ACTIVISION BLIZZARD, INC. - DEF 14A

UNITED STATES

 

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

SCHEDULE 14A

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Exchange Act of 1934 (Amendment No. )

 

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ACTIVISION BLIZZARD, INC.

 

 

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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 2019 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 our 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

Chief Executive Officer

April 23, 2019

 

 

 

 

The proxy statement and our 2018 annual report to stockholders are each available at: https://materials.proxyvote.com/00507V

ACTIVISION BLIZZARD, INC. - 2019 Proxy Statement    1


 

3100 Ocean Park Boulevard

Santa Monica, California 90405

 

Notice of 2019 Annual Meeting
of Stockholders

 

WHEN:

Thursday, June 20, 2019
9:00 a.m. (Pacific Time)

 

WHERE:

Boston Properties Offices
3200 Ocean Park Boulevard
Santa Monica, CA 90405

 

AGENDA:

  1. Elect ten directors for a one-year term
  2. Provide advisory approval of our executive compensation
  3. Ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for 2019

 

WAYS TO VOTE:

 

BY INTERNET

www.proxyvote.com

 

BY TELEPHONE

Call (800) 690-6903 or the number on your
voting instruction form.

 

BY MAIL
Sign, date and return your voting instruction form.

The Annual Meeting of Stockholders of Activision Blizzard, Inc. will be held at the Boston Properties Offices at 3200 Ocean Park Boulevard, Santa Monica, California 90405, on Thursday, June 20, 2019, at 9:00 a.m., Pacific Time.

 

The Activision Blizzard, Inc. Board of Directors has fixed April 22, 2019, as the record date for determining the stockholders entitled to receive notice of, and to vote at, the annual meeting.

 

Your vote is important. 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 16 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 Secretary

 

April 23, 2019


ACTIVISION BLIZZARD, INC. - 2019 Proxy Statement    3


Table of Contents

PROXY SUMMARY

6

Voting Matters and Board Recommendations

6

Director Nominees

6

Executive Compensation Highlights

7

Our Conservative Equity Granting Practices

8

2018 Financial and Operational Performance

8

Corporate Governance Highlights

10

Incorporation of Stockholder Feedback

11

PROXY STATEMENT

12

GENERAL

12

PROCEDURAL MATTERS

14

18

CORPORATE GOVERNANCE MATTERS

23

Overview

23

Board of Directors and Committees

23

Stockholder Engagement Process

33

Our Executive Officers

33

Executive Succession Planning

33

Stock Ownership Guidelines

33

Political Activities

34

Corporate Governance Principles and Policies

34

Code of Conduct

34

Additional Corporate Governance Documentation

34

Diversity and Inclusion Initiatives

35

EXECUTIVE COMPENSATION

36

Compensation Discussion and Analysis

36

Overview

36

Compensation Principles and Objectives

43

Decision-Making Approach to Executive Compensation

44

Elements of Our Executive Compensation Program for 2018

47

Compensation Committee Report

53

Summary Compensation Table

54

Grants of Plan-Based Awards for 2018

56

Outstanding Equity Awards at December 31, 2018

60

Option Exercises and Stock Vested for 2018

63

Employment Agreements

63

Potential Payments upon Termination or Change of Control

74

CEO Pay Ratio

84

85


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DIRECTOR COMPENSATION

86

General

86

Cash Compensation

86

Equity Compensation

86

Stock Ownership Guidelines

87

Indemnification

87

Reimbursement of Expenses and Limited Benefits

87

Compensation for 2018

87

CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS

89

Policies and Procedures Regarding Transactions with Related Parties

89

Relationships and Transactions

90

AUDIT-RELATED MATTERS

91

Independent Registered Public Accounting Firm Fees

91

Pre-Approval Policies and Procedures

91

Audit Committee Report

92

93

BENEFICIAL OWNERSHIP MATTERS

95

Security Ownership of our Officers and Directors

95

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

97

Section 16(a) Beneficial Ownership Reporting Compliance

97

EQUITY COMPENSATION PLAN INFORMATION

98

DIRECTOR NOMINATIONS AND OTHER STOCKHOLDER PROPOSALS FOR OUR 2020 ANNUAL MEETING; COMMUNICATING WITH OUR BOARD

99

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

101

OTHER MATTERS

103

HELPFUL RESOURCES

104


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Proxy Summary

This summary highlights information contained elsewhere in this proxy statement for the 2019 annual meeting of the stockholders of Activision Blizzard, Inc., a Delaware corporation (the “Company”). This summary does not contain all the information that you should consider, and you should read the entire proxy statement before voting. For more complete information regarding the Company’s 2018 performance, please review our annual report to stockholders for the period ended December 31, 2018, which is being provided to our stockholders at the same time as this proxy statement. Capitalized terms used in this summary are defined elsewhere in the proxy statement.

Voting Matters and Board Recommendations

Stockholders are being asked to vote on the following matters at the 2019 Annual Meeting of Stockholders.

Our Board’s Recommendation

Proposal 1. Election of Directors (page 18)

FOR each Director Nominee

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

Proposal 2. Advisory vote to approve our executive compensation (page 85)

FOR

Our Board and its Compensation Committee believe that our compensation policies and practices are effective in enabling us to achieve our financial and strategic goals and that the compensation paid to our named executive officers allows us to attract, retain, and motivate the key executive talent necessary for our long-term success.

Proposal 3. Ratification of the appointment of our independent registered public accounting firm (page 93)

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

Reveta Bowers

70

2018

Independent Governance and Organizational Consultant

 

 

Robert Corti

69

2003

Retired CFO of Avon Products

 

 

Hendrik Hartong III

52

2015

Chairman and CEO of Brynwood Partners

 

 

Brian Kelly (Chairman)

56

1995

Chairman of the Board of Activision Blizzard

 

 

 

Robert Kotick

56

1991

CEO of Activision Blizzard

1

 

 

 

Barry Meyer

75

2014

Retired Chairman and CEO of Warner Bros. Entertainment

 

 

Robert Morgado (Lead Independent Director)

76

1997

Retired Chairman and CEO of Warner Music Group

 

Peter Nolan

60

2013

Senior Advisor to Leonard Green & Partners

 

 

Casey Wasserman

44

2015

Chairman and CEO of Wasserman

1

 

 

Elaine Wynn

76

2013

Co-founder of Wynn Resorts

 

 

                 

Member

Chairperson

ACTIVISION BLIZZARD, INC. - 2019 Proxy Statement    6


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Executive Compensation Highlights

Our Compensation Practices Are Designed to Align Pay with Performance

Our industry is intensely competitive and constantly evolving. Our executives and many of our other 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 competitive total compensation to attract, retain, and motivate them.

Our executive compensation program has three primary elements: (1) base salary; (2) short-term incentives, in the form of annual cash bonuses; and (3) long-term incentives, in the form of equity awards, including performance-based vesting restricted share units (i.e., PSUs) and stock options.

 

 

 

 

The program is designed to align 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 performance-aligned equity awards. For 2018, 94% of our CEO’s total compensation, and 79% of the average total compensation of the remaining named executive officers, was performance-based.

Primary Elements of Our Executive Compensation Program for 2018

An overview of the primary elements of our 2018 executive compensation program and their purposes is presented below. Not all of these elements are applicable to all named executive officers (i.e., NEOs). We aim to incentivize our executives to drive corporate financial performance by basing a significant portion of their compensation on achieving financial and strategic objectives.

Compensation Element*

Purpose

Principal Actions for 2018

Base Salary

Compensate for day-to-day responsibilities.

Mr. Kotick’s base salary in 2018 was unchanged from 2017. As part of our annual salary review process in early 2018, the salaries of the other NEOs with the Company at that time were increased between 2.5% and 5%.

Annual cash bonus
—Corporate Annual Incentive Plan (i.e., CAIP)

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

Financial metrics for all NEOs participating in the CAIP (i.e., all but Mr. Zacconi) included profitability and free cash flow measures. As a result of performance vis-à-vis the underlying financial and strategic objectives, Mr. Kotick received a CAIP-related payout equal to 70% of his target bonus, and our other NEOs each received CAIP-related payouts ranging between 52% and 103% of his target bonus. For 2018, 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 by the Compensation Committee at the beginning of the year.

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

Drive operating 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., PSUs and stock options)

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

Each of our NEOs that received an equity award during 2018 received a performance-based equity award with multi-year vesting.

*

In addition, Messrs. Neumann and Johnson each received a long-term contract inducement in connection with his hiring by the Company during 2017, a portion of which was paid in 2018, and Mr. Walther received a special performance bonus. For more information on these awards, please see “Executive Compensation—Compensation Discussion and Analysis—Elements of Our Executive Compensation Program for 2018—Other Cash Programs or Awards” below.

 

 

 

 

 

 

ACTIVISION BLIZZARD, INC. - 2019 Proxy Statement    7


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Summary of Compensation Paid to Our Named Executive Officers for 2018

The following table sets forth certain summarized information with respect to the compensation earned by our NEOs during 2018. For the complete Summary Compensation Table, including the notes that accompany it, along with compensation for prior years, please see page 54.

Name and Principal Position

Salary

($)

Bonus

($)

Stock

Awards

($)

Option

Awards

($)

Non-Equity

Incentive Plan

Compensation

($)

All Other

Compensation

($)

Total

($)

Robert Kotick
Chief Executive Officer

1,756,731

7,495,745

19,037,673

2,461,848

89,007

30,841,004

Spencer Neumann
Former Chief Financial Officer

871,476

1,000,000

4,838,213

28,485

6,738,174

Collister Johnson
President and Chief Operating Officer

1,330,194

1,200,000

4,695,612

931,240

14,075

8,171,121

Michael Morhaime
Former President and CEO, Blizzard

1,407,225

3,014,440

3,518,646

157,713

8,098,024

Brian Stolz
Chief People Officer

685,936

2,348,814

445,341

53,472

3,533,563

Chris B. Walther
Chief Legal Officer

759,238

500,000

2,837,227

583,161

83,532

4,763,158

Riccardo Zacconi
Chief Executive Officer, King

532,776

9,898,137

9,379,908

8,330

19,819,151

Our Conservative Equity Granting Practices

While we believe that equity awards are an important part of our compensation program, we continue to be very judicious in the granting of equity awards to our employees. Our average equity usage for the past three years is among the bottom one-third of our comparator group.

2018 Financial and Operational Performance

 

 

 

 

 

 

 

 

 

 

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Based on a number of metrics, 2018 was a strong year for us. For example, during 2018:

Net revenues were a record $7.50 billion.

Net revenues from digital channels were a record $5.79 billion.

Earnings per diluted share were a record $2.35.

Operating income was $1.99 billion.

Operating cash flow was $1.79 billion.

Net bookings(1) were a record $7.26 billion.

Net bookings(1) from digital channels were a record $5.72 billion, and in-game net bookings(1) were a record $4.2 billion.

In the fourth quarter, we had 356 million monthly active users (i.e., MAUs),(2) 53 million of which were at Activision, 35 million of which were at Blizzard, and 268 million of which were at King.

Call of Duty® was again the number-one selling console franchise worldwide for the year, a franchise feat accomplished for nine of the last 10 years.(3) In its launch quarter, Call of Duty: Black Ops 4 sold-through more units than Call of Duty: Black Ops III, with PC units more than tripling. We released Call of Duty: Black Ops 4 on PC through Blizzard’s Battle.net® for the first time in franchise history.

Spyro® Reignited Trilogy had a strong launch, and Crash Bandicoot™ N. Sane Trilogy passed 10 million units sold-in since its 2017 release, highlighting the enduring nature of Activision’s classic franchises.

World of Warcraft®: Battle for Azeroth™ set a new day-one franchise record with more than 3.4 million units sold-through.

The first season of the Overwatch League™ culminated in its Grand Finals at Barclays Center in New York in June, which had a sold-out live audience and was watched by millions of viewers worldwide on TV networks and streaming platforms. We sold another eight Overwatch League teams ahead of the second season, which began in February 2019, meaning we now have 20 city-based teams owned by some of the most experienced traditional sports and esports partners in the world.

Candy Crush Saga™ was the highest-grossing title in U.S. mobile app stores in 2018, and King had two of the top-10 highest-grossing titles in the U.S. mobile app stores for the year, a feat that it has now achieved for five years in a row.(4)

Advertising in the King network was profitable each quarter and continued to build momentum, with quarterly revenue growing sequentially throughout the year.

However, we did not achieve all the goals we set for ourselves. As a result, consistent with our pay-for-performance approach, overall CAIP bonus payments to our NEOs ranged between 52% and 103% of target for the year and, for the portion of the outstanding equity awards granted to our NEOs that had the potential to vest based on 2018 financial performance objectives, achievement, as a percentage of target, ranged from 0% to 100%.

 

 

 

 

 

 

(1)

Net bookings is an operating metric that is defined as the net amount of products and services sold digitally or sold-in physically in the period, and includes license fees, merchandise, and publisher incentives, among others. Net bookings is equal to net revenues excluding the impact from deferrals.

(2)

We monitor MAUs as a key measure of the overall size of our user base. MAUs are the number of individuals who accessed 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 accesses two of our games would be counted as two users. In addition, due to technical limitations, for Activision and King, an individual who accesses the same game on two platforms or devices in the relevant period would be counted as two users. For Blizzard, an individual who accesses the same game on two platforms or devices in the relevant period would generally be counted as a single user.

(3)

Based on data from the NPD Group, GfK, GSD, and internal estimates, based on dollar sales of front-line games.

(4)

Based on U.S. ranking for Apple App Store and Google Play Store combined, per App Annie Intelligence for 2014–2018.

ACTIVISION BLIZZARD, INC. - 2019 Proxy Statement    9


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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 to Our Stockholders

We elect our directors on an annual basis.

 

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.

 

Our Bylaws contain a stockholder proxy access provision, which permits certain stockholders to include director nominees in our proxy statements.

 

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.

 

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

 

We hold “say-on-pay” votes annually.

Board Independence

Eight of our ten director nominees are independent.

 

We have a separate chairman and chief executive officer.

 

We have a lead independent director.

 

Our independent directors meet in executive session (i.e., without the presence of management).

Independent Board Committees

All 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.

Stock Ownership Guidelines

Our chief executive officer is expected to, within five years after he or she becomes our chief executive officer, beneficially own shares of our common stock with a value at least equal to ten times his or her then-current annual base salary. Mr. Kotick currently holds shares with a value equal to approximately 94 times his current annual base salary.

 

Our other executive officers (as well as the President and/or CEO of each of Activision, Blizzard, and King) are each expected to, within five years after becoming subject to the guidelines, beneficially own shares of our common stock with a value at least equal to his or her then-current annual base salary.

 

Each director 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.

“Clawback” Policy

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

Anti-Hedging Policy

We prohibit our employees and directors from “shorting” Company stock, engaging in “puts,” “calls,” or other hedging transactions involving Company stock, or using margin accounts with Company stock.

No Company Stock Pledged

None of our executive officers or directors have any shares of Company stock pledged.

Active Board Oversight of
Risk Strategy

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

 

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.

 

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

Annual Board Self-Evaluation

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

Active Stockholder Engagement

We actively engage with investors to increase our understanding of their perspectives on our executive compensation and governance practices.

Active Succession Planning

Our Board actively engages in chief executive officer succession planning.

 

Our Board reviews succession plans for our other senior-most officers annually.

 

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

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Incorporation of Stockholder Feedback

The Company regularly engages with key stockholders to solicit feedback as part of an effort to remain aware of our stockholders’ perspectives with respect to our executive compensation and governance practices, as well as any other matters of importance to them. We share the feedback we receive with our Board and its committees, and that feedback has been instrumental in shaping decisions relating to our executive compensation and corporate governance programs. In advance of last year’s annual meeting, members of our management reached out to stockholders who collectively held approximately 65% of our common stock and spoke with each such holder who was willing to speak with us. Again, in the fall of 2018, in an effort to gain additional perspective, members of our management reached out to stockholders who collectively held approximately 65% of our common stock and spoke with each such holder who was willing to speak with us, including with respect to recent “say-on-pay” votes. These efforts enhance the ongoing communications we have with our stockholders regarding our financial and operational performance, and expand upon the outreach to stockholders that we have conducted in connection with our annual meetings for the last several years.

 

 

The Company reviews feedback sent to us from any of our stockholders, no matter the size of their 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 Board and its committees take the feedback received from stockholders seriously and will continue to incorporate such feedback into their decision-making processes. We believe that the actions we have taken, as well as our continued dialogue with our stockholders, advance our compensation and corporate governance practices in a manner that is both responsive to the input we receive and appropriate for the Company.

 

 

 

 

 

 

 

 

 

 

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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 20, 2019, at the Boston Properties Offices at 3200 Ocean Park Boulevard, Santa Monica, California 90405, at 9:00 a.m., Pacific 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 23, 2019.

Financial Measures Used in this Proxy Statement

Use of Non-GAAP Financial Measures

All financial measures used in this proxy statement are presented in accordance with generally accepted accounting principles (“GAAP”), unless explicitly identified as non-GAAP. Internally, our management uses non-GAAP 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 facilitate an 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 measures provides useful information to measure Activision Blizzard’s financial and operating performance. Non-GAAP 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, 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 measures used by the Company.

Our non-GAAP measures are not based on a comprehensive set of accounting rules or principles, and such measures do not have a standardized meaning across companies. 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.

Financial Metrics Used to Measure 2018 Compensation-Related Performance

Consistent with past years, the financial objectives used by our management and our Compensation Committee to assess our employees’ 2018 performance were based on measures we refer to internally as “non-GAAP (excluding deferrals),” rather than the non-GAAP measures we use when reporting our financial results. These non-GAAP measures only differ from each other with respect to the inclusion (in the non-GAAP measures we now use when reporting our financial results) or exclusion (in “non-GAAP (excluding deferrals)” measures) of the impact from revenue deferrals accounting treatment on certain of our online-enabled products. Internally, our management uses non-GAAP (excluding deferrals) measures in assessing our operating results, as well as in planning and forecasting. 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 an earlier indication of trends in our operating results. Further, as our management and our Compensation Committee continue to believe that non-GAAP (excluding deferrals) measures are an effective way to internally assess our operating performance, the Company currently expects to continue utilizing non-GAAP (excluding deferrals) measures for purposes of compensation-related performance objectives in the future.

Specifically, the Compensation Committee used the following non-GAAP (excluding deferrals) measures to assess the 2018 performance of one or more of our named executive officers.

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AB Adjusted Operating Income. “AB Adjusted Operating Income” means Activision Blizzard’s GAAP operating income, excluding the impacts from share-based compensation, amortization of intangibles from purchase price accounting, restructuring charges, and the deferral of revenues and recognition of deferred revenues, along with related cost of revenues, on certain of our online enabled products.

AB Adjusted EPS. “AB Adjusted EPS” is calculated by dividing the AB Adjusted GAAP Net Income by the weighted average diluted shares outstanding, where “AB Adjusted GAAP Net Income” means Activision Blizzard’s GAAP net income, excluding the impacts from the items noted above under “AB Adjusted Operating Income,” along with the associated tax impacts of those items, losses incurred on extinguishment of debt from redemption activities and the associated tax impact, and significant discrete tax-related items (including amounts related to changes in tax laws, amounts related to the potential or final resolution of tax positions, and/or other unusual or unique tax-related items and activities).

AB Adjusted Free Cash Flow. “AB Adjusted Free Cash Flow” is calculated by subtracting year-over-year cash changes related to working capital (excluding certain unplanned one-time items and timing of tax payments) and capital expenditures from AB Adjusted Net Income (as defined under “AB Adjusted EPS”).

Blizzard Adjusted Operating Income. “Blizzard Adjusted Operating Income” means the GAAP operating income of Blizzard Entertainment, Inc. (“Blizzard”), excluding the impacts from the items noted above under “AB Adjusted Operating Income.”

King Adjusted EBITDA. “King Adjusted EBITDA” means earnings before interest, taxes, depreciation, and amortization and excluding share-based compensation, non-operating income (expense), net finance income (expense), foreign currency exchange gain (loss), acquisition related income (expense), and change in deferred revenue of King Digital Entertainment Limited (“King”).

King Adjusted Operating Income. “King Adjusted Operating Income” means King’s GAAP operating income, excluding the impacts from the items noted above under “AB Adjusted Operating Income.”

Consistent with past years, at the time it established the measures to be used to assess 2018 financial performance for compensation purposes, the Compensation Committee reserved the discretion, when measuring performance, to exclude the impact of any extraordinary transaction (i.e., a non-recurring corporate transaction or legal expense matter that results in expenses exceeding $10 million for the year). No such adjustments were made for 2018.

Further, when a financial measure is used to assess performance underlying a bonus opportunity under our Corporate Annual Incentive Plan (the “CAIP”) or an equity award the performance of which is determined by reference to an annual operating plan approved by our Board (such plan for any given year, the “AOP”) or long-range strategic plan, constant foreign exchange rates are assumed, which means we convert current period results into United States (“U.S.”) dollars using the average exchange rate at the time we established the targets (e.g., at the time the relevant AOP was established), rather than the actual exchange rates during the relevant period. When a financial measure is used to determine the size of a pool created pursuant to the King Profit Sharing Plan or the Blizzard Profit Sharing Plan, actual exchange rates during the relevant period are used.

References to U.S. Dollars

All dollar amounts referred to in or contemplated by this proxy statement refer to U.S. dollars.

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PROCEDURAL MATTERS

Q:

Who may vote at the Annual Meeting?

A:

Only stockholders of record at the close of business on April 22, 2019 (the “record date”), are entitled to notice of, or to vote at, the Annual Meeting. There were 765,997,199 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.

Q:

How many votes may I cast?

A:

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.

Q:

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

A:

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, unless you obtain a “legal proxy” from the broker, bank, or other nominee that holds your shares, giving you the right to vote the shares at the meeting yourself.

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

Q:

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

A:

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 3—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 3, 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 or 2.

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Q:

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

A:

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.

Q:

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

A:

 

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 Our Executive Compensation
Proposal 2

For, against, or abstain

Affirmative vote of the holders of a majority of the voting power of the shares present in person or by proxy and entitled to vote on the matter

No

No Effect

Against

Against

Ratification of Appointment of Our Independent Registered Public Accounting Firm —
Proposal 3

For, against, or abstain

Affirmative vote of the holders of a majority of the voting power of the shares present in person or by proxy and entitled to vote on the matter

Yes

N/A

Against

Against

Q:

What are the ways I can vote?

A:

Stockholders at the close of business on April 22, 2019, 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.

Q:

How do I vote in person at the Annual Meeting?

A:

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.

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Q:

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

A:

A vote via proxy authorizes Robert Kotick (our Chief Executive Officer), Collister Johnson (our President and Chief Operating Officer), and Jeffrey Brown (our Corporate Secretary), 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.

Q:

How do I vote by proxy?

A:

Stockholders of record may vote by proxy in three ways:

Vote by Internet. Record holders can vote online prior to 11:59 p.m., Eastern Time, on June 19, 2019. Go to www.proxyvote.com, which is available 24 hours a day until the deadline. You will need your 16 digit control number which appears 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 11:59 p.m., Eastern Time, on June 19, 2019. Call (800) 690-6903, which is available 24 hours a day until the deadline. You will need your 16 digit control number which appears 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).

Q:

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

A:

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 ten 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), and FOR the ratification of PwC as the Company’s independent registered public accounting firm for 2019 (proposal 3).

Q:

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

A:

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.

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Q:

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

A:

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.

Q:

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

A:

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 or 3.

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PROPOSAL 1

ELECTION OF DIRECTORS

General

Stockholders will elect ten 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 earliest 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 it desires in a member of 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 biographies of our director nominees 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.

 

REVETA BOWERS

Ms. Bowers, age 70, has served as an independent governance and organizational consultant for non-profit organizations since 2016. From 1972 to 2016, she served as a teacher and administrator at The Center for Early Education, an independent school for children. From 1993 to 2003, she served on the board of directors of The Walt Disney Company, a global entertainment company.

Independent Governance and Organizational Consultant

Director Since: 2018

Activision Blizzard Committee Membership(s):

Compensation Committee

Involvement with Other Organization(s):

California Teacher Development Collaborative (CATDC) (seminar faculty member)

Common Sense Media (chair of national board of directors)

Dream Fund for Scholars (member of advisory board)

Edward E. Ford Foundation (member of board of advisors)

FEDCO Charitable Foundation

L.A. Philharmonic

Rossier School of Education, University of Southern California (chair of board of councilors)

Teachers College, Columbia University

 

Key Experience/Qualifications:

Extensive public board experience, having served as an outside director of The Walt Disney Company from 1993 to 2003, and as a member of four committees of Disney’s board, including its compensation committee

Serves as chair of Common Sense Media, a non-profit organization dedicated to helping children use technology responsibly, safely and effectively

At the Center for Early Education, served as an advocate for the use of gaming and technology to enhance childhood education

B.A. in humanities from the University of Southern California and M.A. in developmental psychology from the College of Developmental Studies

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ROBERT CORTI

Mr. Corti, age 69, 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 from the executive vice president role in March 2006.

Retired Chief Financial Officer of Avon Products

Director Since: 2003

Activision Blizzard Committee Membership(s):

Audit Committee (Chair)

Private Company Directorship(s):

Bacardi Limited

Involvement with Other Organization(s):

Manhattan Chapter of the Cystic Fibrosis Foundation

 

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, 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

 

HENDRIK HARTONG III

Mr. Hartong, age 52, serves as the chairman and chief executive officer of Brynwood Partners, a private equity firm specializing in the consumer products sector, which he joined 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, with Activision Publishing, Inc. (“Activision”), then our sole operating unit.

Chairman and Chief Executive Officer of Brynwood Partners

Director Since: 2015

Activision Blizzard Board Committee Membership(s):

Audit Committee

Private Company Directorship(s):

Brynwood Partners (chairman and chairman of executive committee)

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

Hometown Food 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)

 

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 KELLY

Mr. Kelly, age 56, 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 2013 and as chairman of our Board of Directors since 2013.

Chairman of the Board of Activision Blizzard

Director Since: 1995

Involvement with Other Organization(s):

Call of Duty Endowment (co-founder)

NewYork-Presbyterian Hospital (trustee)

Juvenile Diabetes Cure Alliance (founder and chairman)

 

Key Experience/Qualifications:

Depth of institutional knowledge and understanding of our organization, which he possesses by virtue of his service as a senior executive of the Company from 1991 until 2008 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

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ROBERT KOTICK

Mr. Kotick, age 56, our Chief Executive Officer, 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. He served as our President from July 2008 until June 2017, when Mr. Johnson began serving as our President and Chief Operating Officer.

Chief Executive Officer of Activision Blizzard

Director Since: 1991

Other Public Company Directorship(s):

The Coca-Cola Company (since 2012)

Involvement with Other Organization(s):

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

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

Los Angeles County Museum of Art (vice chairman of board and chairman of committee 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 more than 25 years of service to the Company, including as our Chief Executive Officer and, previously, as our President and 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

 

 

BARRY MEYER

Mr. Meyer, age 75, 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 Membership(s):

Nominating and Corporate Governance Committee

Involvement with Other Organization(s):

Federal Reserve Bank of San Francisco (chairman)

Academy of Motion Picture Arts & Sciences (member)

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

Hollywood Radio and Television Society (member)

Human Rights Watch (director emeritus)

Smithsonian National Museum of American History (vice chairman of advisory board)

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

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ROBERT MORGADO

Mr. Morgado, age 76, our lead independent director, 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 Committee Membership(s):

Compensation Committee (Chair)

Nominating and Corporate Governance Committee (Chair)

Private Company Directorship(s):

Kaanapali Kai (chairman)

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

Involvement with Other Organization(s):

Maui Arts & Cultural Center

 

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

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

 

 

PETER NOLAN

Mr. Nolan, age 60, 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 2008 business combination of Activision, Inc. and Vivendi Games, Inc. (the “Vivendi Games Combination”).

Senior Advisor to Leonard Green & Partners

Director Since: 2013 (and from 2003 to 2008)

Activision Blizzard Board Committee Membership(s):

Audit Committee

Private Company Directorship(s):

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

Diamond Wipes International, Inc. (a company in which Nolan Capital has an ownership interest)

Golden Road Food Services, LLC (a company in which Nolan Capital 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

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

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

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CASEY WASSERMAN

Mr. Wasserman, age 44, 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 Membership(s):

Nominating and Corporate Governance Committee

Other Public Company Directorship(s):

Saban Capital Acquisition Corp. (since 2017)

Private Company Directorships:

Vox Media

Involvement in Other Organization(s):

LA 2028 Organizing Committee for the Olympic and Paralympic Games 2028 (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

 

 

ELAINE WYNN

Ms. Wynn, age 76, 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 as a director of Mirage Resorts from 1976 to 2000.

Co-founder of Wynn Resorts

Director Since: 2013

Activision Blizzard Board Committee Membership(s):

Compensation Committee

Other Public Company Directorship(s):

Wynn Resorts (from 2002 to 2015)

Involvement in Other Organization(s):

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

Communities in Schools (chairman of the national board)

Communities in Schools of Nevada (founding chairman)

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

Nevada State Board of Education (president)

 

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 in an uncontested election only if the number of shares voted “for” that nominee exceeds the number of shares that are voted “against” that nominee. For more information, see “Procedural Matters—What are my voting options 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.

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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

Our Board of Directors

 

We believe that our directors bring to our Board the practical wisdom and strong personal and professional characteristics, judgment, and leadership abilities necessary to keep our Company performing competitively in the market. For biographical summaries for our directors, please see “Proposal 1—Election of Directors” above.

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, and senior management 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.

In addition, the Nominating and Corporate Governance Committee will consider nominating persons who are submitted by stockholders, as described immediately below.

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Stockholder Recommendation of Director Candidates

Our stockholders may recommend independent director nominees directly to the Nominating and Corporate Governance Committee. 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 directly to our stockholders for election as directors in accordance with our Bylaws, including pursuant to the “proxy access” provisions, pursuant to which eligible stockholders may include nominees in our proxy materials. For more information, please see “Director Nominations and Other Stockholder Proposals for our 2020 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 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. The Nominating and Corporate Governance Committee evaluates candidates recommended by stockholders using the same criteria as for other candidates recommended by its members or other members of the Board.

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 and our Board’s committees, which involve an assessment of the performance of each standing committee of our Board and our Board as a whole. For more information, please see “—Annual Board, Committee, and Director Self Evaluations” below.

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 Mses. Bowers and Wynn is an independent director within the meaning of the Nasdaq Rules. Accordingly, our Board determined 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.

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Board Leadership Structure

 

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. As such, our chief executive officer does not serve as the chairman of our Board. Having different individuals serve as the chief executive officer and the chairman 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.

Our Board has also appointed a lead independent director, whose duties include coordinating the activities of the independent directors, monitoring the flow of information from the Board committees to the full Board, serving as a liaison between our chairman and our senior management, on the one hand, and the independent directors, on the other, and presiding at executive sessions of the independent directors.

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

 

In accordance with our Bylaws, a director nominee will be elected in an uncontested election only if the number of shares voted “for” that nominee exceeds the number of shares that are voted “against” that nominee. 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 earliest 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, at 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.

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 the director 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, at 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.

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Continuing Focus on Board Effectiveness

 

Our Board and its standing committees are focused on effectively overseeing our business for the benefit of our stockholders.

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 12 times during 2018, including at least once per quarter and in conjunction with the 2018 annual meeting of our stockholders. Each person who served on our Board during 2018 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 2018.

In accordance with our Corporate Governance Principles and Policies, all directors are expected to attend annual meetings of our stockholders. In 2018, all persons serving as directors at the time attended the annual meeting.

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Annual Board, Committee, and Director Self-Evaluations

 

We recognize the critical role that Board and committee evaluations play in ensuring the effective functions of our Board. To this end, the Nominating and Corporate Governance Committee annually leads an evaluation of our Board’s overall performance and the overall performance of each of our Board’s standing committees.

Complete Questionnaires Each director completes a robust questionnaire on an annual basis that addresses multiple aspects of Board and committee composition, eectiveness, and morale and also includes open-ended questions focusing on, among other things: (1) opportunities for improvement in Board performance; (2) the competency and contributions of individual directors; and (3) dierences between our Board and any other boards on which members serve.
Aggregate Results Our legal department aggregates the results for the Nominating and Corporate Governance Committee, so that individual responses are kept condential.
Analyze and Summarize e Nominating and Corporate Governance Committee discusses the feedback and provides a summary of it to the full Board, along with recommended changes to the Board’s policies and practices.
Act Responsively e Board acts responsively to address potential areas of improvement identied through the process, including updating its policies or practices as appropriate.
 

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 also encourage our directors to attend external programs and provide financial and administrative 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.

Set forth below is the current membership of each of our Board’s standing committees. Since January 1, 2018: (1) Ms. Bowers joined the Compensation Committee upon her election to the Board on January 12, 2018; and (2) as part of its annual assessment of the size, structure and composition of its committees, the Board made the following changes on January 27, 2018: Mr. Nolan replaced Mr.Morgado on the Audit Committee; Mr. Wasserman ceased to serve on the Compensation Committee; and Mr. Wasserman replaced Mr. Nolan on the Nominating and Corporate Governance Committee.

Also set forth below is a summary of the purpose and key responsibilities of each of the standing Board committees.

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AUDIT COMMITTEE

Members:

 

Robert Corti (Chair)
Hendrik Hartong III
Peter Nolan

Meetings Held in 2018:

7, including at least once per quarter

 

Purposes & Key Responsibilities

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

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

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 and evaluating the adequacy and effectiveness of our internal control over financial reporting and our management’s assessment of the same

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

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

Overseeing our policies relating to the ethical handling of conflicts of interest, including related party transactions (see “Certain Relationships and Related Person Transactions—Policies and Procedures Regarding Transactions with Related Parties” below)

Membership

Must have at least three members

All Audit Committee members must be determined by our Board to be independent directors under the Nasdaq Rules and the rules of the U.S. Securities and Exchange Commission (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

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

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 Rule 10A-3 of the Securities Exchange Act of 1934 (as amended, the “Exchange Act”) 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

 

Meetings

Must meet at least quarterly

 

Committee Charter

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

 

Engagement of Outside Consultants

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

 

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COMPENSATION COMMITTEE

Members:

 

 

Robert Morgado (Chair)
Reveta Bowers
Elaine Wynn

Meetings Held in 2018:

9, including at least once per quarter

 

Purposes & Key Responsibilities

Discharging our Board’s responsibilities relating to compensation paid to our directors and executive officers and overseeing compensation under our equity incentive plans and other compensation policies, programs, agreements, and arrangements

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

Please see “Executive Compensation—Compensation Discussion and Analysis—Decision-Making Approach to Executive Compensation—Roles of the Key Participants in the Executive Compensation Decision-Making Process” and “—Our Board’s Role in Risk Oversight—Compensation Risk Management” below for a further description of such responsibilities

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

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

 

Engagement of Outside 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 Compensation 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 consultant addressing these factors, the Compensation Committee concluded that Exequity’s service to the Compensation 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.

 

Membership

Must have at least two members

All Compensation Committee members must be:

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

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

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

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 of management in connection with the duties of a Compensation Committee member.

 

Meetings

Must meet at least four times annually

 

Committee Charter

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

 

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 2018, none of our executive officers served on the board of directors of any entity that had an executive officer serving on our Board.

 

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NOMINATING AND CORPORATE

GOVERNANCE COMMITTEE

Members:

 

 

Robert Morgado (Chair)
Barry Meyer
Casey Wasserman

Meetings Held in 2018:

2

 

Purposes & Key Responsibilities

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

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)

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)

Membership

Must have at least two members

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

 

Meetings

Must meet at least two times annually

 

Committee Charter

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

 

Engagement of Outside Consultants

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.

 

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Our Board’s Role in Risk Oversight

 

General 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:

 

RISK OVERSIGHT

BOARD OF DIRECTORS

Annually reviewing 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

Annually reviewing succession plans for our senior-most officers

Communicating regularly with our management about risk oversight

Delegating certain risk-management oversight functions to its standing committees, each of which regularly reports to our Board

Audit Committee

Playing the primary role in overseeing risk mitigation on behalf of our Board

Overseeing compliance with legal and regulatory requirements

Regularly receiving reports from senior management with respect to potential areas of significant risk and our internal controls and mitigation plans with respect to those risks

Meeting privately on a regular basis with our chief audit executive and representatives of our independent registered public accounting firm

Receiving regular guidance and feedback from representatives of our independent registered public accounting firm

Having full access to management and the ability to engage independent advisors

Compensation Committee

Overseeing the mitigation of risks that may be created by our compensation programs

Annually reviewing our incentive plans to ensure that they do not encourage excessive risk taking

Having full access to management and the ability to engage independent advisors

 

Nominating and Corporate Governance Committee

Overseeing the mitigation of risks associated with overall corporate governance and Board succession planning

Having full access to management and the ability to engage independent advisors

MANAGEMENT

Overseeing our day-to-day risk management processes • Regularly communicating with our Board and relevant Board committees on specific risk-related topics • Conducting annual risk assessments identifying key financial, operating and strategic risks and presenting those results to our Board

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Cybersecurity Risk Oversight

In order to defend against and respond to the threat of security breaches and cyberattacks, we have developed a comprehensive program that is designed to protect and preserve the confidentiality, integrity, and continued availability of all information owned by, or in the care of, the Company and our partners. This program also includes a cyber-incident response plan. Our Audit Committee oversees the identification and mitigation of potential cybersecurity risk, with the goals of protecting our intellectual property, maintaining consumer confidence, preserving employee data confidentiality, and minimizing information security threats to the Company and the users of our products and services. As part of this oversight, the Audit Committee receives regular updates from members of management with information security responsibilities with respect to the threats we face and our risk mitigation plans to address those threats. These updates include information security maturity assessment results and recommendations provided by a third-party independent review of our information security control environment and operating effectiveness.

 

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 2018, 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 and strategic 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;

cash bonuses to our executives and other employees are only paid if established performance metrics are achieved and/or the underlying operating 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 generally subject to multi-year vesting schedules, and any vesting in respect of underlying performance measures is capped.

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

cash-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 himself, the chief executive officer’s approval);

all equity-based awards to any employee require Compensation Committee approval, in addition to any management-level approval (e.g., for any executive other than himself, the chief executive officer’s approval);

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

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

our “clawback policy,” which can be viewed on our website at http://investor.activision.com/corporate-governance.cfm, pursuant to which performance-based compensation to an executive may be recovered in the event of an earnings restatement due to his or her 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 and the President and/or CEO of each of Activision, Blizzard, and King, which require each person subject to those guidelines 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 date on which he or she became subject to them (e.g., upon an 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.

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Stockholder Engagement Process

The Company regularly engages with key stockholders to solicit feedback as part of an effort to remain aware of our stockholders’ perspectives with respect to our executive compensation and corporate governance practices, as well as any other matters of importance to them. These efforts enhance the ongoing communications we have with our stockholders regarding our financial and operational performance.

In advance of last year’s annual meeting, members of our management reached out to stockholders who collectively held approximately 65% of our Common Stock and spoke with each such holder who was willing to speak with us. Again, in the fall of 2018, in an effort to gain additional perspective, members of our management reached out to stockholders who collectively held approximately 65% of our Common Stock and spoke with each such holder who was willing to speak with us. Our stockholders gave us feedback on our executive compensation program (please see “Executive Compensation—Compensation Discussion and Analysis—Overview—Stockholder Engagement and Our 2018 Stockholder Advisory Vote on Executive Compensation” below).

The Company reviews feedback sent to us from any of our stockholders, no matter the size of their 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.

We take the feedback received from stockholders seriously and have taken actions that have advanced our compensation and corporate governance practices in a manner that we believe is both responsive to that feedback and appropriate for the Company. We will continue to incorporate such feedback into our decision-making processes.

Our Executive Officers

Biographical summaries for our executive officers (including for Mr. Kotick, for whom a biographical summary is also 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 December31, 2018, filed with the SEC on February 28, 2019 (our “2018 10-K”).

Executive Succession Planning

As a part of various sessions during the year, our Board focuses on human capital, including by conducting formal reviews of our executive team, engaging in succession planning for our chief executive officer and other senior-most officers, and reviewing our overall organizational structure. In these sessions, among other things, our Board reviews the assumptions, processes, and strategy for expected and unexpected events which may result in the need to change our senior executive management team. Our Board’s goals are to have a process for effective executive development and succession and to be prepared for both the unexpected loss of a key leader and planned changes to our management team.

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, the Compensation Committee has 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 ten times (i.e., 10x) his or her then-current annual base salary and that each other executive officer, as well as the President and/or CEO of each of Activision, Blizzard, and King, 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.

The individuals subject to these guidelines are expected to accumulate the required stock within five years (so that any person who has been subject to the guidelines since the date on which these guidelines were adopted in 2012 should be in compliance, and any person who subsequently became subject to them (e.g., upon his or her election as an executive officer) has five years from the date on which he or she became subject to them to be in compliance). Further, if such a person 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 them.

As of April 1, 2019, each named executive officer who, as of that date, had been an executive officer of the Company for five or more years satisfied these guidelines.

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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.

Corporate Governance Principles and Policies

Our Corporate Governance Principles and Policies establish a framework for the Board’s exercise of its duties and responsibilities in service of the best interests of the Company and our stockholders. They address, among other things, the role of our Board, the composition of our Board and that of its standing committees, meetings of the Board and its committees, and director stock ownership requirements. You can access our Corporate Governance Principles and Policies on our website at http://investor.activision.com/corporate-governance.cfm.

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, Code of Conduct, and Policy on Recoupment of Performance-Based Compensation Related to Certain Financial Restatements 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.

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Diversity and Inclusion Initiatives

We aspire to have an inclusive culture where diversity is embraced and everyone can thrive. We believe this is one of the reasons why, for five consecutive years, Activision Blizzard has been recognized as one of the “100 Best Companies to Work For” by Fortune magazine. Activision Blizzard also earned a top score of 100 on the 2019 Human Rights Campaign Foundation’s Corporate Equality Index and the distinction of being one of the “Best Places to Work for LGBTQ Equality” in our inaugural year of participation. We are proud of these accolades because we believe that the most innovative work comes from a culture in which all employees can be their full selves.

Our efforts around diversity and inclusion focus on five strategic areas:

Our People—In order to create products that attract a growing global audience, it is important that our employees reflect that diversity. While we define diversity in its broadest sense to include characteristics seen and unseen, we know representation at all levels of the organization matters. Our talent acquisition efforts aim to attract, build relationships with, and recruit diverse talent. To that end, we partner with organizations like Grace Hopper and Women in Games International. We also continue to focus on connecting with underrepresented groups through our University Relations programs, where we have continued to increase our representation of women and underrepresented minorities.

Our Leaders—Our leaders create environments in which their teams are empowered to embrace diversity and inclusion. In 2018, our senior leadership attended “Inclusive Leadership Experience” workshops which were designed to explore unconscious bias and reinforce the characteristics and behaviors of an inclusive leader. This year we intend to extend the workshop to a broader population, in order to further develop this capability with the knowledge and tools needed to lead inclusively.

Our Culture—Across our entire organization, including Activision, Blizzard, King, and our corporate headquarters, we continue to expand employee resource groups to drive cultural awareness, professional development, networking, community involvement, and player connections. In 2018, we celebrated various heritage moments, including our annual Veterans Day of Service, an International Women’s Day celebration, and a PRIDE celebration at the Activision Blizzard headquarters. Further, Blizzard hosted an “Inclusion Nexus” for the nearly 40,000 people who visit its annual BlizzCon event to share with them how we value diversity and inclusion at Blizzard, in the gaming industry, and in games themselves. During this year’s Game Developers Conference, we hosted our 2nd annual D&I Mixer for employees from across the enterprise. We will continue to celebrate key diversity and inclusion moments through our employee resource groups across the organization.

Our Content—We believe that inclusive game design is an opportunity for us to lead the industry and influence more open and inclusive gaming communities. King has developed a unique training tool designed to help its employees assess the diversity of the game characters they create, which is now being tested across the broader Activision Blizzard organization. Further, another character from Overwatch, Soldier: 76, was identified as gay, making him the franchise’s second openly LGBTQ character. Creating more diverse characters is only part of what it means to be more inclusive in game design. We are also focused on ways to make our games more accessible to gamers with a wide range of disabilities, including physical, visual, auditory, or cognitive disabilities, with the goal of creating content and experiences that welcome all players.

Our External Communities—We see the opportunity to drive positive impact outside our walls through external communities and partners. Last year, Activision Blizzard established a fellowship through Minds Matter of Los Angeles, a non-profit organization that offers college prep programs for students in under-resourced communities. In 2019, King became the first UK-based gaming company to sign onto the “Tech Talent Charter,” a pledge that aims to improve industry diversity in the UK workforce. Across the company, we focus on the next generation of talent through programs that provide young people in underserved communities with exposure to education and career opportunities in science, technology, engineering, and mathematics (STEM). In 2018, Blizzard again partnered with “Girls Who Code,” an organization focused on closing the gender gap in technology, to sponsor two major initiatives, including a seven-week program hosted at Blizzard headquarters for girls to learn to code and gain exposure to technology jobs. For the fourth year in a row, King partnered with Diversi, a nonprofit organization working for greater diversity in gaming, to award 15 female students full scholarships to the Game Developers Conference, with a tailored development program and special access to industry champions. Our University Relations team worked with STEM Advantage, an organization that mentors and prepares women and underserved communities to pursue careers in STEM, in selecting participants for our upcoming 2019 intern program.

While we have made great strides in our diversity and inclusion efforts, we understand and embrace that there is still work to be done, and it remains a priority for us. Our growth is driven by our ability to innovate. Our ability to innovate is enhanced by diverse teams working in an inclusive environment. By firmly anchoring diversity and inclusion in our growth strategy, we focus our efforts to drive meaningful change in all the worlds in which we live, work, and play.

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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 2018.

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 principles and objectives;

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

describing the elements and rationale behind our compensation programs and awards for 2018, as well as changes made for 2019.

This CD&A includes:

 

 

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 principles and programs, as well as compensation-related actions taken during 2018 for our named executive officers. For 2018, our named executive officers are:

Robert Kotick, our Chief Executive Officer;

Spencer Neumann, our former Chief Financial Officer;

Collister Johnson, our President and Chief Operating Officer;

Michael Morhaime, the former President and Chief Executive Officer of Blizzard;

Brian Stolz, our Chief People Officer;

Chris B. Walther, our Chief Legal Officer; and

Riccardo Zacconi, the Chief Executive Officer of King.

We terminated Mr. Neumann’s employment effective as of December 31, 2018, and Mr. Morhaime ceased to be an employee of the Company on April 7, 2019. Further, in 2018, the heads of our operating units ceased to be categorized as “executive officers” for purposes of SEC rules, and Messrs. Morhaime and Zacconi are included as named executive officers in accordance with SEC rules as former executive officers who would have been designated as NEOs had they been serving as executive officers at the end of the fiscal year.

2018 Business Performance

Based on a number of metrics, 2018 was a strong year for us. For example, during 2018:

Net revenues were a record $7.50 billion.

Net revenues from digital channels were a record $5.79 billion.

Earnings per diluted share were a record $2.35.

Operating income was $1.99 billion.

Operating cash flow was $1.79 billion.

Net bookings(1) were a record $7.26 billion.

Net bookings(1) from digital channels were a record $5.72 billion, and in-game net bookings(1) were a record $4.2 billion.

In the fourth quarter, we had 356 million monthly active users (“MAUs”),(2) 53 million of which were at Activision, 35 million of which were at Blizzard, and 268 million of which were at King.

 

 

(1)

Net bookings is an operating metric that is defined as the net amount of products and services sold digitally or sold-in physically in the period, and includes license fees, merchandise, and publisher incentives, among others. Net bookings is equal to net revenues excluding the impact from deferrals.

(2)

We monitor MAUs as a key measure of the overall size of our user base. MAUs are the number of individuals who accessed 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 accesses two of our games would be counted as two users. In addition, due to technical limitations, for Activision and King, an individual who accesses the same game on two platforms or devices in the relevant period would be counted as two users. For Blizzard, an individual who accesses the same game on two platforms or devices in the relevant period would generally be counted as a single user.

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Call of Duty was again the number-one selling console franchise worldwide for the year, a franchise feat accomplished for nine of the last 10 years.(3) In its launch quarter, Call of Duty: Black Ops 4 sold-through more units than Call of Duty: Black Ops III, with PC units more than tripling. We released Call of Duty: Black Ops 4 on PC through Blizzard’s Battle.net for the first time in franchise history.

Spyro Reignited Trilogy had a strong launch, and Crash Bandicoot N. Sane Trilogy passed 10 million units sold-in since its 2017 release, highlighting the enduring nature of Activision’s classic franchises.

World of Warcraft: Battle for Azeroth set a new day-one franchise record with more than 3.4 million units sold-through.

The first season of the Overwatch League culminated in its Grand Finals at Barclays Center in New York in June, which had a sold-out live audience and was watched by millions of viewers worldwide on TV networks and streaming platforms. We sold another eight Overwatch League teams ahead of the second season, which began in February 2019, meaning we now have 20 city-based teams owned by some of the most experienced traditional sports and esports partners in the world.

Candy Crush Saga was the highest-grossing title in U.S. mobile app stores in 2018, and King had two of the top-10 highest-grossing titles in the U.S. mobile app stores for the year, a feat that it has now achieved for five years in a row.(4)

Advertising in the King network was profitable each quarter and continued to build momentum, with quarterly revenue growing sequentially throughout the year.

However, we did not achieve all the goals we set for ourselves. As a result, consistent with our pay-for-performance approach, overall CAIP bonus payments to our NEOs ranged between 52% and 103% of target for the year and, for the portion of the outstanding equity awards granted to our NEOs that had the potential to vest based on 2018 financial performance objectives, achievement, as a percentage of target, ranged from 0% to 100%.

Our Relative Total Shareholder Return

The following graph compares the cumulative total shareholder return (“TSR”) 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, 2013, 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.

 

 

(3)

Based on data from the NPD Group, GfK, GSD, and internal estimates, based on dollar sales of front-line games.

(4)

Based on U.S. ranking for Apple App Store and Google Play Store combined, per App Annie Intelligence for 2014–2018.

 

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Our Corporate Strategy

Our executive compensation program plays a key role in our financial and operational success. We place great importance on our ability to attract, retain, motivate, and reward talented executives who can continue to grow our business by putting focus on the four key strategic drivers of our business:

Strong cadence of major content releases: We are focused on releasing high quality major content for our key internally owned franchises more frequently, to invigorate our communities and bring in new audiences.

Growing stream of live operations: We continue to grow our “live operations” capabilities, delivering content, services, features, and events, to engage our communities and drive in-game revenues.

Expansion of our franchises to mobile: We are building on our mobile leadership as we extend our acclaimed console and PC franchises to the largest and fastest-growing gaming platform.

Broader franchise engagement models: We are expanding the reach, engagement, and monetization of our franchises through initiatives in esports, in-game advertising, and consumer products.

Our executive compensation program is designed to reward the achievement of specific financial objectives and the creation of long-term stockholder value, and the strategic drivers above are the underpinnings of the individual strategic objectives established for our executives.

Aligning Pay with Performance

A significant portion of the compensation our executive officers receive is in the form of performance-based bonuses and performance-aligned equity awards. Executive officers are rewarded according to the financial performance of the Company and/or its operating units, as well as the level at which they achieve the strategic objectives our Compensation Committee sets for each of them. This approach is designed to hold our executive officers accountable for our performance and thereby align their interests with those of our stockholders. The following table illustrates certain elements of our executive compensation program, with a focus on metrics that are most prevalent among our executive officers.*

Name

Program

Performance

Period

Service

Period

Performance

Assessment

Pay-For-Performance Linkage

Annual incentive

CAIP

1 year

~1.2 years from beginning of performance year

AB Adjusted OI, EPS, FCF

Annual assessment of performance versus objectives established at beginning of year

Blizzard Profit Sharing Plan

Profitability

Direct alignment to business unit profitability

King Profit Sharing Plan

Long-term incentive

PSUs (OI)

1 year

Varies, generally up to 3.25 years from grant

AB Adjusted OI

Assessment of performance versus objectives established for relevant performance period

PSUs (Long-Range Strategic Plan)

3-year cumulative

Varies, generally 3.5 years from grant

Assessment of financial objectives set forth in the Company’s long-range strategic plan

Stock
Options

10-year life (contingent on employment)

Varies, generally up to 3 years from grant

N/A

Direct alignment with shareholder interests, as any value appreciation is contingent on stock price performance

* This table is not intended to be exhaustive. For example, long-term incentives granted to our NEOs assessed 2018 performance against financial metrics for AB Adjusted Operating Income, AB Adjusted EPS, AB Adjusted EPS growth, Blizzard Adjusted Operating Income, King Adjusted Operating Income, and King Adjusted EBITDA.

 

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Our 2018 Financial Performance. The Compensation Committee believes that financial objectives aligned with our AOP for a given year are a robust and meaningful measure of the performance of our executives. The process for creating our AOP is rigorous and includes a detailed review of market trends, a “bottoms-up” build of financial objectives based on each franchise’s content plans, and the creation of a detailed budget with respect to all anticipated operating costs. In some instances, our financial objectives for a year may be lower than the prior year’s objectives or results as underlying variables, like market trends, the volume of titles or other content we plan to release, or our level of planned investment in growth initiatives, change.

Set forth below are certain of the Activision Blizzard-level financial metrics used to assess our named executive officers’ 2018 performance:

Financial Performance Measures(1)

(dollars in millions, except share-based amounts)

Performance Goals and Actual Results

AOP

Goal

Actual

Results

Actual

Achievement

 

AB Adjusted Operating Income

$

2,727

$

2,482

91%

 

AB Adjusted EPS

$

2.68

$

2.59

97%

 

AB Adjusted Free Cash Flow

$

1,660

$

1,682

101%

 

(1)

The corporate performance measures underlying 2018 performance-related compensation are non-GAAP measures. For more information on these non-GAAP measures, including how these measures are calculated and why our Compensation Committee believes they are an appropriate way to assess our executives’ performance, see “General—Financial Measures Used in this Proxy Statement—Financial Metrics Used to Measure 2018 Compensation-Related Performance” above.

 

Performance Alignment via our CAIP. For 2018, each of our executive officers other than Mr. Zacconi was eligible for a bonus under the CAIP, contingent upon the executive’s achievement of the financial and strategic objectives set for him by the Compensation Committee at the beginning of the year. For 2018, financial metrics for all NEOs participating in the CAIP included profitability and free cash flow measures. For purposes of these financial metrics, our performance ranged from 78% to 101% of target, resulting in CAIP-related payouts for those metrics ranging from 0% to 101% of target, while performance against the strategic objectives ranged from 33% to 115% of target. The Compensation Committee did not apply incremental judgment or discretion in determining CAIP bonus payouts and, as such, they directly reflect performance against the specific objectives established by the Compensation Committee at the beginning of the year. As such, for 2018, Mr. Kotick received a CAIP-related payout equal to 70% of his target bonus, and our other NEOs received CAIP-related payouts ranging from 52% to 103% of their target bonuses.

The following tables illustrate the relationship between the Company’s 2018 financial performance, as measured by the Activision Blizzard-level financial objectives underlying the opportunities for our participating NEOs, and the payments awarded them based on both financial and strategic performance, 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 NEO was eligible to receive under the CAIP with regard to the relevant metric. For further detail on the 2018 bonus opportunities under the CAIP for our participating NEOs, please see “—Elements of Our Executive Compensation Program for 2018—Corporate Annual Incentive Plan and Other Performance-Based Bonuses” below. As discussed under “General—Financial Measures Used in this Proxy Statement” above, performance is measured by reference to non-GAAP measures.

(2)

The actual payout as a percentage of target shown above for each participating NEO represents the bonus amount specifically related to performance measured against his 2018 CAIP opportunity.

 

Please see “—Elements of Our Executive Compensation Program for 2018—Corporate Annual Incentive Plan and Other Performance-Based Bonuses—Incentive Opportunities under the CAIP” below for more information.

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Performance Alignment via our Profit Sharing Plans. For 2018, Messrs. Morhaime and Zacconi were each eligible for a cash bonus contingent on the profitability generated by his operating unit, as well as, subject to his right to a specified minimum percentage of any profit sharing pool generated, our assessment of his contributions to his operating unit’s performance. As a result of his contributions and performance during 2018, Messrs. Morhaime and Zacconi each received a profit-sharing payment for the year. Please see “—Elements of Our Executive Compensation Program for 2018—Corporate Annual Incentive Plan and Other Performance-Based Bonuses—Profit Sharing Plans” below for more information.

Performance Alignment via our Equity Awards. Equity incentives to our NEOs for 2018 consisted of: (a) performance-based vesting restricted share units, each representing the conditional right to receive one share of our Common Stock upon the achievement of one or more specified performance objectives and continued employment through the stated vesting date (“PSUs”); and (b) stock options. All equity awards granted to our named executive officers during 2018 were aligned with performance, as they were all either PSUs with vesting contingent on the achievement of specified performance objectives or stock options, which are inherently performance-based, since any financial gain is conditioned upon the appreciation in the value of our Common Stock. In addition, all of the PSUs include a threshold level of performance (e.g., 85% of the objective) which, if not satisfied, will result in the cancellation of the award and a maximum level of performance (e.g., 125% of the objective) which, if exceeded, will not result in any additional vesting of the award. Further, each named executive officer had equity awards had the potential to vest based on 2018 financial performance objectives. Please see “—Elements of Our Executive Compensation Program for 2018—Equity Awards” below for more information.

Overall Pay-For-Performance Alignment. For 2018, 94% of the CEO’s total compensation, and 79% of the average total compensation of the remaining named executive officers, was performance-based, as illustrated below:

 

 

As a result of this strong pay-for-performance alignment, overall CAIP bonus payments to our NEOs ranged between 52% and 103% of target for the year and, for the portion of the outstanding equity awards granted to our NEOs that had the potential to vest based on 2018 financial performance objectives, achievement, as a percentage of target, ranged from 0% to 100%.

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Our Compensation Program Best Practices

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

Performance-Aligned Equity Awards—We award performance-based vesting restricted share units (i.e., PSUs) with vesting contingent on the achievement of specified performance objectives and stock options, for which any financial gain is conditioned upon the appreciation in the value of our Common Stock;

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

Conservative Granting of Equity—In an effort to minimize potential stockholder dilution, our Compensation Committee grants equity incentives judiciously and reviews our share usage (i.e., our so-called “burn rate”) quarterly;

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 bonus payments if the applicable underlying operating 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 executive officers and the only retirement plans they participate in are our 401(k)/qualified defined contribution retirement 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 Incentive Awards—In the event of an earnings restatement, we may “claw back” certain performance-based compensation (including both short-term and long-term incentives) paid to the executives responsible;

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.

Stockholder Engagement and Our 2018 Stockholder Advisory Vote on Executive Compensation

The Company regularly engages with key stockholders to solicit feedback as part of an effort to remain aware of our stockholders’ perspectives with respect to our executive compensation and corporate governance practices, as well as any other matters of importance to them. We seek to establish sustained, long-term, and robust stockholder engagement on these topics to ensure our practices align with our stockholders’ interests. Our direct engagement with stockholders, during 2018 as well as in previous years, has influenced a number of important actions taken by our Compensation Committee with respect to compensation for our executive officers.

 

 

In conducting our engagement in advance of the 2018 annual meeting, members of our management team reached out to stockholders who collectively held approximately 65% of our Common Stock and spoke with each such holder who was willing to speak with us. Ninety-two percent of the votes cast at the 2018 annual meeting of our stockholders were voted in favor of our advisory “say-on-pay” proposal.

Following the 2018 annual meeting, we continued engagement during the fall of 2018, again reaching out to stockholders who collectively held approximately 65% of our Common Stock to gain additional perspective from them on our executive compensation and corporate governance practices, and any other topics about which they desired to engage. The feedback we received was positive and echoed the results of our recent advisory “say-on-pay” proposal.

A summary of common themes we heard from our stockholders throughout the year with respect to our executive compensation, which was presented to the Compensation Committee, is set forth below, along with key elements of our existing programs.

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Themes We Heard from Our Stockholders

 

Highlights of Our Compensation Programs

Endorsement of continued focus on pay-for-performance alignment with our strategic objectives

Continued focus on aggregate levels of compensation paid to our executives

Calls for reduced complexity within certain contract provisions

Calls for limitation of overlapping pay opportunities

Appreciation of our Compensation Committee’s responsiveness and actions to improve our compensation programs

 

Strong pay-for-performance alignment

 

94% of total compensation for our Chief Executive Officer for 2018 was performance-based

No increase in our Chief Executive Officer’s base salary since 2017

No awards of time-based vesting restricted share units to any NEO during 2018

A 12% decrease in the annual bonus paid to our Chief Executive Officer under the CAIP for 2018 as compared to 2017, reflecting financial and strategic performance falling short of expectations

 

Mix of compensation that incentivizes both our short-term strategic objectives (e.g., through cash bonus programs) and long-term strategic objectives (e.g., via equity incentives)

Use of clearly-defined performance goals, both short- and long-term, which provide a direct alignment between our business strategy, financial results, and incentive payments

Grant performance-based equity awards contingent on cumulative three-year performance for certain executives

Utilize certain equity awards that provide for vesting beyond any applicable contract end dates

Fiscally responsible and judicious approach to equity usage, with three-year average equity usage among the bottom one-third of our comparator group

Actions Taken in Response to 2018 Shareholder Engagement.

 

While our Compensation Committee and stockholders, as demonstrated by their vote and feedback received during our engagement, are generally pleased with our compensation programs, the most actionable feedback we received related to “overlapping pay opportunities for our CEO.” As such, in determining the 2018 equity award for Mr. Kotick, our Compensation Committee chose a balanced mix of new performance metrics that were intended to further strengthen the pay-for-performance alignment of his incentives, with the vast majority of these awards eligible to vest outside of his current contract term, through:

 

Stock Options: incentivizing an absolute increase in our stock price;
PSUs (Relative TSR): incentivizing an increase in our stock price relative to the S&P 500; and
PSUs (AB Adjusted EPS): incentivizing our profitability over a cumulative three-year period.

 

For more information, please see “—Employment Agreements—Robert Kotick—Equity Awards—2018 Equity Awards” below.

 

Given the support we received from 92% of our stockholders at the 2018 annual meeting, positive feedback we received from our stockholders, and input we received from our independent compensation consultant, among other considerations, the Compensation Committee elected to keep our executive compensation principles and programs for 2018 generally consistent with the prior year.

 

We are committed to continuing our active engagement with stockholders, in a manner that is both responsive to the input we receive and appropriate for the company, as well as preserving our emphasis on pay-for-performance.

 

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Compensation Principles and Objectives

 

Our Compensation Principles

Align Compensation with Stockholder Interests—A substantial portion of an executive’s compensation opportunity is variable, stock-based, and linked to performance metrics that are intended to increase stockholder value, so that executive compensation is aligned with the interests of stockholders.

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

Pay Competitively—We offer competitive total compensation in order to attract, retain, and motivate top executives with the characteristics needed to operate in our industry.

The Compensation Committee regularly reviews and refines our executive compensation program to ensure it supports our compensation principles. The following are the current objectives underlying the compensation of our executive officers:

What We Do

We Balance Near-Term and Long-Term Strategic Objectives—We provide a mix of compensation to incentivize both our short-term strategic objectives (e.g., through cash bonus programs) and long-term strategic objectives (e.g., via equity incentives).

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 the Objectives Underlying Incentive Bonuses—The CAIP opportunities for our participating executive officers include both financial and strategic objectives.

We Use Employment Agreements to Attract and Retain Key Executive Talent—We use employment agreements to attract and retain executive talent.

We Can Claw Back Improperly Earned Compensation—In the event of an earnings restatement, we may “claw back” performance-based compensation (including both annual and long-term incentive awards) paid to the executives responsible.

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 Provide Limited Benefits—We provide modest supplemental health and welfare benefits, retirement benefits, and perquisites.

 

What We Don’t Do

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 Generally Provide Change-of-Control Protection—Our Chief Executive Officer and the chief executive officer of King are the only named executive officers entitled to any change-of-control protection, and each would only receive it if terminated after a change of control (i.e., requiring a “double trigger”).

We Don’t Gross Up Section 280G Excise Taxes—Neither Mr. Kotick nor Mr. Zacconi—our only two named executive officers entitled to a payment upon a change of control (and then, only upon a subsequent termination of his employment)—is entitled to a gross-up in respect of any excise taxes imposed under Section 280G of the Internal Revenue Code on those payments.

We Don’t Reprice Stock Options—The Activision Blizzard, Inc. 2014 Incentive Plan (the “2014 Plan”), the plan under which all of our equity incentive awards are now granted, prohibits the repricing of “underwater” equity awards.

We Don’t Pay Dividends on Unearned Awards—None of our equity awards are entitled to receive dividend equivalents, and we do not intend to grant such awards in the future.

We Don’t Guarantee Salary Increases—None of our named executive officers are entitled to a guaranteed salary increase.

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Decision-Making Approach to Executive Compensation

 

Factors Influencing Compensation Decisions

Our Compensation Committee’s believes 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 attract, retain, and motivate the key executive talent necessary for our 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 attract, retain, and motivate that individual.

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 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;

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

rising costs of development, partially due to increasingly complex technological requirements; 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 (e.g., gaming, entertainment, and technology), including some that are larger and more mature than ours, 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.

Use of Employment Agreements

Employment agreements are common in the broader entertainment industry, from which we recruit talent, and we believe that having multi-year employment agreements with our executives is critical in enabling us to attract and retain them. Our employment agreements with our executives specify base salary, incentive opportunities, and the terms and conditions of any equity awards, and include provisions regarding the consequences of termination of employment and restrictive covenants, including non-competition and non-solicitation provisions. The terms of each of these agreements have been approved by the Compensation Committee, which utilized its judgment to determine the appropriate amount and form of compensation and other terms of employment necessary to recruit, retain, and motivate the executive, based in part upon the specific negotiations with the executive. Please see “—Employment Agreements” below for further information about the agreements with our named executive officers.

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Comparator Company Data and Compensation Surveys Referenced

The Compensation Committee has selected 16 comparators against which it benchmarks our executive compensation:

Adobe Systems Inc.

Netflix, Inc.

Booking Holdings Inc.

PayPal Holdings, Inc.

CBS Corporation

Salesforce.com, Inc.

Discovery Communications, Inc.

Sirius XM Holdings Inc.

eBay Inc.

Symantec Corporation

Electronic Arts Inc.

Twenty-First Century Fox, Inc.

Expedia, Inc.

The Walt Disney Company

Intuit Inc.

Viacom, Inc.

The Compensation Committee, in evaluating our executive compensation program, utilizes compensation data obtained from SEC filings made by companies in our comparator group, 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, the Compensation Committee considered: companies with whom we have historically directly competed for talent; participants within our industry sectors, as well as companies in adjacent industries; companies with comparable business models and organizational complexity; companies with comparable geographic footprints; and companies with comparable annual revenues and/or market capitalization. Among these comparator companies, our 2018 revenues of $7.5 billion approximate the 26th percentile (by reference to the most recently available annual data for each), while our market capitalization approximated the 47th percentile (as of April 2019).

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.

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 2018, the surveys referenced included ones published by Radford. These additional sources of data provide robust supplemental pay information that is not publicly available.

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 element. As noted above, our Compensation Committee does not target a specific percentile of the compensation paid to the executives at companies against which we compete, or may compete, for key talent but, rather, believes that pay levels should be determined using a holistic approach, involving an evaluation of a wide variety of factors.

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

Decisions regarding compensation for our executive officers are at the 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 principles.

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 or her performance in light of those goals and objectives, and determines his or her 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.

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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 the 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 principles 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:

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;

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

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

Our chief executive officer reviews the performance of the Company’s executive officers and provides his or her 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 2018, the Compensation Committee consulted with our NEOs and our Chief Compliance Officer and Corporate Secretary, Jeffrey Brown.

Impact of Tax and Accounting Considerations

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

Section 162(m) generally prevents a publicly held corporation from taking a U.S. tax deduction when compensation paid to a “covered employee” exceeds $1.0 million in any taxable year. Prior to the enactment of the Tax Cuts and Jobs Act, signed into law on December 22, 2017 (the “TCJA”), a corporation’s covered employees generally consisted of any person who was the chief executive officer at any time during the tax year and the next three most highly paid NEOs as of the last day of the taxable year, other than the chief financial officer, who was excluded. Further, before the TCJA was enacted, “performance-based” compensation was not subject to this limit on deductibility, provided such compensation met specified requirements. Deductibility of performance-based compensation under Section 162(m) was eliminated by the TCJA, effective January 1, 2018, subject to limited transition rules. In addition, the definition of “covered employees” under Section 162(m) was expanded as of January 1, 2018, to include any person who was the chief financial officer at any time during the relevant tax year and to provide that any person who was a covered employee as of January 1, 2017, or becomes a covered employee thereafter, will remain a covered employee in perpetuity.

As a result, for taxable years beginning after December 31, 2017, other than any compensation “grandfathered” under the TCJA transition rules, we will not be able to deduct any compensation in excess of $1 million paid to any of the executives described above. We have considered, and will continue to consider, the applicability of the transition rules to our executive compensation.

We continue to believe it is important that we retain the flexibility to structure compensation arrangements necessary to attract, retain, and motivate the best executive talent, even if such arrangements may result in non-deductible compensation expenses. We have not currently made any changes to our executive compensation program in response to the TCJA’s impact on 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.

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Elements of Our Executive Compensation Program for 2018

 

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. We aim to incentivize our executives to drive corporate financial performance by basing a significant portion of their compensation on achieving financial and strategic objectives. Our compensation principles allow us to attract, retain, and motivate the best talent in our industry, as evidenced by our performance.

Base Salary

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

None of our named executive officers had contractual entitlements to salary increases during 2018 (see “—Employment Agreements” below). Further, as noted below, Mr. Kotick’s annual base salary was not increased for 2018 or 2019.

Salary increases are generally only provided to an executive officer:

upon his or her 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 2018 and 2019 during our annual review process, along with any other adjustments during 2018 and 2019, to date:

 

Name

Salary as of

12/31/2017

($)

 

Changes

during 2018

(%)(1)

 

Salary as of

12/31/2018

($)(1)

 

Changes

during 2019

as of date hereof

(%)(1)

 

Salary as of

date hereof

($)(1)

 

Robert Kotick

 

1,750,000

 

(2)

1,750,000

(2)

(2)

 

1,750,000

(2)

Spencer Neumann

 

850,000

 

+2.5

(3)

871,420

 

(4)

 

(4)

Collister Johnson

 

1,300,000

 

+2.3

(5)

1,329,640

 

+1.5

 

 

1,349,585

 

Michael Morhaime

 

1,367,105

(6) 

+3.0

(6)

1,408,118

 

(7)

 

(7)

Brian Stolz

 

666,380

 

+3.0

 

686,371

 

+1.0

 

 

693,371

 

Chris B. Walther

 

725,609

 

+5.0

 

761,889

 

+11.0

 

 

845,697

 

Riccardo Zacconi

 

517,677

(8)

+3.5

 

535,795

(8)

 

 

535,795

(8)

(1)

Other than as discussed in footnote (7) below, any changes to base salary were effective in February of either 2018 or 2019, following our annual salary review during that year.

(2)

In accordance with his current employment agreement with us, dated as of October 1, 2016 (the “Kotick Employment Agreement”), Mr. Kotick’s annual base salary was decreased by 26% effective January 1, 2017. Mr. Kotick’s salary has not changed since that time. For more information on the Kotick Employment Agreement, see “—Employment Agreements—Robert Kotick” below.

(3)

The 2.5% increase approved for Mr. Neumann during our 2018 annual salary review is equivalent to a 3.0% annualized base salary adjustment, adjusted to reflect his May 30, 2017 date of hire.

(4)

We terminated Mr. Neumann’s employment effective as of December 31, 2018.

(5)

The 2.3% increase approved for Mr. Johnson during our 2018 annual salary review is equivalent to a 3.0% annualized base salary adjustment, adjusted to reflect his June 26, 2017 date of hire.

(6)

On January 1, 2018, the Blizzard Holiday Plan (a broad-based program for employees of Blizzard pursuant to which participants received a percentage of their salary at year-end) was eliminated. As such, the base salary reflected for Mr. Morhaime as of December 31, 2017, has been adjusted to reflect the inclusion of an amount equal to the payment he received under the Blizzard Holiday Plan for 2017 (i.e., $369,218).

(7)

Mr. Morhaime’s base salary was reduced to a rate of $2,500 per month (or $30,000 per year) effective January 1, 2019, in connection with his transition from serving as the President and Chief Executive Officer of Blizzard to serving the Company in an advisory capacity. Mr. Morhaime ceased to be an employee of the Company on April 7, 2019.

(8)

Mr. Zacconi is paid in British pounds. The base salaries in the table represent the £410,000 to which he was entitled as of February 2017, the £424,350 to which he was entitled as of February 2018, and the £424,350 to which he was entitled as of February 2019, in each case converted using an end of 2018 spot exchange rate of 1.262626 British pounds to the U.S. dollar.

Corporate Annual Incentive Plan and Other Performance-Based Bonuses

Incentive Opportunities under the CAIP

CAIP Plan Design: Driving Financial Results and Strategic Initiatives

Cash bonuses under our CAIP are designed to drive our financial results and to incentivize individual contributions toward operational and other strategic initiatives. To that end, for 2018, 60% of the target opportunity under the CAIP for our executive officers who participated in the plan was based on financial objectives and the remaining 40% was measured against three or four specific, measurable, and non-subjective annual strategic objectives established by the Compensation Committee at the beginning of the year. For 2019, 60% of the target opportunity for the participating executives will continue to be based on financial

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objectives and the remaining 40% will be measured against a broad set of key annual and long-term priorities established by the Compensation Committee.

These bonuses were historically structured to simultaneously 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, there was a single performance objective that, if met or exceeded, would allow for the payment of a bonus to each executive to the extent permitted under the 2014 Plan. Then, the Compensation Committee, using the negative discretion permitted by the tax rules, would reduce the payment to him so that his actual bonus would match his actual performance. Following the enactment of the TCJA, the performance-based compensation exception to Section 162(m) that we utilized to achieve deductibility for the bonuses is no longer available. However, because the TCJA was enacted shortly before the Compensation Committee established the 2018 bonus opportunities, and we were not then certain what the scope of the transition relief would be, for 2018 we continued our historic practice of having a single performance metric that, if met or exceeded, would allow for the payment of bonuses under the 2014 Plan, subject to negative discretion. For 2019, given the impact of the TCJA, we did not establish a single objective the achievement of which would “fund” the bonuses for the year (although the Compensation Committee preserved the approach of using a threshold performance measure, as described herein).

For 2018, if AB Adjusted Operating Income for the year was at least 75% of the AB Adjusted Operating Income objective set forth in the AOP for the year, the bonus to be paid to each executive officer would be initially set at the stockholder-approved limit of $10 million, 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 2018. If AB Adjusted Operating Income for 2018 was greater than 75%, but less than 85%, of the AB Adjusted Operating Income objective set forth in our 2018 AOP, the Compensation Committee would then use its negative discretion to reduce or eliminate the portion of each bonus contingent on financial objectives (so that any bonus an executive received would only reflect his performance vis-à-vis his strategic objectives). In either case, the Compensation Committee would use that discretion to reduce or eliminate the bonus for each executive officer to reflect his performance in accordance with the objectives and formula described below under “—Resulting 2018 Payments under the CAIP”. For 2019, the Compensation Committee expressed the intent to reduce or eliminate all bonuses under the CAIP for our executives, including the portion contingent upon non-financial objectives, if the AB Adjusted Operating Income for 2019 was less than 90% of the AB Adjusted Operating Income objective set forth in the 2019 AOP.

For 2018, as described below under “—Evaluation and Rewarding Performance: Resulting 2018 Payments under the CAIP,” the threshold for performance for the executives’ financial goals was either 75% or 85% of the target for that measure set forth in the 2019 AOP. For 2019, the threshold required to be met before our executives will receive any payment under the CAIP with regard to any financial metric was increased to 90% of the target for that measure set forth in the 2019 AOP.

For 2018, as described below under “—Evaluation and Rewarding Performance: Resulting 2018 Payments under the CAIP,” performance between the threshold and maximum performance level results in an equivalent payment (e.g., 85% performance as a percentage of target results in a payment equal to 85% of the target). For 2019, there will be a reduction in the payments to our executive officers under the CAIP for below-target performance related to a financial metric (so that performance at 90% of the target for that metric set forth in the 2019 AOP will result in a payment of 50% of the target and performance at 95% of the target set forth in the 2019 AOP will result in 85% of the target payment, while above-target performance related to a financial metric will continue to be linear (e.g., 115% performance as a percentage of target results in a payment equal to 115% of the target)).

Setting Target Payout Opportunities under the CAIP

In setting the target payout opportunities for each of our participating named executive officers under the CAIP for 2018, 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. Based upon the established performance goals, target opportunities under the CAIP for 2018 to our named executive officers were as follows:

 

2018 CAIP Targets

(as % of 2018 Salary)(1)

 

Robert Kotick

200

 

Spencer Neumann

150

 

Collister Johnson

100

(2)

Michael Morhaime

20

(3)

Brian Stolz

75

 

Chris B. Walther

75

 

Riccardo Zacconi

(4)

(1)

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

(2)

Mr. Johnson also has an opportunity to receive an additional bonus ranging from 10% to 100% of his base salary for each year in which cumulative AB Adjusted EPS is 15% or more than the higher of (x) the AB Adjusted EPS AOP objective for the prior year and (y) the prior year’s actual AB Adjusted EPS. For more information on Mr. Johnson’s bonus opportunity under the CAIP, see “—Employment Agreements—Collister Johnson—Annual Bonus” below.

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(3)

In addition to being eligible for a CAIP bonus, during 2018 Mr. Morhaime also participated in the Blizzard Profit Sharing Plan, which is discussed in more detail below (see “—Corporate Annual Incentive Plan and Other Performance-Based Bonuses—Profit Sharing Plans”).

(4)

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”).

 

 

Establishing Challenging Goals for the CAIP Opportunities

In March 2018, our Compensation Committee established the financial and strategic objectives underlying 2018 CAIP opportunities. The Compensation Committee believes that the specific goals chosen required significant profitability, demanded superior performance from our management team, and drove accountability for each participating executive.

The Compensation Committee used operating income as an overall goal, by expressing the intent to use its negative discretion to reduce or eliminate all bonuses under the CAIP if AB Adjusted Operating Income for 2018 was not at least 75% of the AB Adjusted Operating Income objective set forth in our 2018 AOP.

The Compensation Committee then established individual goals for each participating named executive officer.

Financial Objectives. For each participating named executive officer, 60% of his target opportunity under the CAIP for 2018 was based on operating income, earnings per share, and/or free cash flow. The Compensation Committee believes that the financial 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. In some instances, our financial objectives for a year may be lower than the prior year’s objectives or results as underlying variables, like market trends, the volume of titles or other content we plan to release, or our level of planned investment in growth initiatives, change.

Strategic Objectives. The remaining 40% of the target opportunity for each participating named executive officer under the CAIP for 2018 was based on three or four strategic objectives to be achieved during the year that were tailored to the executive officer’s role with the Company. The Compensation Committee believes that the strategic objectives used are important in aligning the interests of our executive officers with the long-term strategic goals of the Company.

These objectives generally fell into the following categories:

cross-company collaboration;

cultivating new business opportunities;

elevating top talent;

increased productivity; and

long-term strategy and organizational plans.

Mr. Johnson also had an opportunity to receive an additional bonus under the CAIP based on AB Adjusted EPS growth. For more information on this opportunity, see “—Employment Agreements—Collister Johnson—Annual Bonus” below.

Evaluating and Rewarding Performance: Resulting 2018 Payments under the CAIP

Since we exceeded the threshold level of 75% of the AB Adjusted Operating Income objective set forth in our 2018 AOP, each of our participating named executive officers was eligible to receive a CAIP bonus for 2018 of up to $10 million (less the amount of any other “senior executive plan bonus” within the meaning of the 2014 Plan that he received), subject to the Compensation Committee’s use of negative discretion to reduce or eliminate that bonus. Further, since 2018 AB Adjusted Operating Income was more than 85% of the AB Adjusted Operating Income objective set forth in our 2018 AOP, each was eligible to receive a bonus reflecting performance vis-à-vis his financial objectives, as well as his strategic objectives. For 2018, the Compensation Committee did not apply incremental judgment or discretion in determining CAIP bonus payouts, and such awards directly reflected performance against the objectives and formula established at the beginning of the year for each named executive officer who received a bonus under the CAIP for 2018, as described above.

To calculate the amount of the bonus that each participating named executive officer would receive for 2018, the following formula, applied using straight-line interpolation, was used:

 

 

(1)

For 2018, each participating NEO had two to three financial performance measures tied to his CAIP payout.

(2)

For 2018, each participating NEO had three to four strategic objectives tied to his CAIP payout.

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The following table shows the weighting, expressed as a percentage, assigned to each of the performance measures underlying the 2018 bonus opportunity, along with the maximum and actual payout as a percentage of the target, for each named executive officer who received a bonus under the CAIP for 2018. As achievement of the financial and strategic objectives underlying the bonus opportunities for our named executive officers fell short of expectations, consistent with our pay-for-performance approach, overall CAIP bonus payments to our named executive officers ranged between 52% and 103% of target for the year.

Name/Measure

Weight

(as a % of

Opportunity)

 

Maximum

CAIP Achievement

(as % of Target)

 

Resulting CAIP

Performance

(as % of Target)

 

Robert Kotick

 

 

 

 

 

 

AB Adjusted Operating Income

30

 

200

 

91

 

AB Adjusted EPS

15

 

200

 

97

 

AB Adjusted Free Cash Flow

15

 

150

 

101

 

Strategic objectives(1)

40

 

120

 

33

 

TOTAL

100

 

161

 

70

 

Collister Johnson

 

 

 

 

 

 

AB Adjusted Operating Income

30

 

200

 

91

 

AB Adjusted EPS

15

 

200

 

97

 

AB Adjusted Free Cash Flow

15

 

150

 

101

 

Strategic objectives(1)

40

 

120

 

33

 

TOTAL

100

 

161

 

70

 

Michael Morhaime

 

 

 

 

 

 

Blizzard Adjusted Operating Income

40

 

200

 

0

 

AB Adjusted Operating Income

20

 

200

 

91

 

Strategic objectives(1)

40

 

120

 

85

 

TOTAL

100

 

168

 

52

 

Brian Stolz

 

 

 

 

 

 

AB Adjusted Operating Income

30

 

200

 

91

 

AB Adjusted EPS

15

 

200

 

97

 

AB Adjusted Free Cash Flow

15

 

150

 

101

 

Strategic objectives(1)

40

 

120

 

75

 

TOTAL

100

 

161

 

87

 

Chris B. Walther

 

 

 

 

 

 

AB Adjusted Operating Income

30

 

200

 

91

 

AB Adjusted EPS

15

 

200

 

97

 

AB Adjusted Free Cash Flow

15

 

150

 

101

 

Strategic objectives(1)

40

 

120

 

115

 

TOTAL

100

 

161

 

103

 

(1)

We believe that disclosing the strategic objectives underlying the 2018 bonus opportunities for our NEOs 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 NEOs for 2018 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 strategic objectives and the weighting thereof. For 2018, as noted above, the Compensation Committee did not apply incremental judgment or discretion in determining CAIP bonus payouts, and such awards directly reflected performance against the objectives and formula established at the beginning of the year for each named executive officer who received a bonus under the CAIP for 2018, as described above.

Name

Target Payment

($)

 

Actual Payment

(as % of target)

Actual Payment

($)

Robert Kotick

3,500,000

 

70

 

2,461,848

Collister Johnson(1)

1,323,940

 

70

 

931,240

Michael Morhaime

277,206

 

52

 

144,713

Brian Stolz

511,895

 

87

 

445,341

Chris B. Walther

566,184

 

103

 

583,161

(1)

In addition to Mr. Johnson’s target bonus opportunity of 100% of his base salary, he also has an opportunity to receive an additional bonus ranging from 10% to 100% of his base salary for each year in which cumulative AB Adjusted EPS is 15% or more than the higher of (x) the AB Adjusted EPS AOP objective for the prior year and (y) the prior year’s actual AB Adjusted EPS. The objective was not met for 2018. For more information on Mr. Johnson’s bonus opportunity under the CAIP, see “—Employment Agreements—Collister Johnson—Annual Bonus” below.

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Profit Sharing Plans: Driving Success for our Operating Units

Payments under our profit sharing plans are designed to drive the financial performance of the relevant operating unit (e.g., Blizzard for Mr. Morhaime and King for Mr. Zacconi).

In addition to his opportunity under the CAIP as discussed above, in accordance with his employment agreement, Mr. Morhaime earned a payment for 2018 under the Blizzard Profit Sharing Plan. The Blizzard Profit Sharing Plan is 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 operating unit. 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 both Blizzard and Activision Blizzard profits. Pursuant to Mr. Morhaime’s most recent employment agreement with us, dated as of October 3, 2018 (the “Most Recent Morhaime Employment Agreement”), Mr. Morhaime was entitled to 3.5% of the profit sharing pool established pursuant to the Blizzard Profit Sharing Plan. However, the Compensation Committee was entitled to exercise discretion with respect to his actual annual percentage interest in the pool, subject to the specified minimum percentage.

In accordance with his employment agreement, Mr. Zacconi earned a payment for 2018 under the King Profit Sharing Plan. The King Profit Sharing Plan is a broad-based program established in connection with our acquisition of King on February 23, 2016 (the “King Acquisition”), which provides employees of King with the opportunity to share in the profits generated by our King operating 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 contributions to both King and Activision Blizzard profits. Pursuant to Mr. Zacconi’s current employment agreement with us, dated as of November 2, 2015 (the “Zacconi Employment Agreement”), 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

Long-Term Contract Inducements 

Messrs. Neumann and Johnson each received a long-term contract inducement in connection with his hiring by the Company during 2017, a portion of which was paid in 2018. For more information, please see “—Employment Agreements—Spencer Neumann— Long-Term Contract Inducement” and “—Employment Agreements—Collister Johnson—Long-Term Contract Inducement” below.

Special Performance Bonus 

The Compensation Committee awarded a special performance bonus to Mr. Walther in recognition of his significant contributions to the Company in 2017, a portion of which was paid in 2018.

Equity Awards

Equity Granting Philosophy: Driving Value Creation

Our equity incentive awards are intended to drive long-term value creation, create alignment with stockholders’ interests and encourage retention of key executives. During 2018, equity awards to our NEOs consisted of PSUs 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 or her role, his or her performance, his or her annualized total compensation, compensation provided to the executive’s peers within the Company, and compensation provided to executives in comparable positions at other companies by reference to data from our comparator group and published surveys.

We utilize a mix of equity awards:

PSUs, which are designed to incentivize our executives to achieve specific performance objectives that align with our multi-year business strategy; and

stock options, which directly align an executive’s interests to those of our stockholders, since any financial gain is conditioned upon appreciation in the value of our Common Stock and, as such, directly link executive pay with Company performance.

We believe a combination of PSUs 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.

Conservative Equity Granting Practices

While we believe that equity awards are an important part of our compensation program, we continue to be very judicious in the granting of equity awards to our employees. Our average “burn rate” over the last three years was 1.8%, and ranks among the bottom third of our comparator group. Our burn rate is calculated as the total number of shares subject to awards we granted in a year, adjusting full-value awards based on a stock price volatility premium, divided by our basic weighted average common shares outstanding for that year. The average burn rate of the companies comprising our comparator group for that similar period ranges from 0.7% to 6.2%.

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Use of Equity Awards to Reward Performance

As discussed above (see “—Compensation Principles 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, during 2018, no named executive officers received restricted share unit awards with only time-based vesting. Further, a portion of all equity awards granted to our named executive officers during 2018 had vesting that is contingent on the achievement of specified performance objectives. In addition, each named executive officer was granted equity awards that had the potential to vest based on 2018 financial performance objectives.

Beginning in 2016, we introduced annual grants with vesting contingent on the achievement of a financial objective in our long-range strategic plans. Each of Messrs. Neumann, Johnson, Stolz, and Walther received an award in 2018 that may vest by reference to a cumulative AB Adjusted Operating Income objective for 2019, 2020, and 2021 set forth in our 2018 long-range strategic plan for that three-year period.

Evaluating and Rewarding Performance: 2018 Vesting and Cancellation of Performance-Based Equity Awards

The following table shows whether the portion of the equity awards granted to each of our named executive officers other than Mr. Neumann, whose employment we terminated effective as of December 31, 2018, that had the potential to vest based on our 2018 performance vested (or will vest, subject to his continued employment through the vesting date) or did not vest. As we did not achieve all the goals we set for ourselves, consistent with our pay-for-performance approach, equity award achievement ranged from 0% to 100% of target.

 

Executive

Grant

Type

Performance Metric

Award

Achievement

(% of

Target)(1)

 

Aggregate Shares / Options

Vesting Date

Target

 

Maximum

 

Achieved

 

Robert Kotick

PSUs

2018 AB Adjusted Operating Income(2)

0

(2)

0

(2)

302,664

(2)

0

(2)

Did Not Vest(2)

Collister Johnson

PSUs

2018 AB Adjusted EPS

97

 

15,997

 

19,996

 

15,492

 

June 29, 2019

PSUs

2018 AB Adjusted Operating Income

91

 

31,995

39,994

 

29,121

 

June 29, 2019

 

PSUs

2018 AB Adjusted EPS Growth

0

 

42,511

85,022

 

0

 

Did Not Vest

Michael Morhaime

PSUs

2018 Blizzard Adjusted Operating Income

0

 

38,896

48,620

 

0

 

Did Not Vest

Brian Stolz

PSUs

2018 AB Adjusted Operating Income

91

 

24,009

 

30,011

 

21,852

 

May 30, 2019

Chris B. Walther

PSUs

2018 AB Adjusted Operating Income

91

 

28,596

 

35,745

 

26,027

 

March 14, 2019

Riccardo Zacconi

Options

2018 King Adjusted Operating Income

100

(3)

150,542

150,542

 

150,542

 

February 22, 2019

 

Options

2018 King Adjusted EBITDA

0

 

150,541

150,541

 

0

 

Did Not Vest

(1)

Award achievement, as a percent of target, may vary for each executive based on the terms of his underlying award. For more information on these awards, please see “—Employment Agreements.”

(2)

As the threshold objective of 100% of target for this portion of the award was not achieved, no shares vested in respect thereof. However, 857,115 PSUs vested on March 31, 2019, in respect of 2016 and 2017 performance, as Mr. Kotick satisfied the incremental service period requirements for the vesting of those awards on that date. For more information, please see “—Employment Agreements—Robert Kotick—Equity Awards—2016 PSUs” below.

(3)

Actual performance with respect to King Adjusted Operating Income for 2018 was 102% of target, but achievement for this portion of the award was capped at 100% of target.

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 by reference to auditable financial measures.

No Dividend Equivalents

None of the outstanding equity awards made to our named executive officers is entitled to receive dividend equivalents, and we do not anticipate making time- or performance-based vesting awards with the right to receive 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 Nasdaq.com on the effective date of the grant.

Equity awards will generally cease to vest upon the termination of the holder’s employment, and vested stock options will generally remain exercisable for a limited period of time (90 days or less) 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.

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Incentive Plan Limitations on Equity Awards

Under the 2014 Plan, the plan under which all of our equity incentive awards are now granted, there are limits on the number of stock options we can grant to anyone, including our executive officers, in a single year. There are similar restrictions on the number of restricted share unit awards and performance shares we can grant to any participant in a single year.

Limited Double-Trigger Change-of-Control Arrangements

Aside from Messrs. Kotick and Zacconi, none of our executives have been provided with any change-of-control protection. Each of Messrs. Kotick and Zacconi has been provided with certain protection in the event he is terminated following a change of control (known as a “double trigger”). These benefits are described under “—Potential Payments upon Termination or Change of Control” below. 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.

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 was, 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 is eligible to participate 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 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 objectives and the appreciation in the value of our Common Stock.

Select Health and Welfare Benefits

Our named executive officers are eligible to participate in our medical, vision, and dental insurance programs. Our named executive officers are generally offered these benefits on the same terms as the broad employee population. Further, Mr. Morhaime was eligible to receive full salary-continuation for up to six months of short-term disability, with any portion of his salary not covered by disability insurance to be paid by the Company. For 2018, the Company paid the premiums associated with Mr. Morhaime’s medical, vision, and dental insurance programs, as well as the premiums associated with Mr. Zacconi’s private family medical insurance plan. Please see the “Summary Compensation Table” below for further details.

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, 2018.

Members of the Compensation Committee

Robert Morgado (Chairperson), Reveta Bowers, and Elaine Wynn

 

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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(2)

($)

 

 

Non-Equity

Incentive Plan

Compensation(3)

($)

 

 

All Other

Compensation

($)

 

Total

($)

Robert Kotick
Chief Executive Officer

2018

1,756,731

 

7,495,745

 

19,037,673

 

2,461,848

 

89,007

(4)

30,841,004

2017

1,750,000

 

19,553,653

 

4,498,896

 

2,808,688

 

87,138

 

28,698,375

 

2016

2,375,858

 

24,932,065

 

 

5,590,414

 

167,223

 

33,065,560

Spencer Neumann(5) 
Former Chief Financial Officer

2018

871,476

1,000,000

 

4,838,213

(6) 

 

 

28,485

(4)

6,738,174

2017

503,461

1,000,000

 

4,151,199

(6)  

2,800,076

(6)  

1,009,481

 

1,590

 

9,465,807

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collister Johnson(7)
President and Chief Operating Officer

2018

1,330,194

1,200,000

 

4,695,612

(8) 

 

931,240

 

14,075

(4)

8,171,121

2017

675,000

1,000,000

 

2,984,205

 

5,990,128

 

494,844

 

55,263

 

11,199,440

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Michael Morhaime(9)
Former Chief Executive Officer, Blizzard

2018

1,407,225

 

3,014,440

 

 

3,518,646

 

157,713

(4)

8,098,024

2017

991,983

369,218

 

3,049,205

 

4,197,078

 

3,651,419

 

48,278

 

12,307,181

 

2016

957,378

355,018

 

2,833,600

 

2,532,666

 

5,330,175

 

69,839

 

12,078,676

Brian Stolz(10)
Chief People Officer

2018

685,936

 

2,348,814

 

 

445,341

 

53,472

(4)

3,533,563

2017

663,860

1,100,000

 

1,585,041

 

 

413,731

 

222,413

 

3,985,045

 

2016

387,500

1,000,000

 

1,436,480

 

2,598,458

 

301,483

 

216,238

 

5,940,159

Chris B. Walther
Chief Legal Officer

2018

759,238

500,000

 

2,837,227

 

 

583,161

 

83,532

(4)

4,763,158

2017

722,886

 

1,936,099

 

 

461,354

 

39,002

 

3,159,340

 

2016

705,318

 

605,094

 

2,773,879

 

609,665

 

22,276

 

4,716,232

Riccardo Zacconi(9)(11)
Chief Executive Officer, King

2018

532,776

 

 

9,898,137

 

9,379,908

 

8,330

(4)

19,819,151

2017

549,598

 

 

5,128,966

 

9,113,000

 

8,112

 

14,799,676

 

2016

415,928

 

 

4,249,877

 

7,700,057

 

133,614

 

12,499,476

(1)

The amounts paid to Mr. Neumann in 2018 and 2017 consist of an inducement to enter into his employment agreement with us, dated as of May 5, 2017 (the “Neumann Employment Agreement”), $1 million of which was paid in cash in June 2017 and the remaining $1 million of which was paid in cash in March 2018 (see “—Employment Agreements—Spencer Neumann—Long-Term Contract Inducement” below). The amounts paid to Mr. Johnson in 2018 and 2017 consist of an inducement to enter into his current employment agreement with us, dated as of May 10, 2017 (the “Johnson Employment Agreement”), $1 million of which was paid in cash in July 2017 and the remaining $1.2 million of which was paid in cash in January 2018 (see “—Employment Agreements—Collister Johnson—Long-Term Contract Inducement” below). The amounts paid to Mr. Morhaime for 2017 and 2016 consist of bonuses paid to him pursuant to the Blizzard Holiday Plan (a broad-based program for employees of Blizzard pursuant to which participants received a percentage of their salary at year-end) which program was eliminated as of January 1, 2018. The amounts paid to Mr. Stolz for 2017 and 2016 consist of an inducement to enter into his employment agreement with us, dated as of May 10, 2017 (the “Stolz Employment Agreement”), $1 million of which was paid in cash in May 2016 and the remaining $1.1 million of which was paid in cash in May 2017 (see “—Employment Agreements—Brian Stolz—Long-Term Contract Inducement” below). The amount paid to Mr. Walther for 2018 represents one-half of a special performance award he received in recognition of his significant contributions to the Company in 2017, the second half of which he is expected to receive in June 2019, subject to his continued employment through the relevant date.

(2)

The amounts in the Stock Awards column represent the aggregate grant date fair value of restricted share units (which have time- and performance-based vesting conditions) awarded in the period, computed in accordance with ASC Topic 718. 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 2018, are discussed in footnote 16 to our audited financial statements included in our 2018 10-K;

for 2017, 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, 2017 filed with the SEC on February 27, 2018; and

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.

 

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Stock awards for each fiscal year include awards subject to performance conditions that were valued based on the probability that performance targets will be achieved. Assuming the highest level of performance conditions are achieved, the grant date stock award values would have been as follows:

 

 

Robert

Kotick

($)

Spencer

Neumann

($)

Collister

Johnson

($)

Michael

Morhaime

($)

Brian

Stolz

($)

Chris B.

Walther

($)

Riccardo

Zacconi

($)

 

2018

18,739,364

8,072,835

11,837,208(a)

3,768,050

2,936,024

3,546,560

 

2017

46,507,808

6,813,747

3,730,303

3,811,506

1,981,320

2,420,124

 

2016

54,827,475

2,833,600

1,795,600

756,367

 

 

 
(a)

As set forth in footnote (8) below, the grant date fair value of the 2018 AB Adjusted EPS Growth PSUs (as defined below) granted to Mr. Johnson, computed in accordance with ASC Topic 718, was $0. The value reflected in this table includes $5,967,694 attributable to the potential value that could have been realized if the highest level of performance conditions for the 2018 AB Adjusted EPS Growth PSUs were achieved.

In addition, the option awards for each fiscal year for Mr. Zacconi are subject to performance conditions. The grant date value of such awards does not change if the highest level of performance conditions is achieved.

(3)

The amount in this column for each year for each named executive officer represents cash incentives paid under the CAIP, except for Mr. Morhaime, for whom the amount represents cash incentives paid under both the CAIP and the Blizzard 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 amount for Mr. Zacconi under the King Profit Sharing Plan for 2018 includes $3,551,351 that he is expected to receive in September 2019, subject to his continued employment in good standing through the relevant date. The amount for Mr. Zacconi under the King Profit Sharing Plan for 2017 includes $244,500 that he received in September 2018 and an additional $244,500 that he received in March 2019. For a discussion of non-equity incentive plans, see “—Compensation Discussion and Analysis—Elements of Our Executive Compensation Program for 2018—Corporate Annual Incentive Plan and Other Performance-Based Bonuses” above.

(4)

The “all other compensation” for 2018 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 Kotick

 

 

 

 

 

6,125

 

82,882

 

89,007

 

 

Spencer Neumann

 

 

 

 

 

4,625

 

23,860

 

28,485

 

 

Collister Johnson

 

 

 

 

 

4,625

 

9,450

 

14,075

 

 

Michael Morhaime

 

106,740

(b) 

 

3,489

(c) 

 

9,900

 

37,584

 

157,713

 

 

Brian Stolz

 

18,600

(d)

 

20,682

(e)

 

4,625

 

9,565

 

53,472

 

 

Chris B. Walther

 

24,600

(d)

 

27,354

(e)

 

6,125

 

25,453

 

83,532

 

 

Riccardo Zacconi

 

 

 

 

 

 

8,330

 

8,330

 

 

(a)

These amounts represent “matching” contributions by us under our 401(k) plan.

(b)

This amount represents $100,000 of legal fees Mr. Morhaime incurred in connection with the negotiation of the Most Recent Morhaime Employment Agreement, which we paid on his behalf, and $6,740 in gifts received from the Company, including merchandise he received from Blizzard as part of a broad-based program for Blizzard employees.

(c)

This amount represents a reimbursement for taxes Mr. Morhaime incurred on the gifts referenced in footnote (b).

(d)

These amounts represent travel accommodations and other costs associated with team-building trips Messrs. Stolz and Walther participated in that were paid for by the Company.

(e)

These amounts represent reimbursements for taxes incurred on the compensation referenced in footnote (d).

 

We have calculated the incremental cost to us of the compensation listed above based on the amount of payments made by us for the provision of such benefits.

(5)

Mr. Neumann’s date of hire was May 30, 2017. We terminated Mr. Neumann’s employment effective as of December 31, 2018.

(6)

We terminated Mr. Neumann’s employment as of December 31, 2018, and, pursuant to the terms of his award agreements, all of his unvested equity was canceled as of that date.

(7)

Mr. Johnson’s date of hire was June 26, 2017.

(8)

On August 6, 2018, pursuant to the Johnson Employment Agreement, the Compensation Committee awarded Mr. Johnson PSUs (the “2018 AB Adjusted EPS Growth PSUs”) with vesting based on AB Adjusted EPS for 2018 as compared to the higher of (x) the AB Adjusted EPS AOP objective for 2017 and (y) the actual AB Adjusted EPS for 2017 (the higher of (x) and (y), the “2017 EPS Objective”). The expected performance of this award on the date of grant was “not probable,” and, as a result, the grant date fair value of the award, computed in accordance with ASC Topic 718, was $0. These PSUs were canceled following the Compensation Committee’s determination that AB Adjusted EPS for 2018 was less than 115% of the 2017 AB Adjusted EPS Objective. For more information on this award, see “—Employment Agreements—Collister Johnson—Equity Awards—Annual Grants of PSUs (AB Adjusted EPS Growth)” below.

(9)

In 2018, the heads of our operating units ceased to be categorized as “executive officers” for purposes of SEC rules. Messrs. Morhaime and Zacconi are included as named executive officers in accordance with SEC rules as former executive officers who would have been designated as NEOs had they been serving as executive officers at the end of the fiscal year.

(10)

Mr. Stolz’s date of hire was May 30, 2016.

(11)

Mr. Zacconi’s term of employment with us began on February 23, 2016, when we closed the King Acquisition. Mr. Zacconi’s salary is paid in British pounds. As such, the salary amounts for 2018 in this table were converted using an end of 2018 spot exchange rate of 1.262626 British pounds to the U.S. dollar. Mr. Zacconi’s insurance premiums were paid in euros. As such, the insurance premiums for Mr. Zacconi for 2018 in this table were converted using an end of 2018 spot exchange rate of 1.141292 euros to the U.S. dollar.

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Grants of Plan-Based Awards for 2018

The table below provides information regarding the grants of plan-based awards made to each of our named executive officers during 2018:

Name

Grant Type

Grant Date

 

Approval Date(1)

 

Estimated Future Payouts Under

Non-Equity Incentive Plan Awards

 

Threshold

($)

Target

($)

 

Maximum

($)