses are paid under that plan if a minimum financial objective is not achieved, while our profit sharing plans, by definition, may only result in a bonus payment if the underlying business unit is profitable;

Stock Ownership Guidelines —We have meaningful stock ownership guidelines for our executive officers and directors;

Limited Perquisites and Retirement Benefits —We provide limited perquisites to our named executive officers and the only retirement plans they participate in are our 401(k)/qualified defined contribution plans;

Formal Risk-Management Programs —We maintain strong internal controls, governance and review structures, as well as formal risk-management programs;

No Hedging of Company Stock —We prohibit our employees from directly or indirectly “shorting” our securities, engaging in “put” or “call” or other “hedging” transactions involving our stock or establishing or using a margin account with a broker-dealer to trade our securities;

Clawback Policy on Variable Pay —In the event of an earnings restatement due to an executive’s misconduct, we may “claw back” certain performance-based compensation (including both annual and long-term incentive awards) paid to him;

Independent Consultant Reporting Directly to Compensation Committee —The Compensation Committee engages the services of an independent compensation consultant that has no other relationship with the Company or its management; and

Comparator Group Review —The Compensation Committee monitors our comparator group annually to ensure it continues to reflect an appropriate mix of the industry segments in which we compete, or plan to compete, for key talent.

Actions in Response to Our Recent Stockholder Advisory Votes on Executive Compensation

The Company regularly engages with key stockholders to solicit feedback and to ensure we remain aware of our stockholders’ perspectives with respect to our executive compensation and governance practices, as well as other matters. We seek to establish sustained, long-term and robust stockholder engagement on these topics to ensure our practices align with our stockholders’ interests. Despite this stockholder engagement, only 66% of the votes cast at the 2016 annual meeting of our stockholders were voted in favor of our advisory “say-on-pay” proposal.

During 2016, members of our management conducted an extensive stockholder outreach effort. In doing so, we reached out to stockholders who collectively held approximately 62% of the issued and outstanding shares of our Common Stock, and spoke with each such holder who agreed to speak with us. This effort supplemented the ongoing communications we have with our stockholders regarding our financial performance, and expanded upon the outreach to stockholders that we have conducted in connection with our annual meetings for the last several years. A summary of recurring themes, which was presented to the Compensation Committee, is summarized below, along with specific actions the Compensation Committee has taken in response to the stockholder feedback received.

 

What We Heard

What We Did

Stockholders wanted to see demonstrable action following the previous year’s say-on-pay advisory vote results

 

We decreased our Chief Executive Officer’s base salary by 26%.

We decreased our Chief Executive Officer’s target cash opportunity by 26%.

We more directly aligned our Chief Executive Officer’s compensation with performance by tying more than 90% of the value underlying the compensation decisions made to date under his new agreement to performance objectives.

We eliminated our Chief Executive Officer’s entitlement to any guaranteed minimum base salary increases (further, as of May 1, 2017, none of our named executive officers will have this provision).

We moved away from one-time “up-front” equity awards for our Chief Executive Officer, in favor of an annual grant cadence without any guarantee with respect to the form, amount or terms of future equity awards.

We increased the minimum value of Company stock that our Chief Executive Officer is required to hold to a multiple of ten times (i.e., 10x) base salary.

Further, we did not award any time-based vesting restricted share units to any named executive officer during 2016 (with the exception of Mr. Morhaime, who received an award pursuant to his employment agreement, which expired on December 31, 2016).

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 36


Back to Contents

What We Heard

What We Did

Stockholders expressed concerns about a specific target relative to our comparator group for components of compensation (i.e., 75th percentile, 50th–75th percentiles)

 

Our Compensation Committee revised our approach to establishing executive pay levels, to utilize a more holistic consideration of a number of factors and reference points when determining target compensation (rather than targeting a specific percentile or percentile range when benchmarking targeted compensation levels against our comparator companies).

The factors the Compensation Committee will consider when establishing our executive compensation include labor market conditions, individual considerations, Company performance, internal pay equity and stockholder feedback.

Compensation data from our comparator group and published surveys helps our Compensation Committee understand the sectors in and with which we compete for talent, providing it with an important frame of reference.

Stockholders expressed concerns about the “single trigger” change-of-control provision in our Chief Executive Officer’s employment agreement

 

We eliminated the single trigger change-of-control provision from our Chief Executive Officer’s employment agreement.

As a result, none of our named executive officers have a single trigger change-of-control provision.

Stockholders expressed concerns about excise tax gross-up provisions in our Chief Executive Officer’s employment agreement

 

We eliminated the excise tax gross-up provision from our Chief Executive Officer’s employment agreement.

As a result, none of our named executive officers have an excise tax gross-up provision.

Stockholders wanted to see the use of multi-year and more varied financial performance objectives underlying our executive compensation

 

Our Compensation Committee continues to believe that measuring performance against our AOP targets is an appropriate assessment of financial performance.

Our Compensation Committee believes that operating income is a strong indicator of the Company’s performance, as it measures our profitability while accounting for the revenue fluctuations from the year-over-year variance in the number of game titles we release.

The incentive awards that has been made, or may be made, to our Chief Executive Officer under his new employment agreement include performance objectives based on multiple financial metrics (e.g., earnings per share, operating income and TSR).

Our Chief Executive Officer’s 2020 long-term incentive includes a TSR component (a) targeting 36% shareholder return over the next four years and (b) in comparison to relative shareholder return among the S&P 500, in the case of a market downturn.

Our Chief Executive Officer’s 2021 long-term incentive will measure performance over a cumulative five-year period (from 2017 to 2021).

Our Compensation Committee takes the feedback received from stockholders seriously and will continue to incorporate such feedback into its decision-making process. We believe that the actions we have taken and continued dialogue with our stockholders advance our compensation practices in a manner that is both responsive to the input we receive and appropriate for the Company.

Highly Competitive Business Environment and Associated Talent Requirements

We operate in the interactive entertainment industry, which sits at the convergence of the gaming, entertainment and leisure, and technology sectors. Our industry is intensely competitive and constantly evolving. It features a number of unique characteristics, including:

a dependence on a relatively small number of titles for a disproportionate level of revenues and profits;

rising costs of development, partially due to increasingly complex technological requirements;

an increasing importance on building and growing key franchises with sustained game quality and ongoing content releases; and

a global consumer base that expects entertainment content delivered through an increasingly varied range of channels.

We believe that, in order to succeed in this fast-changing business environment, we require executive talent with very specialized qualifications, including the following:

significant global experience managing complex brands and franchises;

in-depth knowledge of sophisticated strategies and operational models in the digital and entertainment segments; and

aptitude for, and experience in, managing entertainment and technology products and talent in a rapidly changing, high-risk environment.

Finding top executives with these characteristics requires recruitment of executives from a variety of industries, including those that are larger and more mature (e.g., gaming, entertainment and leisure, and technology) and, therefore, the Compensation Committee takes into consideration a wide variety of factors, including compensation paid to executives at companies against which we compete, or may compete, for such talent.

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 37


Back to Contents

Compensation Philosophy and Objectives

The Compensation Committee regularly reviews and refines our executive compensation program to ensure it supports our business objectives, emphasizes pay-for-performance and is otherwise aligned with the long-term interests of our stockholders. The following are the current objectives underlying the compensation of our executive officers:

What We Do

We Align Compensation with Stockholder Interests —A substantial portion of an executive’s compensation opportunity is variable, stock-based, and links to performance metrics that are intended to increase stockholder value, so that executive compensation is aligned with the interests of stockholders. More than 90% of the value underlying the compensation decisions made to date under Mr. Kotick’s new employment agreement have been directly tied to performance objectives.

We Focus on Pay for Performance— Annual and long-term incentive awards are linked to the Company’s financial performance, incentivizing executives to drive corporate performance.

We Create Clearly Defined Short- and Long-Term Goals Aligned with Our Strategy— Performance goals, both short- and long-term, are clearly defined to provide clear alignment between our business strategy, financial results, and incentive payments.

We Balance Objectives Underlying Incentive Bonuses —The CAIP opportunities for our participating executive officers include both financial and specific, measurable and non-subjective individual strategic objectives.

We Offer Competitive Total Compensation —Compensation reflects the competitive talent market from which we recruit. Total direct compensation is designed to attract, retain and motivate the highest caliber talent, as well as to reward outstanding performance.

We Use Two-Tier Approval for Incentive Awards —We generally require at least two levels of approval for incentive awards (i.e., management and our Compensation Committee).

We Use an Independent Compensation Consultant —Our Compensation Committee receives advice and analysis regarding executive compensation from a consultant that is independent and performs no other work for the Company.

We Strive to Preserve the Tax Deductibility of Compensation —We generally strive to preserve the tax deductibility of the compensation paid to our executives.

What We Don’t Do

We Don’t Frequently Replace Our Management Team— Our Chief Executive Officer is one of the longest serving chief executive officers in the technology industry, and each of our named executive officers has been in his current role for at least five years.

We Don’t Put Our Executives Before Our Stockholders —Executive compensation that is variably linked to the performance of the Company helps to align the goals and interests of executive officers and stockholders.

We Don’t Incentivize Excessive Risk Taking —Performance goals linked to our executive compensation do not encourage or incentivize excessive risk taking or risk exposure.

We Don’t Use Arbitrary Performance Metrics —We do not use arbitrary or unreliable measurements of performance in assessing performance-based executive compensation.

We Don’t Make Biased Compensation Decisions —Reviewing our executive and director compensation plans with an independent consultant introduces an unbiased and professional perspective on executive compensation.

We Don’t Gross Up Section 280G Excise Taxes —None of our executives are entitled to gross ups in respect of any excise taxes imposed under Section 280G of the Internal Revenue Code on certain payments made in connection with a change of control.

We Don’t Reprice Stock Options —The Activision Blizzard, Inc. 2014 Incentive Plan (the “2014 Plan”) prohibits the repricing of “underwater” equity awards.

We Don’t Pay Dividends on Unearned Awards— We do not anticipate making time- or performance-based vesting awards with the right to dividend equivalents in the future.

We Don’t Generally Provide Change-of-Control Protection —Our Chief Executive Officer and the chief executive officer of our newly acquired business unit, King, are the only executive officers entitled to any change-of-control protection, and each would only receive it if terminated after a change of control.

We Don’t Guarantee Salary Increases —As of May 1, 2017, none of our named executive officers will be entitled to a guaranteed salary increase.

 

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 38


Back to Contents

Decision-Making Approach to Compensation for Executive Officers

 

Roles of the Key Participants in the Executive Compensation Decision-Making Process

Decisions regarding compensation for our executive officers are at the sole discretion of our Compensation Committee. To help inform these decisions, the Compensation Committee regularly reviews materials, advice and analysis provided by our management and external compensation consultants in deciding on executive compensation matters, as described in more detail below.

Compensation Committee

Establishes our executive compensation philosophy.

Reviews and approves all compensation of our executive officers.

Has oversight of the Company’s long-term strategy for employee compensation.

Reviews and approves the corporate goals and objectives relevant to our chief executive officer’s compensation, evaluates his performance in light of those goals and objectives and determines his compensation based on that evaluation.

Selects and monitors the Company’s comparator group.

Evaluates compensation-related information and recommendations provided by our management and outside advisors.

Annually reviews the compensation payable to our Board.

Administers our equity incentive plans, including:

approving equity award guidelines;

approving all equity awards; and

monitoring our equity usage and resulting potential dilution.

Reviews and approves executive officer employment and severance agreements.

Evaluates broad industry trends and practices.

Engages, retains and, where appropriate, terminates its independent compensation consultants.

For additional information regarding the Compensation Committee, see “Corporate Governance Matters—Board of Directors and Committees—Board Committees—Compensation Committee” above.

Compensation Committee’s Independent Compensation Consultant

Reports directly to the Compensation Committee and regularly attends Compensation Committee meetings.

Consults with the members of the Compensation Committee outside of formal committee meetings and without the participation of management, when requested by the committee.

At the Compensation Committee’s direction, interacts with our management from time to time in order to obtain information it deems necessary to form its recommendations to the committee.

Provides the Compensation Committee advice on the appropriateness and market competitiveness of our executive and director compensation programs.

Presents third-party data and provides advice and expertise on director and executive compensation trends, pay programs and pay levels and other emerging “best practices” relating to such compensation.

Analyzes materials provided by our management to the Compensation Committee to ensure that those materials are consistent with the Company’s stated philosophy with respect to director and executive compensation and reasonable vis-à-vis the Company’s comparator group.

Assists the Compensation Committee with its determination as to who should be included in the Company’s comparator group, and reviews current comparator group members.

Since October 2013, the Compensation Committee has retained Exequity as its independent compensation consultant.

Executive Officers and Management

Our management assists the Compensation Committee in formulating the Company’s compensation programs and plans, including by, among other things:

supporting the development of the materials for each Compensation Committee meeting;

regularly advising the Compensation Committee with respect to our business strategies and operational goals and plans;

regularly making recommendations to the Compensation Committee on the Company’s compensation practices, including with respect to effective types of incentive rewards and the individual performance of our executives; and

monitoring the Company’s comparator group and trends in the market.

Our chief executive officer reviews the performance of the Company’s executive officers and provides his recommendations to the Compensation Committee with respect to our officers’ compensation.

No member of our management has a direct role in determining his or her own compensation. Further, decisions pertaining to the compensation of our chief executive officer are reviewed and discussed by the Compensation Committee in executive session, without the presence of the chief executive officer or any other member of our management.

During 2016, the Compensation Committee consulted with our named executive officers, as well as our former Chief Strategy and Talent Officer, Humam Sakhnini, our Chief People Officer, Brian Stolz, our Chief Legal Officer, Christopher Walther, and our Chief Compliance Officer and Corporate Secretary, Jeffrey Brown.

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 39


Back to Contents

Factors Influencing Compensation Decisions

During 2016, our approach to establishing executive pay levels was revised to align with the Compensation Committee’s evolving view that pay levels should be determined using a holistic approach, involving an evaluation of a wide variety of factors, rather than targeting a specific percentile of the compensation paid to the executives at companies against which we compete, or may compete, for key talent. These factors include, but are not limited to:

Labor Market Conditions —An assessment of the competitive market to provide compensation packages that allow us to recruit, retain and motivate key executive talent that has contributed to our recent and long-term success, which may include a review of current executive compensation trends and best practices, as well as compensation data from our comparator group and/or published surveys.

Individual Considerations —An evaluation of the executive’s individual skill set and experience, his or her historical performance and expected future contributions to the Company and the potential impact of an executive’s departure if he or she were to leave the Company.

Company Performance —A review of our recent and historical financial and operating performance, as well as future strategic initiatives, and the executive’s role in helping drive that performance.

Internal Pay Equity —A review to determine if compensation levels are internally fair and equitable relative to his or her role, responsibilities and working and/or reporting relationships.

Stockholder Feedback —The feedback the Compensation Committee has received from stockholders with respect to our executive compensation practices.

The Compensation Committee does not use a predefined framework to weigh the importance of each of these factors and the emphasis placed on specific factors may vary from executive to executive. Ultimately, the terms on which any given executive officer is employed reflect the Compensation Committee’s independent judgment as to the amount and form of compensation necessary to recruit, retain and motivate that individual.

Comparator Company Data and Compensation Surveys Referenced

The Compensation Committee has selected 19 comparators against which it benchmarks our executive compensation:

Adobe Systems Inc.

Netflix, Inc.

CA Technologies

Priceline Group Inc.

CBS Corporation

Salesforce.com, Inc.

Citrix Systems Inc.

Symantec Corporation

Discovery Communications, Inc.

Take-Two Interactive Software Inc.

eBay Inc.

Time Warner Inc.

Electronic Arts Inc.

Viacom, Inc.

Hasbro Inc.

Yahoo! Inc.

Intuit Inc.

Zynga, Inc.

LinkedIn Corp.

 

The Compensation Committee, in evaluating our executive compensation program, utilizes compensation data obtained from SEC filings made by companies among our comparators, including compensation elements of the named executive officers of those companies, company-wide equity usage rates and potential dilution from equity plans.

In selecting this comparator group, in addition to including companies with which we directly compete in the interactive entertainment industry, the Compensation Committee considered companies with similar products and services and companies with whom we have historically directly competed for talent, with a focus on companies with comparable annual revenues and comparable geographic footprints. Our 2016 revenues of $6.6 billion approximate the 60th percentile among these comparator companies, by reference to the most recently available annual data for each.

Our management and Compensation Committee regularly monitor our comparator group, as the nature and scope of our business and potential talent pool evolve, to ensure the companies to which we reference continue to reflect an appropriate mix of the industry segments in which we compete, or may compete, for key talent. As such, during May 2016, the Compensation Committee, with the assistance of its independent consultant, updated our comparator group by removing Clorox and Mattel and adding Citrix Systems, LinkedIn, Priceline and Time Warner.

In reviewing the compensation of our executive officers, the Compensation Committee, with the support of its independent compensation consultant and our management, also annually consults third-party surveys prepared by compensation specialists with respect to companies with comparable revenues, market capitalization, industry focus, number of employees and other similar business-related factors in order to discern broader compensation trends in the market. During 2016, the surveys referenced included ones published by Radford.

This compensation data from our comparator group and published surveys helps the Compensation Committee understand the sectors in and with which we compete for talent, providing it with an important frame of reference. The Compensation Committee, as it deems appropriate, considers the compensation practices of any other companies with which we compete for executive talent. Furthermore, the Compensation Committee evaluates broader industry trends and practices to determine the appropriate elements of compensation and the effective design of each of its element.

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 40


Back to Contents

Elements of Our Executive Compensation Program for 2016

 

An overview of the primary elements of our executive compensation program and their purposes is presented below. Not all of these elements are applicable to all named executive officers. Our compensation philosophy has allowed us to recruit, retain and motivate the best talent in our industry, as evidenced by our performance. We aim to incentivize our executives to drive corporate financial performance by basing a significant portion of their compensation on achieving financial and individual strategic targets.

 

Compensation Element*

Purpose

Principal Actions for 2016

Salary

Compensate for day-to-day responsibilities.

NEO salaries increased 4.0% to 5.0% as a result of the annual review process.

Annual bonus—Corporate Annual Incentive Plan

Drive annual overall and/or business unit financial results, as well as individual contributions toward strategic and operational initiatives.

Financial metrics for participating NEOs (i.e., all but Mr. Zacconi) included profitability and free cash flow measures. NEOs received CAIP-related payouts ranging between 118% and 127% of target, as a result of performance vis-a-vis the underlying financial and specific, measurable and non-subjective individual strategic objectives.

Annual bonus—profit sharing plans (i.e., the Morhaime Profit Sharing Plan and the King Profit Sharing Plan)

Drive business unit financial results, which, in turn, will drive our overall financial results.

Mr. Morhaime received a payment based on Blizzard’s operating profit*. Similarly, Mr. Zacconi received a payment based on King’s operating profit.

Equity awards (i.e., restricted share units, primarily with performance-based vesting criteria, and stock options)

Create alignment with stockholders, drive long-term stockholder value and promote employee retention.

Mr. Kotick received an award in connection with the extension of his employment. Mr. Morhaime received, pursuant to his previous employment agreement, an award as part of our annual equity award process. Mr. Zacconi’s awards with respect to King ordinary shares were converted into Activision Blizzard awards on the date of the closing of the King Acquisition.

Limited change-of-control and termination payments/benefits

Ensure balanced assessment of, and contribution to, merger and acquisition activity and fair treatment in the event of termination.

No change-of-control or termination payments were triggered for any NEOs.

No NEOs or other employees have “single-trigger” change-of-control protection. Only Messrs. Kotick and Zacconi have “double-trigger” change-of-control protection.

401(k)/qualified defined contribution plans

Provide modest supplemental retirement benefits to provide compensation and benefits that, in the aggregate, are competitive.

 

NEOs, other than Mr. Zacconi, participated in the 401(k) plan we offer to all our U.S.-based employees. Mr. Zacconi participated in a qualified defined contribution retirement plan King offers to all its U.K.-based employees subject to an employment agreement.

Health and welfare benefits; perquisites

Provide modest supplemental benefits to provide compensation and benefits that, in the aggregate, are competitive.

NEOs participated in generally the same benefit programs we make available to all of our employees and received limited perquisites.

*

In addition to the compensation elements described above, Mr. Morhaime also participates in the Blizzard Holiday Plan, a broad-based program for employees of Blizzard. He received a payment thereunder in 2016.

 

 

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 41


Back to Contents

Salary

In establishing the annual base salary rates for an executive officer, the Compensation Committee considers his role, his performance, salaries paid to the executive’s peers within the Company, and the total target compensation paid to executives in comparable positions by reference to data from our comparator group and published surveys. For information about our comparator group, see “—Decision-Making Approach to Compensation for Executive Officers—Comparator Company Data and Compensation Surveys Referenced” above.

Certain of our named executive officers had contractual entitlements to salary increases during 2016 (see “—Employment Agreements” below). However, following the expiration of Mr. Tippl’s employment agreement on April 30, 2017, none of our named executive officers will have any such entitlement.

Aside from any contractually guaranteed minimum requirements, salary increases are generally only provided to an executive officer:

upon his or her hire or entry into a new or revised employment agreement with the Company or one of its subsidiaries; or

in connection with our annual review of executive base salaries.

 

The table below reflects the salaries approved for 2016 and 2017 during our annual review, along with any other adjustments during 2016 and any increases to which the executives were entitled under their contracts:

Name

Salary as of

12/31/2015

Change per

2016 Annual

Review (1)

 

 

Salary as Adjusted

During 2016

Annual Review (1)

 

Change per

2017 Annual

Review (1)

 

 

Salary Approved

for 2017 (1)

 

Robert A. Kotick

$

2,275,728

+4.0%

 

$

2,366,757

(2)

(26.0)

% (2)

$

1,750,000

(2)

Dennis Durkin

$

752,456

+5.0%

 

$

790,079

 

+5.0

%

$

829,583

 

Thomas Tippl

$

1,300,000

+5.0%

 

$

1,365,000

 

+5.0

%

$

1,433,250

 

Michael Morhaime

$

922,603

+4.0%

 

$

959,507

 

+4.0

%

$

997,887

 

Riccardo Zacconi

$

 

$

488,996

(3)

+2.5

%

$

501,221

(3)

(1)

Other than as discussed in footnotes (2) and (3) below, the increases to base salary for 2016 were effective on February 28, 2016, and the increases for 2017 were effective on February 26, 2017.

(2)

In accordance with his previous employment agreement, Mr. Kotick’s annual base salary was increased by 4% effective January 1, 2016, and, in accordance with his current employment agreement, was decreased by 26% effective January 1, 2017. For more information on Mr. Kotick’s employment agreement, see “—Employment Agreements—Robert A. Kotick” below.

(3)

Mr. Zacconi’s employment with us began on February 23, 2016. Mr. Zacconi is paid in British pounds. The base salaries in the table represent the £400,000 to which he was entitled as of February 23, 2016 and the £410,000 to which he was entitled as of February 22, 2017, in each case converted using an end of 2016 spot exchange rate of 1.22249 British pounds to the U.S. dollar.

Corporate Annual Incentive Plan and Other Performance-Based Bonuses

2016 Incentive Opportunities under the CAIP

Cash bonuses under our CAIP are designed to drive our financial results and to incentivize individual contributions toward strategic and operational initiatives.

These bonuses are designed to both achieve tax deductibility under Section 162(m) and allow the Compensation Committee flexibility in awarding pay that matches each executive’s actual performance. To achieve these goals, the awards were structured so that there was a single performance objective that, if met or exceeded, would result in the payment of a bonus to each executive of the maximum allowed under the 2014 Plan. Then the Compensation Committee, using its negative discretion, as permitted by the tax rules, is authorized to reduce the payment to him so that his actual pay matches his actual performance. That is, if our adjusted 2016 non-GAAP (as previously defined) operating income was at least 75% of the non-GAAP (as previously defined) operating income target the year as set forth in the annual operating plan approved by our Board (such plan for any given year, the “AOP”), the bonus to be paid to each executive would be initially set at the stockholder-approved limit of $10,000,000, less the amount of any other “senior executive plan bonus” within the meaning of the 2014 Plan that was paid or to be paid to that person for 2016 (e.g., the payment to Morhaime under the Morhaime Profit Sharing Plan). The Compensation Committee would then use its negative discretion to reduce or eliminate that bonus to match the actual performance of each executive.

When approving the 2016 CAIP opportunities, the Compensation Committee expressed the intent to reduce or eliminate the bonuses if our adjusted 2016 non-GAAP (as previously defined) operating income was not 85% or more of the adjusted non-GAAP (as previously defined) operating income target for the year set forth in the 2016 AOP. The Compensation Committee also expressed the intent to reduce the bonus for each executive officer to the amount for which he was eligible in accordance with the formula described below under “—Resulting 2016 Payments under the CAIP”.

In setting the minimum, target and maximum payout opportunities for each of our participating named executive officers under the CAIP for 2016, the Compensation Committee considered any requirements set forth in any applicable employment agreement, competitive market data, our desired pay mix and the compensation levels of our other senior executives. If a participating named executive officer satisfied (but did not exceed) all performance goals, the executive officer was eligible to receive a payment equal to his target payment, although the Compensation Committee retained the discretion to reduce this amount. Based upon the established performance goals, payments under the CAIP for 2016 to our participating named executive officers could have ranged as follows:

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 42


Back to Contents

NAME

2016 CAIP

(% of 2016 Salary) (1)

Minimum

 

Target

 

Robert A. Kotick

0

%

200

%

Dennis Durkin

0

%

100

%

Thomas Tippl

0

%

150

%

Michael Morhaime

0

%

27

% (2)

(1)

The 2014 Plan caps maximum payments of “senior executive plan bonuses” to each individual executive at $10,000,000 per year. Actual payments under the CAIP are in the Compensation Committee’s discretion and vary for each executive based on his actual base salary, his target opportunity, his financial and individual strategic objectives, including the relative weighting with respect to each, and his and the Company’s performance measured against those objectives.

(2)

Mr. Morhaime’s target CAIP opportunity for 2016 was 27% of his salary. In addition to being eligible for a CAIP bonus, Mr. Morhaime also participates in the Blizzard Holiday Plan and the Morhaime Profit Sharing Plan, both of which are discussed in more detail below (see respectively “—Other Cash Programs or Awards for 2016” and “Corporate Annual Incentive Plan and Other Performance-Based Bonuses—Profit Sharing Plans”).

Mr. Zacconi does not participate in the CAIP. He participates in the King Profit Sharing Plan, which is discussed in more detail below (see “—Corporate Annual Incentive Plan and Other Performance-Based Bonuses—Profit Sharing Plans”).

Determination of 2016 Performance Goals for the CAIP

Our Compensation Committee established the financial and individual strategic objectives based on the 2016 AOP.

Financial Objectives. For our participating named executive officers, 60% of their target opportunity under the CAIP for 2016 was weighted on measures of profitability and free cash flow. The Compensation Committee believes that the measures used are robust indicators of our overall performance, capturing fluctuations in sales as well as operating costs, and, as such, provide incentives to our executives to achieve goals that contribute to increasing stockholder value. Other measures the committee considered but excluded when initially designing the CAIP included revenues, excluded because it does not capture operating costs, and TSR, excluded because awards under our equity incentive plans already incentivize stock appreciation.

Individual Strategic Objectives. Forty percent of the target opportunity for each participating named executive officer under the CAIP for 2016 was based on four specific, measurable and non-subjective individual strategic objectives that supported our overall strategy and the officer’s business objectives for the year. These objectives, established in March 2016, each specified at least three actions or events to be achieved during the year (e.g., the 2016 Call of Duty title launch must sell a specific number of units on or before December 31, 2016 or a product in development must achieve certain development milestones). They are tailored to align with individual roles and responsibilities for each executive with four discrete payout opportunities based on the achievement of the actions or events—0%, 100%, 110% and 120%.

The Compensation Committee believes that the specific goals chosen required significant profitability, demanded superior performance from our management team and drove accountability for Activision Blizzard and/or applicable business units for each participating executive.

In addition, and as noted above, the Compensation Committee expressed the intent to reduce or eliminate all bonuses under the CAIP if our adjusted 2016 non-GAAP (as previously defined) operating income was not 85% or more of the adjusted non-GAAP (as previously defined) operating income target for the year set forth in the 2016 AOP.

Our Compensation Committee also established limits on the payments made under the CAIP for “overachievement”. Payments in respect of the specific, measurable and non-subjective individual strategic objectives are capped at 120% of the underlying target amount. The following tables illustrate the relationship between the achievement of the financial measures and the resulting payouts to our participating executive officers:

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 43


Back to Contents

 

*

As discussed under “General—Financial Metrics Used in this Proxy Statement” above, free cash flow, operating income and earnings per share targets and measurement of actual performance are based on adjusted non-GAAP (as previously defined) financial measures.

 

Achievement of Metrics Underlying 2016 Financial Goals for the CAIP

The 2016 financial performance goals that the Compensation Committee approved for use in connection with the CAIP and other performance-related compensation were based on our 2016 AOP. The number of titles we release fluctuates from year-to-year and, as such, the financial goals underlying our AOP for a year may be lower than the goals—or results—from a prior year. The achievement of the financial performance goals relevant to the bonuses of our participating named executive officers under the CAIP for 2016 is set forth below:

Non-GAAP (as Previously Defined) Financial

Performance Measures (1) (dollars in millions, except

share-based amounts)

Performance Goals and Actual Results

Threshold

Goal

 

AOP

Goal (2)

 

Maximum

Goal

 

Actual

Results

Actual

Achievement

 

Resulting

CAIP

Achievement

 

Activision Blizzard Adjusted Operating Income

$

1,721

$

2,025

$

4,050

$

2,307

114%

 

114%

 

Activision Blizzard Adjusted Diluted Earnings Per Share (3)

$

1.49

$

1.75

$

3.50

$

2.18

124%

 

124%

 

Activision Blizzard Adjusted Free Cash Flow (4)

$

1,125

$

1,500

$

2,250

$

2,088

139%

 

139%

 

Blizzard Adjusted Operating Income

$

488

$

650

$

1,300

$

996

153%

 

153%

 

(1)

The corporate performance measures used in the CAIP are non-GAAP (as previously defined) financial measures. For 2016, financial metrics assume constant foreign exchange rates, which means we convert current period results into U.S. dollars using the average exchange rate at the time we established the AOP (the “AOP foreign exchange rates”), rather than the actual exchange rates during the relevant period. For more information on non-GAAP (as previously defined) financial measures, see “General—Financial Metrics Used in this Proxy Statement” above.

(2)

For purposes of determining CAIP performance, financial goals may, in the discretion of the Compensation Committee, exclude the impact of any extraordinary transaction (i.e., non-recurring corporate transaction or legal expense matter that results in expenses exceeding $10,000,000 for the year). No such adjustments were made for 2016.

(3)

Activision Blizzard adjusted non-GAAP (as previously defined) diluted earnings per share is calculated by dividing non-GAAP (as previously defined) net income by weighted average diluted shares outstanding.

(4)

Activision Blizzard adjusted non-GAAP (as previously defined) free cash flow is an internal measure calculated by subtracting year-over-year cash changes related to working capital (excluding certain one-time items and timing of tax payments) and capital expenditures from the Company’s non-GAAP (as previously defined) net income (excluding the after-tax effect of interest and other income/expense as well as depreciation expense).

Resulting 2016 Payments under the CAIP

Since we exceeded the threshold level of 85% of the adjusted non-GAAP (as previously defined) operating income target for the year set forth in the 2016 AOP, each of our participating named executive officers was eligible to receive a bonus of $10,000,000 for 2016, subject to the Compensation Committee’s use of negative discretion to reduce or eliminate that bonus.

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 44


Back to Contents

To calculate the amount of the bonus that each participating named executive officer would receive, the following formula, applied using straight-line interpolation, was used:

 

The following table shows the weighting, expressed as a percentage, assigned to each of the performance measures underlying each named executive officer’s bonus opportunity under the CAIP for 2016 and the maximum and actual payout as a percentage of the target.

Name/Measure

Weight

 

Maximum

CAIP Achievement

(As % of Target)

 

Resulting CAIP

Performance

(As % of Target)

 

Robert A. Kotick

 

 

 

 

 

 

Activision Blizzard Adjusted Diluted Earnings Per Share

30

%

200

%

124

%

Activision Blizzard Adjusted Operating Income

15

 

200

 

114

 

Activision Blizzard Adjusted Free Cash Flow

15

 

150

 

139

 

Individual Strategic Objectives*

40

 

120

 

108

 

TOTAL

100

%

161

%

118

%

Dennis Durkin

 

 

 

 

 

 

Activision Blizzard Adjusted Diluted Earnings Per Share

30

%

200

%

124

%

Activision Blizzard Adjusted Operating Income

15

 

200

 

114

 

Activision Blizzard Adjusted Free Cash Flow

15

 

150

 

139

 

Individual Strategic Objectives*

40

 

120

 

113

 

TOTAL

100

%

161

%

120

%

Thomas Tippl

 

 

 

 

 

 

Activision Blizzard Adjusted Diluted Earnings Per Share

30

%

200

%

124

%

Activision Blizzard Adjusted Operating Income

15

 

200

 

114

 

Activision Blizzard Adjusted Free Cash Flow

15

 

150

 

139

 

Individual Strategic Objectives*

40

 

120

 

108

 

TOTAL

100

%

161

%

118

%

Michael Morhaime

 

 

 

 

 

 

Blizzard Adjusted Operating Income

50

%

200

%

153

%

Activision Blizzard Adjusted Free Cash Flow

10

 

150

 

139

 

Individual Strategic Objectives*

40

 

120

 

90

 

TOTAL

100

%

163

%

127

%

*

We believe that disclosing specific, measurable and non-subjective individual strategic objectives for the year could affect us adversely by, for example, providing confidential information on business operations and forward-looking strategic plans to our customers and competitors that could result in substantial competitive harm. Therefore, only a brief description and the aggregate weighting of those goals for each of our participating named executive officers for 2016 are shown. In each case, actual performance at the end of the year was assessed by our management, audited by our internal auditors and presented for review and approval to our Compensation Committee on a discrete “yes” or “no” basis.

All CAIP payments were based on actual eligible earnings and the achievement of specified financial metrics and specific, measurable and non-subjective individual strategic objectives and the weighting thereof. For 2016, the Compensation Committee did not apply incremental

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 45


Back to Contents

judgment or discretion in determining CAIP bonus payouts, and such awards directly reflected performance against the specified financial metrics and specific, measurable and non-subjective individual strategic objectives established at the beginning of the year.

Name

 

Target Payment

($ value)

Actual Payment*

(as % of target)

 

Actual Payment*

($ value)

Robert A. Kotick

$

4,727,210

118

%

$

5,590,414

Dennis Durkin

$

782,844

120

%

$

941,451

Thomas Tippl

$

2,028,750

118

%

$

2,399,207

Michael Morhaime

$

257,151

127

%

$

325,450

Profit Sharing Plans

Payments under our profit sharing plans are designed to drive the financial results of the relevant business unit (i.e., Blizzard or King).

In addition to the CAIP, discussed above, in accordance with his previous employment agreement, Mr. Morhaime earned a payment for 2016 under the Morhaime Profit Sharing Plan. The Morhaime Profit Sharing Plan is commensurate with the Blizzard Profit Sharing Plan, a broad-based program that predates the Vivendi Games Combination and provides employees of Blizzard with the opportunity to share in the profits generated by our Blizzard business unit. In order to maximize the deductibility of those payments as performance-based compensation under Section 162(m), rather than participating directly in the Blizzard Profit Sharing Plan, Mr. Morhaime’s opportunity to receive profit sharing payments is under the 2014 Plan (and is, therefore, known as the “Morhaime Profit Sharing Plan”). The Compensation Committee made the decision to retain a profit sharing component in Mr. Morhaime’s compensation following the Vivendi Games Combination due to Mr. Morhaime’s position, as well as our strategic focus on profitability, the prevalent market practice of profit sharing programs in the interactive entertainment industry, and our desire to incentivize and reward his contribution to Blizzard and Activision Blizzard profits. Under the Morhaime Profit Sharing Plan, Mr. Morhaime is entitled to 6% of the “profit sharing pool” established pursuant to the Blizzard Profit Sharing Plan. However, the Compensation Committee may exercise discretion with respect to his actual annual percentage interest in the pool, subject to a specified minimum percentage.

In accordance with his employment agreement, Mr. Zacconi earned a payment for 2016 under the King Profit Sharing Plan. The King Profit Sharing Plan is a broad-based program established in connection with the King Acquisition which provides employees of King with the opportunity to share in the profits generated by our King business unit. We established the King Profit Sharing Plan because of our strategic focus on profitability, the prevalent market practice of profit sharing programs in the interactive entertainment industry, and our desire to incentivize and reward his contribution to both King and Activision Blizzard profits. Under the King Profit Sharing Plan, Mr. Zacconi is entitled to 6% of the “profit sharing pool” established pursuant to the King Profit Sharing Plan. However, the Compensation Committee may exercise discretion with respect to his actual annual percentage interest in the pool, subject to a specified minimum percentage.

Other Cash Programs or Awards for 2016

Blizzard Holiday Plan

In addition to the CAIP and the Morhaime Profit Sharing Plan, discussed above, in accordance with his previous employment agreement, Mr. Morhaime received a payment for 2016 under the Blizzard Holiday Plan, a broad-based program for employees of Blizzard that, like the Blizzard Profit Sharing Plan, predates the Vivendi Games Combination. Under the Blizzard Holiday Plan, Mr. Morhaime is eligible to receive an end-of-year bonus, the target amount of which is 37% of his base salary, the actual amount of which is otherwise based on a subjective determination by the Compensation Committee.

No Discretionary Awards

None of our named executed officers received a discretionary bonus for 2016.

Equity Awards

Philosophy

Our equity incentive program is intended to drive long-term value creation, create alignment with stockholders’ interests and encourage retention of key executives. The program consists of restricted share units, primarily with performance-based vesting criteria, and stock options. In determining the estimated grant value of equity awards to an executive officer, the Compensation Committee considers a number of factors, including his role, his performance, his annualized total direct compensation, compensation paid to the executive’s peers within the Company, and compensation paid executives in comparable positions by reference to data from our comparator group and published surveys. We may also provide supplemental equity awards to our executive officers during the term of their employment agreement, if there are particular circumstances that warrant doing so, including outstanding performance.

We utilize a mix of equity awards:

restricted share unit awards, the vast majority of which have performance-based vesting criteria designed to incentivize our executives to achieve specific performance objectives that align with our multi-year business strategy; and

stock options, which may include performance-based vesting criteria, which directly align an executive’s interests to that of our stockholders, as any financial gain is conditioned upon appreciation of our Common Stock and, as such, directly links executive pay with Company performance.

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 46


Back to Contents

We believe a combination of restricted share units (primarily with performance-based vesting criteria) and stock options appropriately balances the various objectives of the equity incentive program because it promotes long-term value creation critical to driving TSR, directly aligns executive compensation with stockholder interests through share ownership and encourages our key executives to remain engaged with our organization through the vesting date of the awards.

Use of Performance-Based Equity Awards

As discussed above (see “—Overview—Compensation Philosophy and Objectives”), the Compensation Committee believes that, in general, equity awards made to an executive officer should include an award with performance-based vesting criteria. Consistent with that philosophy, certain restricted share unit awards made to Messrs. Kotick, Durkin and Tippl during or prior to 2016 have vesting that is contingent on the achievement of specified profitability-focused performance objectives. Further, Mr. Kotick, the only named executive officer whose employment agreement was entered into or amended in 2016, received performance-based vesting restricted share units and did not receive any time-based vesting awards in connection with the extension of his employment.

The Compensation Committee chooses performance objectives that it believes relate to measures of overall Company performance on which our executives have direct impact. For the performance awards to Mr. Kotick, vesting is based on our earnings per share and our operating income. For Mr. Durkin, vesting was based on our earnings per share. For Mr. Tippl, vesting was based on our earnings per share, our free cash flow and Blizzard’s operating income. Please see “—Employment Agreements” below for further details about each award.

2016 Vesting and Cancellation of Performance-Based Equity Awards

Based on Company performance during 2016, performance-based vesting equity awards to our named executive officers vested or were canceled as follows:

Mr. Durkin: 90,000 restricted share units vested based on our 2016 adjusted non-GAAP (as previously defined) diluted earnings per share;

Mr. Tippl : 307,660 restricted share units vested and 33,248 were canceled, as performance was above the target, but fell below the maximum, as follows:

128,404 vested and 26,554 were canceled based on our 2016 adjusted non-GAAP (as previously defined) diluted earnings per share;

86,281 restricted share units vested and 6,694 were canceled based on our 2016 adjusted non-GAAP (as previously defined) free cash flow; and

92,975 restricted share units vested based on Blizzard’s 2016 adjusted non-GAAP (as previously defined) operating income; and

Mr. Zacconi : 150,542 stock options vested based on King’s 2016 adjusted non-GAAP (as previously defined) operating income, and 150,542 stock options were canceled based on King’s 2016 earnings before interest, taxes, depreciation and amortization (“EBITDA”).

Determinations as to Achievement of Performance Metrics

All determinations as to the level of achievement of a performance metric underlying an equity award are made by our Compensation Committee.

Dividend Equivalents

Of the outstanding equity awards made to our named executive officers, only one is entitled to dividend equivalents—the performance-based restricted shares units awarded to Mr. Tippl in 2014, which only receive dividend equivalents if and to the extent the underlying performance conditions are met and the awards vest. We do not anticipate making time- or performance-based vesting awards with the right to dividend equivalents in the future.

Other Award Terms

Stock options have an exercise price equal to the NASDAQ Official Closing Price of our Common Stock as reported on NASADAQ.com on the effective date of the grant.

Equity awards will generally cease to vest upon the termination of the holder’s employment, and stock options will generally remain exercisable for a limited period of time after the termination date. For the impact of the termination of the employment of each named executive officer on his outstanding equity awards, please see “—Potential Payments upon Termination or Change of Control” below.

Incentive Plan Limitations on Equity Awards

Under the 2014 Plan, we cannot grant anyone, including our executive officers, options to purchase more than four million shares of our Common Stock in a single year. We are further currently restricted from granting anyone restricted share unit awards with respect to more than three million shares in a single year or from granting anyone more than six million performance shares in a single year.

Limited Change-of-Control Arrangements

Each of Messrs. Kotick and Zacconi has been provided with certain protection in the event he is terminated following a change of control. The Compensation Committee believes these arrangements will incentivize the relevant individuals to maintain objectivity in the context of, and contribute to, a potential change-of-control transaction. These benefits for each of our named executive officers are described under “—Potential Payments upon Termination or Change of Control” below. Besides Messrs. Kotick and Zacconi, none of our employees have been provided with any change-of-control protection.

Limited Retirement Benefits

We offer a 401(k) plan to all employees in the United States, including our eligible named executive officers, and we match a certain percentage of each employee’s contributions to our 401(k) plan (which, for Mr. Morhaime is, consistent with the benefits to which he was entitled prior to the Vivendi Games Combination, a higher percentage than our other participating named executive officers). Similarly, Mr. Zacconi participates in a qualified defined contribution retirement plan offered to all UK-based King employees subject to an employment agreement, and we match a certain percentage of each employee’s contribution to that retirement

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 47


Back to Contents

plan. Please see the “Summary Compensation Table” below for further details.

We do not provide any other retirement benefits to our employees, including our named executive officers. We believe that retirement arrangements are particular to, and should remain the responsibility of, each individual officer. The emphasis on minimal retirement arrangements ensures that a substantial portion of our named executive officers’ long-term wealth accumulation depends on the achievement of Activision Blizzard profitability targets and the appreciation of our Common Stock.

Health and Welfare Benefits

Our named executive officers are eligible to participate in our medical, vision and dental insurance programs. With the exception of Mr. Morhaime, our named executive officers are offered the same terms as the broad employee population. Pursuant to his previous employment agreement, Mr. Morhaime was entitled to health and welfare benefits that were, in the aggregate, on terms and conditions no less favorable than those made available to him prior to the Vivendi Games Combination. As such, we covered the full cost of Mr. Morhaime’s health/medical insurance.

Stock Ownership Guidelines

 

In order to align the interests of our management with those of our stockholders, we believe that each of our executive officers should maintain a meaningful ownership stake in the Company. Accordingly, in 2012, the Compensation Committee established stock ownership guidelines for our senior officers. After a competitive assessment conducted with the assistance of its independent consultant, the Compensation Committee adopted guidelines providing that our chief executive officer is expected to beneficially own shares of our Common Stock with a value at least equal to five times (i.e., 5x) his or her then-current annual base salary and that each other executive officer is expected to beneficially own shares of our Common Stock with a value at least equal to his or her then-current annual base salary. These guidelines were revised in April 2017, in response to feedback we received from our stockholders, to increase the value of shares we expect our chief executive officer to beneficially own to ten times (i.e., 10x) his or her then-current annual base salary.

Our executive officers are expected to accumulate the required stock within five years (so that anyone who has been an executive officer of the Company since the date on which these guidelines were adopted should be in compliance, and anyone who subsequently became an executive officer of the Company has five years from the date on which he or she became an executive officer to be in compliance). Further, if an executive officer does not satisfy these guidelines within the five-year period, then, until he or she satisfies the guidelines, he or she will be required to hold 50% of the net shares received upon exercise of stock options or upon the vesting of restricted share units awards received, provided such shares received are under equity awards made after the adoption of the ownership guidelines and that such awards are, per their terms, explicitly subject to the ownership guidelines.

As of April 1, 2017, all named executive officers who, as of that date, had been an executive officer of the Company for five or more years satisfied these guidelines.

Impact of Tax and Accounting Considerations

 

Section 162(m) of the Internal Revenue Code—Limits on Compensation Deductibility

In structuring compensation programs, setting individual compensation levels and awarding bonuses and incentive plan payments, the Compensation Committee considers the potential impact of Section 162(m). Section 162(m) generally prevents a publicly held corporation from taking a U.S. tax deduction when compensation paid to a covered employee (generally, the chief executive officer and any of the corporation’s three other highest paid officers other than the chief financial officer) exceeds $1.0 million in any taxable year unless:

the compensation is payable solely on account of the attainment of pre-established objective performance goals;

a committee of two or more outside directors determines the performance goals;

our stockholders approve the material terms of the performance goals (specifically, the eligible employees, the business criteria on which the goals will be based and the maximum amount which could be paid to any employee in respect thereof); and

the committee certifies that the employee has met the performance goals before payment.

The tax deductibility of compensation paid to other executives is not subject to these limitations.

We generally attempt to preserve the deductibility of elements of our performance-based incentives. However, we believe it is important that we retain the flexibility to structure compensation arrangements necessary to attract, retain and motivate the best executive talent, even though such elements may not be fully deductible under Section 162(m).

Payments under the CAIP and the Morhaime Profit Sharing Plan, each described above, are structured to be performance-based incentives within the meaning of the 2014 Plan and, therefore, deductible up to the $10 million limit on the payment of such awards to any one person for a single year under the 2014 Plan. For further detail on the CAIP structure, see “—Elements of Our Executive Compensation Program for 2016—Corporate Annual Incentive Plan and Other Performance-Based Bonuses—2016 Incentive Opportunities under the CAIP”, and for further detail on the Morhaime Profit Sharing Plan structure, see “—Elements of Our Executive Compensation Program for 2016—Corporate Annual Incentive Plan and Other Performance-Based Bonuses—Profit Sharing Plans” above.

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 48


Back to Contents

Section 162(m) prevents us from deducting the incremental amount by which the sum of Mr. Morhaime’s base salary and payment under the Blizzard Holiday Plan for 2016 exceeds $1.0 million. Section 162(m) also prevents us from deducting the amount by which, if any, the base salary for each other covered employee exceeds $1.0 million.

As our chief financial officer, the deduction of Mr. Durkin’s compensation is not subject to Section 162(m). Additionally, as Mr. Zacconi is employed by one of our non-U.S. affiliates and resides outside of the U.S., the deduction related to his compensation is claimed outside of the U.S. and is not, therefore, limited by Section 162(m).

Section 409A of the Internal Revenue Code—Limits on Deferral of Compensation

To the extent that any compensation paid or committed to any of our named executive officers constitutes a deferral of compensation within the meaning of Section 409A of the Internal Revenue Code, the Compensation Committee intends to cause that compensation to comply with the requirements of Section 409A and to avoid the imposition of penalty taxes and interest upon the person receiving the compensation.

Accounting Considerations

The Compensation Committee also takes accounting considerations, including the impact of Accounting Standards Codification (“ASC”) Topic 718, into account in structuring compensation programs and determining the form and amount of compensation awarded.

Compensation Committee Report

The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis included under “Executive Compensation—Compensation Discussion and Analysis” above. Based on that review and discussion, the Compensation Committee recommended to our Board that the Compensation Discussion and Analysis be included in this proxy statement and also be incorporated by reference into our Annual Report on Form 10-K for the period ended December 31, 2016.

Members of the Compensation Committee

Robert Morgado (Chairperson), Casey Wasserman and Elaine Wynn

 

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 49


Back to Contents

Summary Compensation Table

The table below presents information with respect to each of our named executive officers regarding compensation earned during the periods indicated.

Name and Principal Position

Year

Salary

($)

Bonus (1)

($)

Stock

Awards (2)

($)

 

Option

Awards (3)

($)

Non-Equity

Incentive Plan

Compensation (4)

($)

All Other

Compensation

($)

 

Total

($)

Robert A. Kotick

President and Chief Executive Officer

2016

2,375,858

24,932,065

 

5,590,414

167,223

(5)

33,065,560

2015

2,294,328

 

4,844,383

87,223

 

7,225,934

 

2014

2,196,616

 

4,595,173

87,023

 

6,878,812

Dennis Durkin

Chief Financial Officer

2016

787,185

 

941,451

17,955

(5)

1,746,591

2015

752,818

 

1,105,673

18,187

 

1,876,678

 

2014

713,737

 

597,248

17,855

 

1,328,840

Thomas Tippl

Chief Operating Officer

2016

1,360,000

7,163,582

(6)

 

2,399,207

34,069

(5)

10,956,858

2015

1,302,548

5,211,347

(6)

2,362,589

43,858

 

8,920,342

 

2014

1,254,807

2,000,000

10,400,018

(6)

1,970,862

33,969

 

15,659,656

Michael Morhaime

2016

957,378

355,018

2,833,600

 

2,532,666

5,330,175

69,839

(5)

12,078,676

President and Chief Executive Officer, Blizzard

2015

924,411

341,363

2,386,767

 

1,941,999

3,003,638

90,598

 

8,688,776

 

2014

886,603

328,234

1,407,000

 

1,120,000

4,042,955

71,495

 

7,856,287

Riccardo Zacconi (7)

Chief Executive Officer, King

2016

415,928

 

4,249,877

7,700,057

133,614

(5)

12,499,476

(1)

The amount paid to Mr. Tippl for 2014 represents two-thirds of a special performance award he received in recognition of his significant contributions to the Company’s financial performance for 2012, which had a time-based vesting provision and was subsequently paid in 2014 pursuant to the December 2013 amendment to Mr. Tippl’s employment agreement with the Company (see “—Employment Agreements—Thomas Tippl” below). The amounts paid to Mr. Morhaime for 2016, 2015 and 2014 consist of bonuses paid to him pursuant to the Blizzard Holiday Plan (see “—Compensation Discussion and Analysis—Elements of Our Executive Compensation Program for 2016—Other Cash Programs or Awards for 2016” above).

(2)

The amounts in the Stock Awards column represent the aggregate grant date fair value of restricted share units (which have time- and/or performance-based vesting conditions, as the case may be) awarded in the period, computed in accordance with ASC Topic 718.

 

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 50


Back to Contents

Assumptions and key variables used in the calculation of the grant date fair values:

for 2016, are discussed in footnote 14 to our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on February 28, 2017 (our “2016 10-K”).

for 2015, are discussed in footnote 14 to our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC on February 29, 2016 (our “2015 10-K”); and

for 2014, are discussed in footnote 15 to our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2014 filed with the SEC on February 26, 2015 (our “2014 10-K”).

 

As such, in the year of grant, the full aggregate grant date fair value appears, rather than the portion being expensed for financial statement reporting purposes in that year.

(3)

The amounts in the Option Awards column represent the aggregate grant date fair value of stock option awards made in the period computed in accordance with ASC Topic 718. As such, in the year of grant, the full aggregate grant date fair value appears, rather than the portion being expensed for financial statement reporting purposes in that year.

Assumptions and key variables used in the calculation of the grant date fair values:

for 2016, are discussed in footnote 14 to our audited financial statements included in our 2016 10-K;

for 2015, are discussed in footnote 14 to our audited financial statements included in our 2015 10-K; and

for 2014, are discussed in footnote 15 to our audited financial statements included in our 2014 10-K.

(4)

The amount in this column for each year for each named executive officer represent cash incentives paid under the CAIP, except for Mr. Morhaime, for whom the amount represents cash incentives paid under the CAIP as well as cash incentives paid under the Morhaime Profit Sharing Plan, and for Mr. Zacconi, for whom the amount only represents cash incentives paid under the King Profit Sharing Plan (as Mr. Zacconi is not eligible for the CAIP). The amounts paid to each of Messrs. Durkin and Tippl under the CAIP for 2015 include an additional performance-based bonus of $300,000 paid under the 2014 Plan in recognition of his significant contributions in connection with our transformative acquisition of King. For a discussion of non-equity incentive plans, see “—Compensation Discussion and Analysis—Elements of Our Executive Compensation Program for 2016—Corporate Annual Incentive Plan and Other Performance-Based Bonuses” above.

(5)

The “all other compensation” for 2016 consists of the following:

 

Name

 

Perquisites,

gifts and

awards

 

Taxable income

reimbursement

 

Retirement plan

“matching”

contributions (a)

Life, disability

or medical

insurance

premiums

Total “Other

Compensation”

 

Robert A. Kotick

$

80,000

(b)

$

 

$

4,800

$

82,423

$

167,223

 

Dennis Durkin

$

 

$

 

$

3,600

$

14,355

$

17,955

 

Thomas Tippl

$

 

$

 

$

3,600

$

30,469

$

34,069

 

Michael Morhaime

$

1,529

(c)

$

1,787

(d)

$

9,540

$

56,983

$

69,839

 

Riccardo Zacconi

$

122,551

(e)

$

 

$

4,075

$

6,988

$

133,614

 

 

 

 

 

 

(a)

These amounts represent, for Mr. Zacconi, “matching” contributions by us under King’s qualified defined contribution retirement plan, and, for each of the other named executive officers, “matching” contributions by us under our 401(k) plan.

(b)

This amount represents a reimbursement for legal fees Mr. Kotick incurred in connection with the negotiation of the Kotick Employment Agreement (as defined herein), up to the maximum amount to which he was entitled pursuant to the terms of that agreement.

(c)

This amount represents merchandise Mr. Morhaime received from Blizzard.

(d)

This amount represents a reimbursement for taxes Mr. Morhaime incurred on the compensation referenced in footnote (c) and a reimbursement for taxes Mr. Morhaime incurred on other merchandise he received from Blizzard, the value of which is not included, as it was provided as part of a broad-based program for Blizzard employees.

(e)

This amount represents legal fees Mr. Zacconi incurred in connection with the negotiation of the Zacconi Employment Agreement (as defined herein), which we paid on his behalf pursuant to the terms of that agreement.

(6)

This amount reflects the value of the following two “upfront” awards made to Mr. Tippl in 2014 in connection with the extension of his term of employment pursuant to the Tippl Employment Agreement (as defined herein) (see “—Employment Agreements—Thomas Tippl” below)—time-based vesting restricted share units with a reported grant date fair value of $5,999,993 for 2014 and performance-based vesting restricted share units tied to the 2014 performance period with a reported grant date fair value of $4,400,025, assuming a target level of performance under the performance conditions established for the 2014 performance period. This grant date fair value of time-based vesting restricted share units awarded in 2014 was computed in accordance with ASC Topic 718. Based upon this same methodology and assuming achievement of the maximum outcome of the performance conditions (as opposed to target level), the reported grant date fair value for performance-based vesting restricted share units tied to the 2014 performance period would have been $6,600,037. On March 4, 2015, the metrics for the 2015 performance period were established and a grant date fair value for the 2015 was established for financial reporting purposes in accordance with ASC Topic 718 in the amount of $5,211,347 (assuming target level of performance under the performance conditions and using the closing market price of our Common Stock on the date the performance metrics were established). Based upon this same methodology and assuming achievement of the maximum outcome of the performance conditions (as opposed to target level), the reported grant date fair value for the 2015 performance period would have been $7,817,043. On March 3, 2016, the metrics for the 2016 performance period were established and a grant date fair value for that tranche of the award (which will be eligible for inclusion in future Summary Compensation Tables) was established for financial reporting purposes in accordance with ASC Topic 718 in the amount of $7,163,582 (assuming target level of performance under the performance conditions and using the closing market price of our Common Stock on the date the performance metrics were established). Based upon this same methodology and assuming achievement of the maximum outcome of the performance conditions (as opposed to target level), the reported grant date fair value for the 2016 performance period would have been $10,745,420.

(7)

Mr. Zacconi’s term of employment with us began on February 23, 2016, when we closed the King Acquisition. Mr. Zacconi’s salary, non-equity incentive plan compensation and qualified defined contribution retirement plan matching contributions were paid in British pounds. As such, the salary, bonus, non-equity incentive plan compensation and qualified defined contribution retirement plan matching contribution amounts in this table were, in each case, converted using an end of 2016 spot exchange rate of 1.22249 British pounds to the U.S. dollar. Mr. Zacconi’s insurance premiums were paid in euros. As such, the insurance premiums for Mr. Zacconi in this table were converted using an end of 2016 spot exchange rate of 1.03907 euros to the U.S. dollar.

 

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 51


Back to Contents

Grants of Plan-Based Awards for 2016

The table below provides information regarding the grants of plan-based awards made to each of our named executive officers during 2016:

Name

Grant Type


 

 

 

Grant Date

 

Approval Date (1)

 

Estimated Possible Payouts Under

Non-Equity Incentive Plan Awards

Threshold

($)

Target

($)

Maximum

($)

Robert A. Kotick

2014 Plan/CAIP (3)

 

 

 

 

0

4,733,514

10,000,000

 

 

2014 Plan/PSUs

11/22/2016

 

11/22/2016

 

 

 

 

 

Dennis Durkin (5)

2014 Plan/CAIP (3)

 

 

 

 

0

790,079

10,000,000

 

Thomas Tippl

2014 Plan/CAIP (3)

 

 

 

 

0

2,047,500

10,000,000

 

 

2008 Plan/PSUs

3/3/2016

(6)

3/3/2016

(6)

 

 

 

 

Michael Morhaime

2014 Plan/CAIP (3)

 

 

 

 

0

259,067

4,995,275

(8)

 

2014 Plan/MPSP (9)

 

 

 

 

0

2,802,414

 

 

2014 Plan/RSUs

11/7/2016

 

11/1/2016

(10)

 

 

 

 

 

2014 Plan/Options

11/7/2016

 

11/1/2016

(10)

 

 

 

 

Riccardo Zacconi

2014 Plan/KPSP (13)

 

 

 

 

0

5,058,000

 

 

KDE Plan/Options

2/23/2016

 

11/2/2015

 

 

 

 

 

 

KDE Plan/Options

3/3/2016

 

3/3/2016

 

 

 

 

 

(1)

Reflects the date on which the Compensation Committee approved the grant of an equity award or, if later in the case of a performance-based vesting award, the date that the Compensation Committee established the performance metric underlying such award or a tranche thereof.

(2)

The grant date fair value of the stock and stock option awards is computed in accordance with ASC Topic 718. Please see footnotes (2) and (3) to the Summary Compensation Table for information about the assumptions and key variables used in the calculation of the grant date fair values. All stock options awarded have an exercise price equal to the fair market value of a share of our Common Stock on the date of grant, with the exception of the performance-based vesting options granted to Mr. Zacconi by King, described in further detail in footnotes (14), (15) and (16), which have an exercise price equal to the original exercise price of these options with respect to King ordinary shares divided by the exchange ratio set forth in the King Acquisition transaction agreement.

(3)

Each of our named executive officers, with the exception of Mr. Zacconi, had an opportunity to earn a CAIP bonus for his 2016 performance under the 2014 Plan. None were entitled to a minimum amount thereunder, and each would have received $0 if our adjusted 2016 non-GAAP (as previously defined) operating income was not at least 85% of the adjusted non-GAAP (as previously defined) operating income target for the year set forth in the 2016 AOP. The target bonus for each participating named executive officer was based on his base salary rate in effect at the time the opportunity was approved by our Compensation Committee and assumes 100% performance for the relevant financial and individual strategic objectives established under the CAIP. The 2014 Plan caps maximum payments of “senior executive plan bonuses” to each individual participating executive (which, for Mr. Morhaime, includes any payments to him under the Morhaime Profit Sharing Plan) at $10,000,000 per year. Actual maximum payments under the CAIP are in the Compensation Committee’s discretion and vary for each participating executive based on his actual base salary, his target opportunity, his financial and individual strategic objectives, including the relative weighting with respect to each, and his and the Company’s performance measured against those objectives. For more information about the CAIP and the opportunities for each of our participating named executive officers thereunder, including the maximum bonus opportunity for each, please see “—Compensation Discussion and Analysis—Elements of Our Executive Compensation Program for 2016—Corporate Annual Incentive Plan and Other Performance-Based Bonuses—2016 Incentive Opportunities under the CAIP” above.

(4)

On November 22, 2016, pursuant to the Kotick Employment Agreement, the Compensation Committee awarded Mr. Kotick performance-based vesting restricted share units, each representing the conditional right to receive one share of our Common Stock. Target performance would result in the vesting of 605,328 restricted share units, and maximum performance would result in the vesting of 1,513,317 restricted share units. The target number of these restricted share units vest on March 31, 2019, subject to Mr. Kotick’s continued employment through such date, if, and only if, our cumulative adjusted non-GAAP (as previously defined) diluted earnings per share for the period from October 1, 2016 through December 31, 2017 is at least $2.00. Further, if that earnings per share metric has been satisfied, there is an opportunity for an additional 907,990 restricted share units to vest as follows: (a) up to one-third vest if the adjusted non-GAAP (as previously defined) operating income objective set forth in our 2016 AOP has been met or exceeded; (b) up to one-third vest if the adjusted non-GAAP (as previously defined) operating income objective set forth in our 2017 AOP has been met or exceeded; and (c) up to one-third vest if the adjusted non-GAAP (as previously defined) operating income objective set forth in our 2018 AOP has been met or exceeded. For each of these three tranches: (i) if actual performance is 100% or less of the operating income target, no additional restricted share units in the tranche will vest; (i) if actual performance is 137.5% or more of the operating income target, the maximum number of additional restricted share units in the tranche (i.e., 302,663) will vest; and (iii) if actual performance falls between 100% and 137.5% of the operating income target, the number of additional restricted share units which vest will be determined using straight-line interpolation between zero and 302,663. In accordance with ASC Topic 718, the “Grant Date Fair Value of Stock and Option Awards” for this award includes, in addition to the grant date fair value of this award assuming the performance criteria are achieved at the target levels, the incremental accounting grant date value based on estimated 2016 operating income performance at the time of grant. The incremental accounting grant date value with respect to the tranches based on 2017 and 2018 operating income, if any, will be reported in future proxy statements in the compensation tables for the years in which the underlying performance measures are established. For more information on this award and the awards to be made to Mr. Kotick in the future, see “—Employment Agreements—Robert A. Kotick” below.

(5)

On March 3, 2016, the Compensation Committee approved the use of the adjusted non-GAAP (as previously defined) diluted earnings per share objective set forth in our 2016 AOP for the purpose of a tranche of a performance-based vesting restricted share unit award to Mr. Durkin under the 2008 Plan approved by the Compensation Committee on March 6, 2012. As a result, a grant date was established in accordance with ASC Topic 718 with respect to 90,000 of those restricted share units. As these restricted share units were previously disclosed in the “Grants of Plan-Based Awards” table included in the Company’s Notice of 2013 Annual Meeting of Stockholders and Proxy Statement, in accordance with the methodology used by the Company in its disclosure of the grant date fair value of performance-based vesting awards prior to 2014, these shares are not reflected in the table above. The grant date fair value for this tranche is greater than the amount of $1,055,700 reported in 2013 by $1,781,100, due to share price appreciation between March 6, 2012 and March 3, 2016.

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 52


Back to Contents

 

 

Estimated Future Payouts Under

Equity Incentive Plan Awards

All Other Stock

Awards: Number of

Shares of Stock or

Units

(#)

 

All Other Option

Awards: Number of

Securities Underlying

Options

(#)

 

Exercise or Base

Price of Option

Awards

($/Sh)

Grant Date Fair

Value of Stock and

Option Awards (2)

($)

 

 

Threshold

(#)

Target

(#)

 

Maximum

(#)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0

605,327

(4)

1,513,317

(4)

 

 

 

 

 

24,932,065

(4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0

227,271

(7)

340,908

(7)

 

 

 

 

 

7,163,582

(7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

70,000

(11)

 

 

 

2,833,600

 

 

 

 

 

 

 

 

 

200,000

(12)

41.09

2,532,666

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

451,625

(14)

12.39

3,079,389

(15)

 

 

 

 

 

 

 

 

150,542

(16)

12.39

1,170,488

(15)

(6)

In accordance with ASC Topic 718, these performance-based vesting restricted share units were awarded for financial reporting purposes as of the date on which the Compensation Committee established the metric for the relevant performance period. These restricted share units represent the final three remaining tranches of an equity award approved by the Compensation Committee on January 15, 2014.

(7)

On February 10, 2014, in connection with the extension of his employment with us through April 2017, the Compensation Committee approved an award to Mr. Tippl of performance-based vesting restricted share units, each representing the conditional right to receive one share of our Common Stock. In accordance with ASC Topic 718, only the portion of the award for which the performance metrics were established during 2016 is reflected in this table. These restricted share units vest on March 31, 2017, subject to Mr. Tippl’s continued employment through such date, as follows: (a) approximately 45% (i.e., 103,305 at target, up to a maximum of 154,958) vest following the achievement of the adjusted non-GAAP (as previously defined) diluted earnings per share objective set forth in our 2016 AOP; (b) approximately 27% (i.e., 61,983 at target, up to a maximum of 92,975) vest following the achievement of the adjusted non-GAAP (as previously defined) free cash flow objective set forth in our 2016 AOP; and (c) approximately 27% (i.e., 61,983 at target, up to a maximum of 92,975) vest following the achievement of the adjusted non-GAAP (as previously defined) operating income objective for Blizzard set forth in our 2016 AOP. In each case: (i) if actual performance is below 75% of target, no shares subject to the performance criteria will be earned; (ii) if actual performance is 100% of target, 100% of the target shares subject to the operating performance criteria will be earned; (iii) if actual performance is 150% or more of target, all of the shares (i.e., 150% of the target shares) subject to the operating performance criteria will be earned; and (iv) if actual performance falls between two thresholds, the number of shares subject to the operating performance criteria that will be earned will be determined using straight-line interpolation. If dividends are declared on our Common Stock, if and when the restricted share units vest, Mr. Tippl will receive a cash dividend equivalent payment in an amount equal to the dividend to which he would have been entitled had the restricted share units been issued and outstanding Common Stock as of the record date for such dividend. For more information on the remainder of this award, see “—Employment Agreements—Thomas Tippl—Employment Agreement” below.

(8)

As discussed in footnote (10) below, Mr. Morhaime participates in the Morhaime Profit Sharing Plan. As the amount paid to Mr. Morhaime under the Morhaime Profit Sharing Plan is a “senior executive plan bonus” within the meaning of the 2014 Plan, the sum of the amount of bonuses, if any, paid to him for any given year under the Morhaime Profit Sharing Plan and the CAIP may not exceed the limit under the 2014 Plan of $10 million. As such, the maximum bonus Mr. Morhaime was eligible to earn under the CAIP for 2016 was adjusted to reflect the payment he received under the Morhaime Profit Sharing Plan for the year.

(9)

Pursuant to the Morhaime Employment Agreement (as defined herein), Mr. Morhaime participates in the Morhaime Profit Sharing Plan (see “—Employment Agreements—Michael Morhaime” below). In accordance therewith, Mr. Morhaime is entitled to share in an annual profit sharing pool, the aggregate amount of which depends upon Blizzard’s earnings for that year. While Mr. Morhaime is entitled to an amount equal to 6% of the pool, subject to the Compensation Committee’s exercise of negative discretion, because the amount of the pool, if any, cannot be known at the beginning of a year, no target amount is determinable and the target amount shown is a representative amount equal to the amount Mr. Morhaime received under the Morhaime Profit Sharing Plan with respect to 2015. Further, while Mr. Morhaime is entitled to receive an amount equal to a minimum specified percentage of that pool, because there is no certainty there will be a pool, there is no minimum or maximum amount to which he is entitled. For more information about the Morhaime Profit Sharing Plan, see “—Compensation Discussion and Analysis—Elements of Our Executive Compensation Program for 2016—Corporate Annual Incentive Plan and Other Performance-Based Bonuses—Profit Sharing Plans” above.

(10)

These equity awards were approved during a “trading blackout” as described in our insider trading and pre-clearance policies, so, in accordance with our equity awarding procedures, the grant date of the awards was the first trading day after that trading blackout period was no longer in effect. Further, awards with performance-based vesting criteria are not awarded, for these purposes, until the underlying performance metrics have been established.

(11)

This represents restricted share units, each representing the conditional right to receive one share of our Common Stock, that were awarded to Mr. Morhaime pursuant to the Morhaime Employment Agreement as part of our annual equity award process. One-third of these stock options will vest on each of November 6, 2017, 2018 and 2019, subject to Mr. Morhaime’s continued employment through such date.

(12)

These options to purchase our Common Stock were awarded to Mr. Morhaime pursuant to the Morhaime Employment Agreement as part of our annual equity award process. One-third of these options will vest on each of November 6, 2017, 2018 and 2019, subject to Mr. Morhaime’s continued employment through such date.

(13)

Pursuant to the Zacconi Employment Agreement (as defined herein), Mr. Zacconi participates in the King Profit Sharing Plan (see “—Employment Agreements—Riccardo Zacconi” below). In accordance therewith, Mr. Zacconi is entitled to share in an annual profit sharing pool, the aggregate amount of which depends upon King’s earnings for that year. While Mr. Zacconi is entitled to an amount equal to 6% of the pool, subject to the Compensation Committee’s exercise of negative discretion, because the underlying plan was implemented in 2016 in connection with the King Acquisition, no target amount is determinable and therefore the target amount shown is a representative amount determined by applying the 6% allocation to a hypothetical bonus pool calculation, had the King Profit Sharing Plan been in existence for 2015. Further, while Mr. Zacconi is entitled to receive an amount equal to a minimum specified percentage of that pool, because there is no certainty there will be a pool, there is no minimum or maximum amount to which he is entitled. For more information about the King Profit Sharing Plan, see “—Compensation Discussion and Analysis—Elements of Our Executive Compensation Program for 2016—Corporate Annual Incentive Plan and Other Performance-Based Bonuses—Profit Sharing Plans” above.

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 53


Back to Contents

(14)

These performance-based vesting options to purchase our Common Stock were granted to Mr. Zacconi in connection with the consummation of the King Acquisition. They were converted from options with respect to King ordinary shares that Mr. Zacconi held prior to the consummation of the King Acquisition and were modified to replace the performance metrics underlying the original options with metrics with respect to King’s post-acquisition performance. One-third of these performance-based vesting options vest on each of February 22, 2017, 2018 and 2019, subject to Mr. Zacconi’s continued employment through such date, as follows: (a) one-third (i.e., 150,542) vest following the achievement of the EBITDA objective for King for set forth in the plan established by the King management in connection with the King Acquisition for 2016; (b) one-third (i.e., 150,542) vest following the achievement of the EBITDA objective for King set forth in the plan established by the King management in connection with the King Acquisition for 2017; and (c) one-third (i.e., 150,541) vest following the achievement of the EBITDA objective for King set forth in the plan established by the King management in connection with the King Acquisition for 2018.

(15)

Represents the incremental fair value of performance-based vesting options with respect to King ordinary shares that Mr. Zacconi held prior to the King Acquisition which were converted into awards of the same type with respect to shares of our Common Stock in connection with the consummation of the King Acquisition. Pursuant to the Zacconi Employment Agreement, these options were modified by replacing the performance underlying the original options with metrics with respect to King’s post-acquisition performance. In addition, upon the consummation of the King Acquisition, Mr. Zacconi’s time-based vesting options to purchase King ordinary shares were converted into options to purchase 192,392 shares of our Common Stock and his restricted share units representing the right to receive King ordinary shares were converted into restricted share units representing the right to receive 84,453 shares of our Common Stock. As these were part of the consideration for the King Acquisition, and do not reflect any compensation decisions by Activision Blizzard, they are not included herein. For more information on these awards, see “—Employment Agreements—Riccardo Zacconi” below.

(16)

These performance-based vesting options to purchase our Common Stock were granted to Mr. Zacconi in connection with the consummation of the King Acquisition. They were converted from options with respect to King ordinary shares that Mr. Zacconi held prior to the consummation of the King Acquisition and were modified to replace the performance underlying the original options with metrics with respect to King’s post-acquisition performance. These performance-based vesting options vest on February 22, 2019, subject to Mr. Zacconi’s continued employment through such date, if the adjusted non-GAAP (as previously defined) operating income objective for King set forth in our 2016 AOP has been met or exceeded. In accordance with ASC Topic 718, only the portion of the award for which the performance metrics were established during 2016 is reflected in this table. For more information on the remainder of this award, see “—Employment Agreements—Riccardo Zacconi” below.

 

ACTIVISION BLIZZARD, Inc. - 2017 Proxy Statement - 54


Back to Contents

Outstanding Equity Awards at December 31, 2016

The table below sets forth the outstanding equity awards for each of our named executive officers as of December 31, 2016:

Name

Option Awards

 

Stock Awards

Number of

Securities

Underlying

Unexercised

Options

Exercisable (1)

(#)

 

Number of

Securities

Underlying

Unexercised

Options

Unexercisable

(#)

 

Equity Incentive

Plan Awards: