UNITED STATES

 

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. 1)

 

Filed by the Registrant

Filed by a Party other than the Registrant

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	Preliminary Proxy Statement
	CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
	Definitive Proxy Statement
	Definitive Additional Materials
	Soliciting Material Pursuant to §240.14a-12

 

ACTIVISION BLIZZARD, INC.

 

 

(Name of Registrant as Specified In Its Charter)

 

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

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Explanatory Note

 

We are filing this definitive revised proxy statement of Activision Blizzard, Inc. (the “Company”) for the 2021 Annual Meeting of Shareholders to correct certain typographical, transcription and formatting errors contained in the definitive proxy statement of the Company that was filed with the Securities and Exchange Commission on April 30, 2021.

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Our company and our franchises convene and unite. We bring people together, 400 million players from 190 countries. They come to play, to collaborate, to share moments of joy and to challenge themselves. And we bring them together in ways that foster understanding and inclusion — across geography, race, gender, orientation and ideology.

 

Our values are visible in our work and our actions as a team — from our board to our 10,000 employees in 36 countries collaborating every day to bring the best of ourselves to our players, to each other and to our communities.

 

WE ARE ACTIVE LISTENERS AND ACTION TAKERS.

 

Our games unite.

 

Our games inspire.

 

Our games bring the world closer together. We celebrate participation. We celebrate our communities, anchored in our franchises.

 

And, we celebrate dedicated people who work, every day, in every way, for the benefit of our players and our shareholders.

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Our values drive our team to excellence and drive our vision in shaping the future of our company.

 

	•	OUR PLAYERS – the center of our world is our players — 400 million in 190 countries.
	•	OUR PEOPLE – from designers and programmers to artists and accountants, we all embody the spirit of our communities, and we have a deep commitment to the impact our games have for society.
	•	INCLUSION – we embrace our responsibility to ensure that our games reflect society — accurately, accessibly and aspirationally.
	•	SHARED INSPIRATION – manifested through our creativity, this motivates all we do to perform at the highest level for players, and our shareholders.

 

Embracing these values — delighting our players every day and profitably operating and growing our business — we strive to succeed for our shareholders. And succeed we have, creating more than $60 billion of value during the last decade with purpose and impact in the service of our social responsibility.

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EXTRAORDINARY RESULTS, EXCEPTIONAL RESPONSIVENESS, AND A POWERFUL PATH TO FURTHER GROWTH AN EXTRAORDINARY TRACK RECORD OF SUCCESS 8,000% total shareholder return over the last 20 years $45B in shareholder value created over the last four years Over 50% total shareholder return in 2020 Y/Y increase 70% in operating profit in 2020 Y/Y increase 32% in net bookings in 2020 DEEPLY RESPONSIVE TO SHAREHOLDERS • Significant increase in shareholder outreach • Reduced CEO salary and bonus for 2021 by 50% to below 25th percentile of peers; 95%+ of CEO pay remains at risk; future LTI grants no greater than peer median • Enhanced disclosure of executive compensation incentive targets and achievements • Added ESG metrics for DE&I and sustainability to performance objectives • Publishing detailed ESG report in Q2 2021 and committed to Rooney Rule for all future Board and external CEO searches

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DEAR FELLOW SHAREHOLDERS:

With so much of the world tested by extraordinary social, environmental, economic, and public health challenges, we are proud of the role that Activision Blizzard plays in serving the public by keeping people connected, and by using our powerful global platform to comfort, inspire, and draw communities together.

OUR MISSION—connecting and engaging the world through epic entertainment—has never been more relevant nor more important, and we are humbled and grateful that an audience of 400+ million players in 190 countries has continued to turn to us each month. We are thankful to our exceptionally dedicated employees who have continued to innovate and execute on our mission despite the challenges of the pandemic. And we deeply appreciate you—our shareholders—for your ongoing confidence, trust, and feedback.

Activision Blizzard has a long track record of focus and operational excellence, driving increased value for our shareholders. That continued in 2020. With the safety of our employees always our priority, we successfully transitioned nearly 10,000 employees safely and efficiently to work from home. And our team didn’t miss a beat, delivering content of the highest quality, creating new ways for our players to connect and find community, significantly expanding our delivery of live, online content to fans around the world, and substantially growing our presence on mobile platforms. And, we delivered $45 billion in additional value to our shareholders since 2016.

The consistency, expertise, and remarkable dedication of our team members are key reasons for this growth and are why, over the last 20 years, we have achieved financial, operational, and creative success. Our total shareholder return over the past two decades has exceeded 8,100%, compared to 322% for the S&P 500. If you had invested $1,000 in our company 20 years ago, that investment, including dividend reinvestment, would have been worth $82,190 at the end of 2020, or around 20 times the S&P 500’s $4,223 over the same period.

We are fortunate to have some of the most popular and successful entertainment franchises in the world as we continue to develop our pipeline of new content across multiple platforms. We had roughly 400 million players in 2020, and we’re accelerating our path to reach 1 billion players per month as we deploy our Call of Duty model to other franchises and pursue a clear path to drive expanded reach, engagement, and player investment across our largest franchises. We expect to grow earnings per share meaningfully in 2021 and then build upon that financial performance in 2022. We will continue to pursue new opportunities to build on our already leading franchises, reintroduce franchises from our rich library, and develop original intellectual property—and in an industry with only a few franchises generating $1 billion a year in revenue, we have three and expect to add an additional two $1 billion franchises over the next few years.

 

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Supporting Our Employees and Communities through the Pandemic

From the earliest moments of the COVID-19 pandemic, we took action to support our employees, our players, and our communities. When traditional medical services came under huge demand at the onset of the pandemic, we created an extensive network of physicians to help ensure that our employees and their families had access to medical advice. To directly support the communities in which our employees live and work and our players thrive, we donated more than $5 million to aid hospitals, healthcare organizations, and nonprofits that were treating COVID-19 patients, vaccinating frontline workers, creating opportunities for veterans, and conducting promising drug trials and convalescent plasma therapies.

Continuing to Foster Inclusive Workplaces and Gaming Environments

At Activision Blizzard, we have a clear responsibility to make our workplaces and our games more diverse, equitable, and inclusive—and we are continuing to work hard to effect change and make a bigger positive impact. Inclusive game and content design are central to who we are, and our franchises have characters that are as diverse as our gamers, including characters of color, characters from the LGBTQ+ community, non-binary characters, characters of differing abilities, and autistic characters—a commitment we will continue to seek to expand.

To keep providing engaging gaming experiences that will resonate with our diverse players, our own company must continue to reflect the diversity and values of our players and fans. We remain committed to developing an employee base that represents the global communities in which we operate. To this end, we enhanced our sourcing, hiring, and retention practices even further in 2020 to improve our impact and it will remain an ongoing process. We have also significantly enhanced the diversity of our leadership team. At the same time, we are continuing to invest in diversity, equity, and inclusion programs across the globe and expanded career pathways for talented people, especially those from backgrounds that have been historically underrepresented in technology and entertainment.

While there is still important work to do, we are proud of the accomplishments we have made on this front, such as more than doubling the number of women in leadership roles in our game development functions and receiving a perfect score of 100 on the Human Rights Campaign Foundation’s Corporate Equality Index, as well as, receiving the distinction of being a “Best Place to Work for LGBTQ Equality.” We remain focused on doing even more to drive this commitment forward in the months ahead.

Thank You to Our Shareholders for Your Trust, Insights, and Feedback

On behalf of the entire Activision Blizzard team, thank you for your continued support—and for the ongoing dialogue and feedback. The important changes we have made over the past 12 months based on the insights you have shared have continued to allow us to grow profitably with purpose and impact. We appreciate your belief in our team and the work we are doing to serve our players, fans, and local communities around the world. We will continue to deliver superior shareholder returns with purpose and impact in the service of our social responsibility.

Sincerely,

 

 

www.activisionblizzard.com

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NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS

In light of the COVID-19 pandemic, the Annual Meeting of Shareholders of Activision Blizzard, Inc. will be held via live audio webcast, on Monday, June 14, 2021, at 9:00 a.m., Pacific Time.

To attend the meeting, visit https://viewproxy.com/ATVI/2021. Certain materials customarily made available at shareholder meetings (including the proxy materials and our shareholder list) will be available during the virtual meeting. Additional details regarding the logistics of the meeting can be found in the accompanying proxy statement, on the Investor Relations section of our website (https://investor.activision.com/), and at https://materials.proxyvote.com/00507V.

The Activision Blizzard, Inc. Board of Directors set April 19, 2021, as the record date for determining the shareholders entitled to receive notice of, and to vote at, the annual meeting.

 

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Shareholders are being asked to vote on the following matters at the 2021 annual meeting of shareholders.

	OUR BOARD’S RECOMMENDATION
Proposal 1. Election of Directors (page 24) Our Board and its Nominating and Corporate Governance Committee believe that our ten director nominees are well-qualified to provide oversight of the Company’s business for the benefit of all of the Company’s shareholders	FOR
Proposal 2. Advisory vote to approve our executive compensation (page 122) Our Board and its Compensation Committee believe that our compensation policies and practices enable us to deliver superior returns to our shareholders and allow us to motivate, attract, and retain the key executive talent necessary for our long-term success	FOR
Proposal 3. Ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm (page 131) 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 shareholders	FOR
Your vote is important. Whether or not you plan to attend the virtual meeting, I urge you to promptly submit a proxy to vote your shares by following the instructions on page 137 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. By Order of the Board of Directors

Frances Fragos Townsend
Corporate Secretary
April 30, 2021

 

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This summary highlights information contained elsewhere in this proxy statement for the 2021 annual meeting of the shareholders 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 2020 performance, please review our annual report to shareholders for the period ended December 31, 2020, which is being provided to our shareholders at the same time as this proxy statement. Capitalized terms used in this summary are defined elsewhere in the proxy statement.

2020 FINANCIAL AND OPERATIONAL PERFORMANCE—EXCEPTIONAL YEAR-OVER-YEAR SUCCESS

2020 saw strong early returns on our comprehensive, multi-year strategy and investments in growth. Our business experienced strong year-over-year results, as we delivered deeper and more consistent experiences for players across multiple platforms. Much of our growth was driven by increased investment in our biggest franchises, along with strong execution in premium content, in-game operations, our expanded presence on mobile, ramped up new engagement models, and some impact from the pandemic. Investors recognized our progress against our strategy and our strong financial performance and the Company’s market capitalization increased sharply over the year.

 

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CONTINUING OUR TRAJECTORY OF SIGNIFICANT GROWTH IN SHAREHOLDER VALUE

The strong performance of the business and the associated shareholder value creation in 2020 is consistent with the Company’s long-term track record. Our market capitalization has grown over 19,000% over the last two decades—from $366 million in 2000, to over $70 billion by 2020.

 

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EXECUTIVE COMPENSATION HIGHLIGHTS

Compensation Aligns Pay with Performance

At Activision Blizzard, exceptional results and compensation ensure we can recruit, develop, and retain an extraordinarily talented workforce with diverse experiences and backgrounds. Our executive compensation program is designed to motivate and reward exceptional performance, while also driving future growth and recognizing the success and continued player focus throughout Activision Blizzard. As shown below, a significant amount of compensation for our leadership team—including 99% of the compensation for our CEO—is performance-based and at risk.

In 2020, the CEO, after consultation with the Compensation Committee, voluntarily elected to take no pay for the last four pay periods of the year, equating to a 15% reduction in his annual salary. Additionally, in April 2021, the CEO agreed, based on discussions with the Compensation Committee, to reduce his salary rate in 2021 from $1,750,000 to $875,000, equating to a 50% reduction in his contractual annual salary. The Compensation Committee took these actions to address shareholder concerns regarding the quantum of the CEO’s compensation and result in salary being positioned below the current peer 25th percentile of $1,000,000. These are the first changes to his base pay since 2017. The base salaries for our other named executives have not changed since February 2019 or, if more recent, their date of appointment.

 

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Significantly Increased Engagement with Shareholders

The Company regularly engages with shareholders to solicit feedback as part of an ongoing effort to understand and consider our shareholders’ perspectives with respect to our executive compensation, corporate governance practices, human capital management, and any other matters of importance to them. Our engagement with shareholders, while always extensive, was substantially greater in 2020, than in prior years.

In 2020, our compensation program received the support of 57% of the total votes cast at our annual meeting. Over the ensuing several months, Activision’s Board and management team actively sought feedback from shareholders to better understand what motivated their votes. As part of these efforts, we offered engagement with our CEO, Mr. Kotick, and Chair of the Compensation Committee, Mr. Morgado, to shareholders owning approximately 66% of outstanding shares, including each of our top 50 institutional holders. We held over 70 meetings, engaging with over 50 institutions owning approximately 63% of outstanding shares. Our Board was directly involved in the majority of these dialogues, with a member of our Compensation Committee and/or CEO (and, in most cases, both) participating in over 40 meetings with shareholders owning approximately 59% of outstanding shares. To ensure candid discussions, in conversations where the CEO participated, he offered to step off the call when executive compensation was discussed.

 

 

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Our Lead Independent Director and Compensation Committee members shared this extensive feedback with our entire Board, and that feedback has been instrumental in shaping decisions that we believe are simultaneously responsive to shareholder concerns and appropriate for the Company.

 

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Responsiveness to Shareholders – The Board Is Committed to Addressing Investor Feedback

 

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OUR DIRECTOR NOMINEES

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

 

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CORPORATE GOVERNANCE HIGHLIGHTS

We follow best practices in corporate governance—not just among our peer group, but in the market generally. Highlights of our corporate governance program include:

 

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STOCK OWNERSHIP GUIDELINES

In order to align the interests of our management with those of our shareholders, we believe that every executive officer 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 fifty times (i.e., 50x) their then-current annual base salary and that all other executive officers, as well as the President of each of Activision, Blizzard, and King, are expected to beneficially own shares of our Common Stock with a value at least equal to their 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 their election as an executive officer) has five years from the date on which they 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 they satisfy the guidelines, they 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, 2021, each person who, as of that date, had been subject to the guidelines for five or more years satisfied them.

CONTACTING THE COMPANY

The Company reviews feedback sent to us from any of our shareholders, 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, and/or any individual director, you may contact us using any one of these methods:

 

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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 (“Common Stock”). The proxies being solicited will be used at the annual meeting of our shareholders to be held on Monday, June 14, 2021, via live audio webcast at https://viewproxy.com/ATVI/2021, 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 shareholders on or about April 30, 2021.

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, as a supplement to our GAAP financial measures, our management uses certain 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. These 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 2020 Compensation-Related Performance

Consistent with past years, the financial objectives used by our management and our Compensation Committee to assess our employees’ 2020 performance were based on adjusted non-GAAP measures rather than the non-GAAP measures we use when reporting our financial results. These non-GAAP measures differ as our adjusted non-GAAP measures exclude the impact of deferrals from our revenue accounting treatment on certain of our online-enabled products. Internally, our management uses these adjusted non-GAAP measures in assessing our operating results, as well as in planning and forecasting. Our management believes

 

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this is appropriate because doing so enables an analysis of performance based on the timing of actual transactions with our customers and provides a more timely indication of trends in our operating results. Further, as our management and our Compensation Committee continue to believe that these adjusted non-GAAP measures are an effective way to internally assess our operating performance, the Company currently expects to continue utilizing these adjusted non-GAAP 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 2020 performance of one or more of our named executive officers.

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 and related 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 Net Income by the weighted average diluted shares outstanding, where “AB Adjusted 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.

AB Adjusted Free Cash Flow

“AB Adjusted Free Cash Flow” means Activision Blizzard’s GAAP cash flows from operating activities, less capital expenditures, and excluding certain unplanned one-time items or other adjustments related to impacts identified as being excluded from AB Adjusted Operating Income.

Emerging Business Adjusted Operating Income

“Emerging Business Adjusted Operating Income” means Activision Blizzard’s GAAP operating income from certain of our emerging businesses (including our esports and consumer product activities), excluding the impacts from share-based compensation, amortization of intangibles from purchase price accounting, restructuring and related charges, and the deferral of revenues and recognition of deferred revenues, along with related cost of revenues, on certain of our online enabled products.

Consistent with past years, at the time it established the measures to be used to assess 2020 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 2020.

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 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.

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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Cautionary Statement with Respect to Forward-Looking Statements

This proxy statement contains, or incorporates by reference, statements reflecting our views about our future performance that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements consist of any statement other than a recitation of historical facts and include, but are not limited to: (1) projections of revenues, expenses, income or loss, earnings or loss per share, cash flow, or other financial items; (2) statements of our plans and objectives, including those related to releases of products or services and restructuring activities; (3) statements of future financial or operating performance, including the impact of tax items thereon; (4) expectations concerning vesting and satisfaction of performance conditions with respect to equity awards; and (5) statements of assumptions underlying such statements. Activision Blizzard, Inc. generally uses words such as “outlook,” “forecast,” “will,” “could,” “should,” “would,” “to be,” “plan,” “aims,” “believes,” “may,” “might,” “expects,” “intends,” “seeks,” “anticipates,” “estimate,” “future,” “positioned,” “potential,” “project,” “remain,” “scheduled,” “set to,” “subject to,” “upcoming,” and other similar words and expressions to help identify forward-looking statements. Forward-looking statements are subject to business and economic risks, reflect management’s current expectations, estimates, and projections about our business, and are inherently uncertain and difficult to predict.

We caution that a number of important factors, many of which are beyond our control, could cause our actual future results and other future circumstances to differ materially from those expressed in any forward-looking statements. Such factors include, but are not limited to: the ongoing global impact of COVID-19 (including, without limitation, the potential for significant short- and long-term global unemployment and economic weakness and a resulting impact on global discretionary spending; potential strain on the retailers and distributors who sell our physical product to customers; effects on our ability to release our content in a timely manner; the impact of large-scale intervention by the Federal Reserve and other central banks around the world, including the impact on interest rates; and volatility in foreign exchange rates); our ability to consistently deliver popular, high-quality titles in a timely manner; concentration of revenue among a small number of franchises; our ability to satisfy the expectations of consumers with respect to our brands, games, services, and/or business practices; our ability to attract, retain and motivate skilled personnel; rapid changes in technology and industry standards; competition, including from other forms of entertainment; increasing importance of revenues derived from digital distribution channels; risks associated with the retail sales business model; the continued growth in the scope and complexity of our business, including the diversion of management time and attention to issues relating to the operations of our newly acquired or started businesses and the potential impact of our expansion into new businesses on our existing businesses; substantial influence of third-party platform providers over our products and costs; risks associated with transitions to next-generation consoles; success and availability of video game consoles manufactured by third parties; risks associated with the free-to-play business model, including dependence on a relatively small number of consumers for a significant portion of revenues and profits from any given game; our ability to realize the expected financial and operational benefits of, and effectively implement and manage, our previously-announced restructuring actions; our ability to quickly adjust our cost structure in response to sudden changes in demand; risks and costs associated with legal proceedings; intellectual property claims; changes in tax rates or exposure to additional tax liabilities, as well as the outcome of current or future tax disputes; our ability to sell products at assumed pricing levels; reliance on external developers for development of some of our software products; the amount of our debt and the limitations imposed by the covenants in the agreements governing our debt; the seasonality in the sale of our products; counterparty risks relating to customers, licensees, licensors, and manufacturers; risks associated with our use of open source software; piracy and unauthorized copying of our products; insolvency or business failure of any of our partners; risks and uncertainties of conducting business outside the United States; increasing regulation of our business, products, and distribution in key territories; compliance with continually evolving laws and regulations concerning data privacy; reliance on servers and networks to operate our games and our proprietary online gaming service; potential data breaches and other cybersecurity risks; and the other factors identified in “Risk Factors” included in “Risk Factors” included in Part I, Item 1A of our most recent Annual Report on Form 10-K. The forward-looking statements contained herein are based on information available to us as of the date of this proxy statement and we assume no obligation to update any such forward-looking statements. Although these forward-looking statements are believed to be true when made, they may ultimately prove to be incorrect. These statements are not guarantees of our future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and may cause actual results to differ materially from current expectations.

 

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GENERAL

Our shareholders are being asked to elect ten directors at the Annual Meeting. Those elected will serve a one-year term and until their respective successors are duly elected or appointed and qualified or until their earlier death, resignation, or removal. Unless shareholders instruct otherwise, 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 by our Board.

OUR DIRECTOR NOMINEES

Our Board is committed to building a Board with diverse experiences and backgrounds. In 2020, the Board formally adopted its commitment to actively seek women and minority candidates for the pool from which board candidates are chosen.

We believe effective oversight comes from a board of directors that represents a diverse set of perspectives, backgrounds, and experiences that provide the collective skills, expertise, and independence necessary for independent oversight. Accordingly, the Nominating and Corporate Governance Committee takes into account the diversity of the Board in selecting new director candidates.

In order to have a knowledgeable Board composed 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 and/or board members of large, global corporations in the media, entertainment and/or technology fields to be particularly relevant to the business of the Company. We believe that all of our director nominees bring, or will 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 information 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 director nominees that we believe contribute, or will 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.

 

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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 “Information About the 2021 Annual Meeting—What are my voting options with respect to each proposal and how many votes are required to approve each proposal” below and “Corporate Governance Matters—Board of Directors and Committees—Offer of Resignation in Connection with Failure to Receive Offer of Resignation in Connection with Failure to Receive a Majority of “For” Votes” below.

 

 

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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 for 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 shareholders. 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 shareholders.

BOARD OF DIRECTORS AND COMMITTEES

Our Director Nominees

We believe that our director nominees 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 a biography of each of our director nominees, 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 shareholders, as described immediately below. We will apply the Rooney Rule to any search for a new independent director.

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Shareholder Recommendation of Director Candidates

Our shareholders 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 shareholder recommendation that is submitted to us in writing and includes the following information:

In addition, shareholders may submit nominees directly to our shareholders for election as directors in accordance with our bylaws, including pursuant to the “proxy access” provisions, pursuant to which eligible shareholders may include nominees in our proxy materials. For more information, please see “Director Nominations and Other Shareholder Proposals for our 2022 Annual Meeting” 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, which may include:

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 shareholders 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 media, entertainment, digital technology, international operations, strategic planning, corporate governance, accounting and finance, law, or other areas that are relevant to our activities and our Board’s effectiveness. As noted above, the Nominating and Corporate Governance Committee also takes diversity into account and, to that end, as set forth in our Corporate Governance Principles and Policies, the Company has committed that the pool from which new independent director nominees are chosen will include qualified women and racially/ethnically diverse candidates.

The Nominating and Corporate Governance Committee evaluates candidates recommended by shareholders using the same criteria as for other candidates recommended by its members or other members of the Board.

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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 rules for companies listed on The Nasdaq Stock Market (the “Nasdaq Rules”), including current and prior relationships that each director or any of their family members has with the Company, our executive management, and our independent accounting firm. To assist our Board in making these determinations, each director and/or director nominee is required to complete a questionnaire every year.

Based on the information provided by each director concerning their background, employment, and affiliations, our Board affirmatively determined that each of Messrs. Corti, Hartong, Meyer, Morgado, Nolan, and Wasserman and Mses. Bowers and Ostroff is an independent director within the meaning of the Nasdaq Rules.

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 and/or director nominees has a direct or indirect material relationship with the Company.

Board Leadership Structure

Our Board believes that the division between the role of the chief executive officer and the chair 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 their function. As such, our chief executive officer does not serve as the chair of our Board. Having different individuals serve as the chief executive officer and the chair allows the chief executive officer to focus on their operational responsibilities, while keeping a measure of independence between the oversight function of our Board and those operating decisions.

Our Board also has appointed a lead independent director, whose duties include:

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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. No director may serve on the boards of more than four other publicly held companies.

Offer of Resignation in Connection with Failure to Receive a Majority of “For” 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 by the holders of shares present in person or by proxy at the meeting and entitled to vote on the election of directors. 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 their successor has been duly elected and qualified, or until their earlier 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, they must offer to resign from our Board.

Our Board or, at its discretion, the Nominating and Corporate Governance Committee, without the participation of the director offering their 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, their 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 their professional role or responsibilities that may reasonably be seen to affect their ability to serve, they 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 their professional role or responsibilities, they must offer their 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 their 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, their 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 shareholders.

 

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 shareholders. Our Board met nine times during 2020, including at least once per quarter and in conjunction with the 2020 annual meeting of our shareholders. Each person who served on our Board during 2020 attended over 80% of the aggregate of (1) the total number of meetings held by our Board during the period for which they was a director and (2) the total number of meetings held by each committee on which they served during the period in which they so served during the year.

Our Corporate Governance Principles and Policies also require that the independent directors meet in executive sessions outside of the presence of our management at least two times per year. Four such executive sessions took place during 2020.

In accordance with our Corporate Governance Principles and Policies, all directors are expected to attend annual meetings of our shareholders. All ten directors who were then serving on the Board attended the 2020 annual meeting as did Ms. Ostroff, who was then a nominee.

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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 functioning 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, which seeks to identify specific opportunities, if any, for improvement.

 

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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 they meet 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. Each current committee member served in the role shown below through 2020 and continues to serve in that role.

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

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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 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:

 

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Cybersecurity Risk Oversight

In order to defend against, and respond to, 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 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 with respect to the threats we face, and our risk mitigation plans to address those threats, from members of management with information security responsibilities. These updates include results of information security maturity assessments and recommendations that are informed, in part, by third-party independent reviews 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 2020, 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 participate are designed to encourage achievement of challenging targets aligned with shareholder interests and our overall corporate strategy. These plans provide upside opportunity for higher levels of performance, while mitigating potential risks. The following factors help mitigate risk:

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

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STOCK OWNERSHIP GUIDELINES

In order to align the interests of our management with those of our shareholders, we believe that every executive officer 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 fifty times (i.e., 50x) their then-current annual base salary and that all other executive officers, as well as the President of each of Activision, Blizzard, and King, are expected to beneficially own shares of our Common Stock with a value at least equal to their 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 their election as an executive officer) has five years from the date on which they 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 they satisfy the guidelines, they 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, 2021, each person who, as of that date, had been subject to the guidelines for five or more years satisfied them.

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. We made no political contributions in 2020.

Trade associations of which the Company is a member may take a stance on legislative matters or engage in lobbying on specific issues. Trade associations are independent organizations representing a variety of members and may take political or policy positions we do not share. You can find more information about the ways in which Activision Blizzard participates in public debate in the United States through direct and indirect advocacy at the federal, state and local level by accessing our Political Activities Disclosures on our website at http://investor.activision.com/corporate-governance.cfm.

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 shareholders. 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 our directors and employees worldwide, including our chair, chief executive officer, president, chief operating officer, chief administrative 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 chief executive officer, chief financial officer, chief accounting officer, or any person performing similar functions, and any other related information, on that website.

 

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COMMUNICATIONS WITH OUR BOARD

We believe that communication with our shareholders is very important, and the Company reviews feedback sent to us from any shareholder, no matter the size of their holdings. Our Corporate Secretary reviews all communications addressed to our Board, any of its committees, or one or more of our individual directors. Generally, communications that are advertising materials, promotions of a product or service, or patently offensive communications will not be forwarded. Communications that relate to our accounting practices, internal accounting controls, or auditing matters will be promptly forwarded to the chairperson of the Audit Committee. Communications that relate to any other matter that our Corporate Secretary, in her reasonable judgment, considers to be appropriate will be forwarded promptly to the addressee(s).

 

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 December 31, 2020, filed with the SEC on February 23, 2021 (our “2020 10-K”).

EXECUTIVE SUCCESSION PLANNING

As a part of various sessions during the year, our Board focuses on human capital, including by engaging in succession planning for our chief executive officer and other senior-most officers. 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. In these sessions, among other things, our Board:

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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.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE HIGHLIGHTS

Our Board and its committees oversee matters related to our environmental, social, and governance (i.e., ESG) practices, performance, and disclosure. Through this process, directors provide management with feedback and guidance on the Company’s ESG efforts. Please see “—Board Committees” above for a description of our Board, its committees and their respective roles and responsibilities. In 2020, our management established both an ESG steering committee, which is currently chaired by our Chief Administrative Officer and includes our Corporate Secretary and Chief Compliance Officer, Chief People, Diversity & Inclusion Officer, Chief Legal Officer, Chief Financial Officer, SVP of Investor Relations, Chief Communications Officer, and a cross-functional, enterprise-wide ESG working group, which includes members of our executive management team and employees from all of our business units and corporate functions and supports the steering committee by identifying the ESG matters that are most relevant to our business. As part of our long-term strategy, we will continue to expand our internal ESG expertise and advance our reporting activities.

 

 

 

 

In addition to the preparation of our first annual ESG report, which we will publish later this quarter, our ESG efforts in 2020 focused on using our platforms and the resources in three key areas: (1) protecting our people in the fight against COVID-19; (2) driving diversity, equity, and inclusion in our communities; and (3) protecting our planet.

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The Fight against COVID-19

The health and safety of our employees, players, and fans has been and continues to be a top priority. To that end, we swiftly launched several initiatives to support each of these vital groups in managing through the pandemic.

All of our facilities moved to a work-from-home model by mid-March 2020, completing an efficient, safe, and successful transition of nearly 10,000 employees to remote work. When traditional medical services came under huge demand at the onset of the pandemic, we created an extensive network of physicians in order to help ensure that our employees and their families had access to the very best medical care, including mental health care. We made a commitment to directly support the healthcare organizations in the communities in which our employees live and work. We donated more than $5 million dollars to aid hospitals, healthcare organizations, and nonprofits treating COVID-19 patients, vaccinating frontline workers, conducting promising drug trials and convalescent plasma therapies, creating opportunities for veterans, and providing employment services in these communities.

For our players and fans, we were proud to partner with the World Health Organization for the #PlayApartTogether campaign to leverage our game platforms to disseminate critical health and safety information while offering in-game events and rewards to promote social distancing. We also successfully transitioned our professional esports leagues, Overwatch League™ and Call of Duty League™, to a remote broadcast format to keep our players and fans safe while continuing to deliver world class esports content to our global audiences.

At the time of writing, the pandemic is still exacting a tragic toll upon so many. Most of our employees continue to work from home. However, we have the very best resources dedicated to the creation of policies and workplaces that will eventually allow our employees to return to the office with confidence that their healthcare needs and the needs of their families will remain our priority.

Driving Diversity, Equity, and Inclusion in our Communities

Video games have redefined what it means to interact socially, and this has been reinforced during the pandemic while other forms of social interaction have been limited. Our game Overwatch® celebrates diversity through the heroes it features. Of our 32 heroes in the game, there are 13 women, 12 heroes of color, two LGBTQ+ heroes, and one hero on the autism spectrum. The most prominent of our heroes, Tracer, is both a woman and identifies as a member of the LGBTQ+ community. Gaming connects people more deeply than any other form of media, bringing people together without regard to race, religion, ethnicity, sexual identity, and gender or gender expression. With our players engaging for over an hour per day when they play, our games can play an important, responsible, and positive role influencing popular culture, eliminating stereotypes, celebrating differences, and encouraging communities to embrace tolerance and understanding.

Our Company and Talent Pipeline

Driving diverse communities first means creating a diverse and inclusive culture with our own company. We know that the most innovative and compelling work only originates from a culture in which all employees can be, and bring, their authentic and best selves. Beyond being an equal opportunity employer, we are committed to building and sustaining a culture of DE&I, beginning with the tone from the top and extending through our company. Our continuous work in this space drives greater reach, engagement and growth and allows us to continually invest in building upon, expanding and amplifying our efforts, making DE&I a competitive advantage.

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Our In-Game Communities

Because of the size of our communities and the depth of our engagement, our games have the power to challenge stereotypes and reduce prejudice. We have some of the most diverse games in the world, including characters of color, characters from the LGBTQ+ community, characters of differing abilities, and non-binary characters. They increasingly reflect our communities, and we believe that content designed with diversity and inclusion enables these global communities to grow. It also drives deeper engagement, as fans—both new and old—connect with us in new and meaningful ways.

Communities in Which We Live and Work

From company-sponsored programs to grassroots voluntary involvement, our employees love to give back and support programs and charities that are meaningful to them and our communities more broadly. Our efforts are focused on the Call of Duty Endowment, Veterans Day of Service, and STEAM learning. 

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Call of Duty Endowment

The flagship of our corporate social engagement efforts is the Call of Duty Endowment (CODE), which helps veterans find high-quality careers by supporting groups that prepare them for the job market and by raising awareness of the value vets bring to the workforce.

 

 

 

 

Please see CODE’s most recent annual report for more information, which may be viewed on CODE’s website at https://www.callofdutyendowment.org/.

Veterans Day of Service 

Our Veterans Day of Service (VDOS) is a day for Activision Blizzard employees to take a day off work to volunteer for charities focused on creating a positive impact for veterans across the globe. While COVID-19 prevented our workforce from gathering in person in 2020, the 7^th annual edition of this event took place virtually over the course of a week.

STEAM Learning 

In addition to our support of veterans, we have various community programs across the Company to promote STEAM learning and foster career opportunities for underrepresented groups in STEAM fields.

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Protecting Our Planet

We are committed to doing our part to protect the planet for current and future generations. That’s why we think about our environmental impact across and beyond our offices. This includes the data centers we select, as well as our product use, packaging, and supply chain. In 2020, we derived approximately 82% of our revenues via digital channels. Digital share of revenue is increasing over time, and we are working to accelerate that transition.

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COMPENSATION COMMITTEE LETTER

Dear Fellow Shareholders,

2020 marked another extraordinary chapter in Activision Blizzard’s history. We are proud of the exceptional accomplishments of our management team under the leadership of our CEO, who has successfully managed the Company for 30 years. This was clearly the most difficult year in the Company’s history, which makes our record financial performance especially notable.

Our Company reached a then all-time high market capitalization of $71.8 billion and over the last four years we have generated a compound rate of return of 27% per year, compared to 16% per year for the S&P 500 over the same period. In 2020, we generated more than 57% in total shareholder returns and grew operating income by $1.1 billion, or a 70% increase.

Our pay-for-performance philosophy, which drives our compensation programs, continues to play a vital role in our success. As your Compensation Committee, we will provide an update on executive compensation, specifically the compensation earned by our CEO as a result of multiple years of tremendous performance, as well as a summary of the feedback received from our shareholder outreach program which included 73 meetings with 51 shareholders representing more than 60% of our outstanding shares. We want to thank our shareholders for engaging with us over the course of this last year.

We believe incentives should be inextricably linked to value creation, and our results this year reflect the value of our pay for performance commitment.

Our Compensation Philosophy

Our compensation philosophy continues to focus on the use of performance-based cash and equity incentives. Our annual equity dilution rates of the last three years have averaged 0.85%, in the bottom quartile of our peers. While our peer group continues to favor time-based restricted shares as a significant component of the equity mix for executives, we continue to principally use performance-based equity (performance share units and options) which represented the entirety of our equity mix in the last year.

Chief Executive Officer Compensation

In 2016, when the Board began to develop a new CEO agreement, Activision Blizzard had reached an all-time high market capitalization of approximately $30 billion, more than doubling our market capitalization during the CEO’s 2012 to 2016 contract period. In 2016, as the Compensation Committee set terms for a new five-year contract, it included an aggressive growth goal for the CEO, which if achieved would equate to more than doubling our market capitalization and represents more than a four-fold increase over a nine-year period. This was, by all accounts, an extraordinarily challenging goal that, if achieved, would create substantial value for our shareholders. With the assistance of our outside compensation advisors, we developed an incentive plan that would properly recognize the achievement of such exceptional performance.

We achieved our ambitious shareholder value creation goals, and last year, we awarded our CEO compensation reflecting this tremendous four-year achievement. As the term of the CEO’s contract was set to expire in 2021, we conducted the most extensive shareholder outreach program in our history to make certain our CEO compensation program reflects the practices our shareholders identified as most important with respect to our CEO’s rewards, and best positions us for continued achievement of ambitious goals for future shareholder value creation.

Shareholder feedback has directly informed several compensation program changes

In direct response to the feedback we heard in conversations with our shareholders, we extended Mr. Kotick’s 2016 employment agreement on April 28, 2021, amending it in several key aspects, and made several changes to our broader executive compensation program and disclosures.

Highlights of the changes to Mr. Kotick’s agreement, and other arrangements with the Company, are detailed further on pages 59-60, include:

 

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We believe these changes accurately reflect the direction provided by our shareholders and reflect best practices in compensation and governance to grow long-term value for our shareholders.

 

Sincerely,
Your Compensation Committee
Robert Morgado (Chair), Reveta Bowers, and Dawn Ostroff

The following discussion and tables set forth information with regard to 2020 compensation for all services rendered to us and our subsidiaries by the named executive officers included in the “Summary Compensation Table” below (collectively, our “named executive officers” or “NEOs”).

For 2020, our named executive officers were:

Changes To Our Management Team In 2020

On April 7, 2020, Daniel Alegre joined the Company as our President and Chief Operating Officer from Alphabet Inc where he served as an executive for 15 years most recently as President, eCommerce.

Changes To Our Management Team In 2021

On February 1, 2021, Brian Bulatao joined the Company in the newly created position of Activision Blizzard’s Chief Administrative Officer. Mr. Bulatao most recently served as the Under Secretary of Management at the U.S. State Department, after having served with distinction in the U.S. military and as a Managing Director at Pallas Capital Partners.

On March 29, 2021, Armin Zerza, who joined the Company over five years ago as Chief Financial Officer of Blizzard and most recently served as the Chief Commercial Officer of Activision Blizzard and Chief Operating Officer of Blizzard, became our Chief Financial Officer.

 

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COMPENSATION DISCUSSION AND ANALYSIS

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

Additionally, we provide a detailed summary of the feedback we received from our annual shareholder outreach program, which this past year was the most comprehensive outreach we have ever conducted. We provide a detailed description of modifications made to our executive compensation practices as a result of shareholder feedback, improvements we believe ensure we employ the best practices for aligning performance and rewards; and changes to our compensation practices in response to our 2020 say-on-pay vote, which was a lower level of support than we desire.

 

 

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Executive Summary

Long-Term Company Performance

Under the leadership and strategic vision of our Founder and long-time CEO, Mr. Kotick, Activision Blizzard has consistently navigated the shifting dynamics of our industry to harness opportunities, create exceptional value for our shareholders, and become an employer of choice within the technology, media, and entertainment fields.

Since 1991, when our Chairman and Chief Executive Officer assumed responsibility for leading the Company, Activision Blizzard has significantly outperformed the S&P 500. If you had invested $1,000 in our company 20 years ago, your investment, including dividend reinvestment, would have been worth $82,190 at the end of 2020, or approximately 20 times the S&P 500’s $4,223.

Our market capitalization has grown over 19,000%—from $366 million in 2000, to over $70 billion by 2020. The Company’s market capitalization more than doubled between 2012 and 2016, then on top of that extraordinary achievement, more than doubled again by the end of 2020.

 

 

 

 

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Over the last four-year period, the Company continued to deliver extraordinary growth, financial success, and shareholder value, including $45 billion in additional shareholder value. This success was underpinned by strong financial performance, with net revenues and operating margin, two important metrics, achieving record highs in 2020.

 

 

This strong performance would not have been possible without the leadership, vision, and operational expertise of Mr. Kotick, who has led Activision Blizzard through many transformative periods and made pivotal business decisions that have consistently delivered superior shareholder returns. For example, as PC gaming continued to rise, the decision to merge with Vivendi Games and integrate Blizzard in 2008 provided the Company with some of the industry’s most successful franchises, development talent, and our own digital distribution platform: Battle.net^®.

As players sought more physical interaction with games, our CEO stepped in front of the trend, acquiring RedOctane in 2006 to turn Guitar Hero^® into a pop culture icon and launched Skylanders^® in 2011 to pioneer the “toys to life” category. The Company also foresaw mobile gaming becoming an increasingly important form of interactive entertainment and we acquired King, makers of Candy Crush, at a valuation of approximately 6x King’s 2015 adjusted EBITDA.

Building on this leadership, Activision Blizzard recently launched two free-to-play offerings in the multi-billion dollar Call of Duty franchise with Call of Duty: Mobile and Warzone, contributing to the Call of Duty franchise adding over $1 billion to Activision’s annual segment operating profit in 2020. In 2019, we initiated a broad reorganization across the Company that saw, among other things, increased developer resources on our largest franchises, enabling the release of more frequent high quality content, as well as further expansion across gaming platforms, geographies and business models. This work was already yielding demonstrable results for our shareholders in 2019 and positioned us well as we navigated the challenges presented by the COVID-19 pandemic in 2020, which required that we move all development to a work-from-home model, and navigate both the technical and team based challenges associated with not physically working face to face to drive innovation and creativity.

 

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Our Corporate Strategy

This long-term performance has been enabled by our evolving franchise strategy designed to ensure we continue to deliver epic entertainment for our players, a creative, safe and inclusive environment for our employees, and value to our shareholders. Our current strategy is focused on expanding reach, engagement, and player investment for our portfolio of fully-owned franchises as we execute against four key strategic growth initiatives:

Fiscal 2020 Performance

In 2020, this strategy coupled with superior execution delivered the best financial results in the Company’s history. This was even more impressive given the unprecedented conditions we were working and living in over the last year during the COVID-19 pandemic. Our increased investment in our biggest franchises and opportunities and strong execution against our growth initiatives enabled us to engage our players and create value for our shareholders. While others in the industry struggled with the operational challenges COVID-19 presented, we capitalized on increased consumer demand for gaming by releasing high quality new experiences across multiple platforms. This included:

 

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Our successful execution of these initiatives—part of a multi-year strategy to make the Company even stronger—drove significant growth across all key financial metrics, fueling significant value creation for our shareholders. Net bookings grew 32% year-over-year, operating income expanded 70% year-over-year and earnings per diluted share increased 45% year-over-year. In each case, our financial performance was well ahead of the initial outlook provided to investors in February 2020. Furthermore, we believe the strategic choices made in prior years and strong execution across premium content, in-game operations, expanding our presence on mobile, and ramping new engagement models on our largest franchises has positioned the business for structurally higher financial performance into the future.

 

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This performance was also recognized externally by the stock market. In 2020, we created $26 billion of value for our shareholders. Our performance is even more impressive when you consider the longer-term trajectory: from 2012 to 2016 we more than doubled our market capitalization, and over the last four-year period of 2017 to 2020, we have again more than doubled our market capitalization—an aggressive goal that we are proud to have achieved. This value creation has consistently outperformed that of the S&P 500 and our peer group medians.

 

Total shareholder returns (TSR) based on ending price as of December 31, 2020 for each time period. 2020 peer group median reflects the median TSR of all peers in each time period unless they were not publicly traded during the time period or were excluded due to acquisition (e.g., CBS).

We believe this performance over both the long-term and near-term reflects the Company’s track record of disciplined capital allocation, focus on our largest opportunities, operational excellence, and our commitment to hiring and retaining top talent. This, coupled with our robust pay-for-performance mindset demonstrates our ability to further enhance the earnings profile of this Company. These have been core tenets of Mr. Kotick and his leadership team for 30 years, and we expect these same principles will continue to create meaningful value for our shareholders in the future.

This performance in 2020, and since 2017, was reflected in the outcomes under our variable performance-based compensation programs:

These outcomes are discussed in more detail in the balance of our CD&A.

 

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Responsiveness to Shareholders—The Board Is Committed to Addressing Investor Feedback

The Compensation Committee considers shareholder input essential. While the results of the last say-on-pay vote were disappointing, it provided us the opportunity to renew our focus on integrating shareholder viewpoints in the executive compensation program. It also enabled us to advance our aspiration to be a model of pay for performance and shareholder alignment across the enterprise.

In 2020, our compensation program received the support of 57% of the total votes cast at our Annual Meeting. Over the ensuing several months, Activision’s Board and management team actively sought feedback from shareholders to better understand what motivated their votes. As part of these efforts, we offered engagement with our CEO, Mr. Kotick, and Chair of the Compensation Committee, Mr. Morgado, to shareholders owning approximately 66% of outstanding shares, including each of our top 50 institutional holders. We held over 70 meetings, engaging with over 50 institutions owning approximately 63% of outstanding shares. Our Board was directly involved in these dialogues, with a member of our Compensation Committee and/or CEO (and, in most cases, both) participating in over 40 meetings with shareholders owning approximately 59% of outstanding shares. To ensure candid discussions, in conversations where the CEO participated, he offered to step off the call when executive compensation was discussed. All feedback was shared with the Compensation Committee and this feedback directly informed several changes to our executive compensation program, our CEO’s current employment agreement and our compensation-related disclosures. Our engagement with shareholders prior to the filing of our 2020 proxy was substantially greater than in prior years.

 

 

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Further Detail Surrounding CEO Employment Agreement

During engagement with shareholders, we discussed Mr. Kotick’s employment agreement, as shareholders have, over time, expressed some concerns about elements therein as well as the quantum of certain elements of the annual pay program. In these conversations, however, shareholders expressed appreciation for the pay-for-performance design of the program which was put in place to incentivize industry leading results. The Committee believes that these awards directly reflect the significant value Mr. Kotick delivered to shareholders over the past four years as measured by Activision’s market capitalization more than doubling from $27 billion in 2016 to $72 billion as of December 31, 2020, reflecting a compound annual rate of total shareholder return of 27% during that time period. As outlined above, this is also after roughly doubling the market capitalization for the prior contract period (2012 – 2016).

With the term of the 2016 Kotick Employment Agreement (as defined below) expiring in December 2021, the Compensation Committee took steps to specifically address shareholder feedback in both amending his current agreement and extending this agreement through March 31, 2023. The table below provides a snapshot of Mr. Kotick’s current employment agreement and the terms of the agreement extension, highlighting the significant changes in response to shareholder feedback received since the 2020 annual meeting.

 

 

The meaningful changes described above are in direct response to the feedback our Compensation Committee received from shareholders following our 2020 annual meeting. The Board deeply values the views of its shareholders and is committed to continuing to engage on executive compensation and other matters going forward.

 

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Compensation Principles and Objectives

Our approach to executive compensation, for our CEO and all other executives, is built on three foundational principles that are rooted in our shareholders’ interests:

The Compensation Committee takes shareholder feedback into account and regularly reviews and refines our executive compensation program to ensure it supports our foundational compensation principles.

 

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Our Commitment to Pay for Performance

Activision Blizzard is committed to pay for performance across the organization. This is reflected in our compensation principles which, at their core, seek to align pay opportunities with the market and pay outcomes with performance, informed by feedback from our shareholders.

 

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Incentive Structure & Performance Linkage

 

Executive officers are rewarded according to the financial performance of the Company delivering superior shareholder returns and the level at which they achieve the predetermined 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 shareholders. The following table illustrates certain elements of our executive compensation program, with a focus on our use of performance-based incentives⁽¹⁾.

 

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Our Pay-for-Performance Practices

 

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Putting CEO Pay into Perspective: Aligning Pay and Superior Financial Performance

In 2016, Activision Blizzard reached an all-time high market capitalization of approximately $30 billion, which reflected approximately a doubling of the market capitalization during the CEO’s 2012 to 2016 contract. In 2016, the Board set terms for a new five-year CEO agreement that contemplated aggressive goals, which if achieved at maximum would see us more than double the market value of our Company. This would be an extraordinary achievement, and if we were successful it would reflect substantial value creation for our shareholders. To align pay with these performance expectations we provided for an incentive opportunity commensurate with the challenge.

Mr. Kotick’s compensation as captured in the Summary Compensation Table this year is significantly greater than his historical pay. This primarily was driven by the 2020 equity award, whose grant date fair value reflects the strong stock price performance through the grant date, as well as the expected performance through the measurement period—with such performance ultimately resulting in a TSR compound annual growth of 27% over the 2017 - 2020 performance period. It also reflects the 2021 equity award, which was granted in 2020 with a grant date fair value reflecting the potential achievement of the shareholder value creation incentive and the strong stock price performance over the measurement period. As the 2020 and 2021 awards were granted at, or near, the end of the performance periods, the compensation incorporates the resulting appreciation of both awards over the measurement periods.

 

 

 

In 2020, Mr. Kotick received equity grants shown in the Summary Compensation Table (SCT) subject to two different sets of performance criteria as follows:

 

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2020 Long-Term Performance Incentive

Mr. Kotick’s 2020 award was subject to a challenging absolute TSR performance condition over a four-year performance period starting January 1, 2017.

With our extraordinary annualized four-year TSR of 27%, our CEO earned the maximum incentive payout for this four-year performance period contemplated in his employment agreement back in 2016. The grant date fair value attributable to the 2020 long-term performance grant in our 2020 SCT reflects our strong stock price performance, and expected stock price performance, against the performance goal for the 2020 award as the equity grant was determined at, or near, the end of the performance period. As such, it is not as directly comparable to the value disclosed by other companies that establish all of the terms of their awards at the start of the performance period and prior to any stock price appreciation, because the grant date fair values reflected in the SCT for such awards are typically lower than the CEOs’ payout if they perform well.

 

 

2021 Long-Term Performance Incentive under 2016 Employment Agreement

On December 31, 2020 the Company confirmed the target value of the 2021 long-term performance grant contemplated by the 2016 Kotick Employment Agreement. In April 2021, as a part of the negotiated extension of the 2016 Kotick Employment Agreement, the Compensation Committee and Mr. Kotick agreed that the December 31, 2020 establishment of a $21.6 million target value would be the entirety of the 2021 long-term performance grant made under the 2016 Kotick Employment Agreement.

The 2021 award had a grant date fair value calculated using an estimated performance-based multiplier of 1.2x, which contemplated the probability of the “shareholder value creation incentive” being achieved before the end of the underlying performance period and reflecting the appreciation in our stock price since the start of the performance period.

The 2016 Kotick Employment Agreement provided that the 2021 long-term performance grant will be subject to a five-year cumulative operating income performance goal over 2017 – 2021, as follows:

 

 

Pursuant to the 2021 Kotick Employment Agreement Amendment, Mr. Kotick will receive an award of PSUs in 2021, the grant date value of which will not exceed the median CEO long-term incentive target grant values for our peer group, as determine by the Compensation Committee.

 

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Pay-for-Performance Alignment

As noted above, we are proud our absolute TSR performance over the last four years was 27% on an annualized basis, or 164% in total. This growth in our stock price more than doubled the size of the Company one year short of the five-year contract period and correlated with a notable milestone in our Company’s rich history: a new all-time high in our market capitalization of $71.8 billion at the end of 2020. In 2020 alone, the Company increased market capitalization by 57%, driven by strong operational performance and engaged players. Neither of our stand-alone western gaming competitors in the US achieved this level of shareholder value creation.

 

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When compared to the companies in our 2020 compensation peer group, our relative realizable pay and performance have been consistently aligned. This is true both for 2020 and cumulatively over the last four years during the term of the 2016 Kotick Employment Agreement. Activision Blizzard’s relative performance, measured by operating income growth and TSR, and our CEO’s relative realizable pay, are aligned in both of these time periods.

CEO Pay and Performance are Tightly Aligned

 

 

Notes: (1) This analysis shows pay to be tightly aligned with performance. Our CEO relative realizable pay is well within 25 percentile points of relative performance (see alignment zone in blue above). This means our programs are designed effectively and align with our philosophy of paying for performance. (2) Comparisons are made to the companies in our 2020 compensation peer group, modified to account for M&A activity (instead of CBS and Viacom, we compare to ViacomCBS; Twenty First Century Fox is excluded due to no longer being a standalone public company). Details of our peer companies can be found in the “Comparator Company Data and Compensation Surveys Referenced” section. (3) Realizable pay is defined as cash compensation, reflecting base salary plus actual bonus paid, and equity compensation, reflecting the value of grants made during the period valued using each company’s stock price as of December 31, 2020 using the most currently available data from peer filings at the time of analysis. Performance awards are based on actual payouts (if disclosed) and maximum for those not disclosed or where the cycle is incomplete; time-based stock awards are based on the number of shares granted; option awards reflect the intrinsic value. (4) The first performance measure is Total Shareholder Return, which is calculated using stock prices adjusted for stock splits, cash dividends, rights offerings, spin-offs. The second performance measure is operating income growth (total revenues minus total operating expenses). The percentile ranks of these two measures are averaged, and the percentile rank of that average is then plotted in the above charts.

In absolute terms, our CEO’s total realizable pay related directly to his current agreement (base salary, actual annual incentive payouts, and all equity grants valued as of December 31, 2020), represents approximately 1% of the $45 billion value created for our shareholders over the four-year period from January 1, 2017 through December 31, 2020.

Additional details on the CEO’s employment agreement and the equity awards pursuant to it can be found in the “—Employment Agreements—Robert Kotick” section below.

 

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Decision-Making Approach to Executive Compensation

Factors Influencing Compensation Decisions

Our Compensation Committee believes that executive pay should be determined using a holistic approach, involving an evaluation of a wide variety of relevant factors. These factors include, but are not limited to:

 

 

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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. An example of how we reference market data but make our own decisions is evidenced through our primary use of PSUs and stock options that promote pay-for-performance in accordance with our compensation principles. While many of our compensation peers include RSUs either as part of the mix or as the sole vehicle, we actively differentiate ourselves to better align our programs with the interests of our shareholders.

Highly Competitive Business Environment and Associated Talent Requirements

We operate in the interactive entertainment industry, which exists at the nexus of the gaming, media, entertainment, and technology sectors. Finding top executives with the necessary characteristics requires recruitment of executives from a variety of industries including these sectors, which can include some companies that are larger and more mature than ours. In setting executive pay, the Compensation Committee takes into consideration a wide variety of factors, including compensation provided to executives at companies against which we compete, or may compete, for such talent.

Our industry is intensely competitive and constantly evolving. It features a number of unique characteristics, including:

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

Use of Employment Agreements

Our employment agreements with our executives specify base salary, incentive opportunities, and the terms and conditions of the equity awards which may be granted thereunder, as well as provisions regarding the consequences of termination of employment and restrictive covenants, such as non-competition and non-solicitation provisions. The terms of each of these agreements have been ratified 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.

Employment agreements are common in the broader, highly competitive entertainment industry from which we recruit talent. We believe that having multi-year employment agreements with our executives is critical in enabling us to attract and retain them. Using multi-year contracts also allows us to create compensation arrangements with a mix of incentive opportunities designed to reward executives for achievement of the Company’s short- and long-term goals, which we view in totality when assessing the executive’s compensation and performance during the term. For example, pursuant to his employment agreement with us, our Chief Executive Officer, Mr. Kotick, has received, or is eligible to receive, incentive awards based on financial metrics such as operating income and earnings per share, and shareholder returns, both absolute and relative, in each case, over a variety of performance and service periods, both within and beyond the term of his agreement. For more information on Mr. Kotick’s employment agreement with the Company, see “—Employment Agreements—Robert Kotick” below.

 

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Comparator Company Data and Compensation Surveys Referenced

In selecting a comparator group, the Compensation Committee thoughtfully considers a range of factors to ensure that the companies individually and in aggregate are appropriately relevant. Six factors are used to assess relevance, noting that not all companies will meet all criteria and the Committee’s judgement is required in ultimately assessing direct relevance to Activision Blizzard. These criteria were a helpful reference in our 2021 peer group review, described below, which saw several changes to the prospective peer group as Activision Blizzard continues to evolve within the digital media and entertainment space.

 

 

 

We compete for talent primarily against Tencent, Facebook, Google, Amazon, Apple and Netflix. Because of the relative market value capitalization difference between us and our closest competitors, these companies are not included in our peer group.

The peer group is reviewed periodically to ensure continued relevance and robustness, and to address M&A activity. For example, in 2019, the following changes were made as a result of M&A transactions:

 

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The resulting 2020 peer group is comprised of the following 15 companies:

 

At the time this peer group was approved, Activision Blizzard’s market capitalization was at the 52^nd percentile and net revenues were at the 19^th percentile. During 2020, the Compensation Committee reviewed and approved changes to the peer group for 2021. This ensures that the peer group remains relevant and that we continue to compare ourselves to complex, global, operationally complex companies of a similar size, with whom we compete for talent. Following this review three companies (Booking Holdings, Expedia Group, and Symantec Corporation) were removed given their limited continuing relevance from a talent, industry and business model perspective.

Three new companies were identified that, given changes in our respective businesses over the last few years, are deemed relevant compensation peers:

Our evolution within the entertainment industry makes both Liberty Media and Live Nation particularly relevant, given we are increasingly competing for talent within this area. The inclusion of ServiceNow reflects the inherent technology needs of our business and the increasing relevance of this industry adjacency.

 

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These companies met the following screening criteria:

 

Against this revised peer group at the time of its approval in March 2021 Activision Blizzard was positioned at:

This peer group was used to benchmark and determine the changes outlined earlier related to go-forward pay for our CEO under his amended agreement, which is positioned below the peer 25^th percentile on target cash compensation, and at or below median on target equity compensation.

In evaluating our executive compensation program, the Compensation Committee utilizes data obtained from SEC filings made by these companies, including named executive officer target and actual compensation, company-wide equity usage rates, and potential dilution. In addition, 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 2020, we referenced surveys published by Radford as an additional source of data to provide pay information that is not publicly available.

This compensation data provides an important contextual frame of reference with respect to the markets we compete in. The Compensation Committee also considers other sources to inform compensation structure, including practices of other relevant companies and broader industry trends. The Compensation Committee does not target a specific market percentile, rather it assesses pay levels using a holistic approach. However, in response to shareholder feedback and as detailed earlier, we will be reducing the CEO’s compensation in 2021 and 2022 to better align with the median of our peer group.

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

To help inform executive compensation 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

 

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

Compensation Committee’s Independent Compensation Consultant

Since October 2013, the Compensation Committee has retained Exequity as its independent compensation consultant. Other than serving as the consultant to the Compensation Committee, Exequity provides no other services to the Company. The Compensation Committee assessed Exequity’s independence and determined that no conflicts of interest arise. Our Compensation Committee has also retained Paul Hastings, as its legal advisor.

Executive Officers and Management

During 2020, our Compensation Committee interacted directly with members of our management, as appropriate.

 

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Compensation Risk

To help mitigate potential risks, we have adopted several policies that are intended to either align our executives’ long-term interests with those of our shareholders or to provide the Company with certain protections in pre-defined situations.

Clawback Policy

Since approval by the Board in May 2009, Activision Blizzard has maintained a comprehensive “clawback policy”. In the event of an earnings restatement, the Company may seek to recover performance-based compensation paid or awarded to the executives responsible during the restatement period. This includes both short-term compensation under the CAIP and long-term incentive awards and applies to any Section 16 officer. The full “Policy on Recoupment of Performance-Based Compensation” can be found on our website at http://investor.activision.com/corporate-governance.cfm.

Executive Stock Ownership Guidelines

Since approval by the Board in March 2012, with the most recent amendments made in April 2021, Activision Blizzard has imposed stock ownership guidelines to further align the interests of those to whom they apply with our shareholders. Executives have five years from their date of appointment during which to meet the guideline and only stock that is beneficially owned is considered in assessing compliance. The Company’s CEO is expected to beneficially own Company stock with a value at least equal to fifty-times salary, with other named executive officers required to own stock with a value at least equal to one-times salary.

All named executive officers are either in compliance with their full guideline, or progressing towards it within the permitted five-year period. The full “Executive Stock Ownership Guidelines” policy can be found on our website at
http://investor.activision.com/corporate-governance.cfm.

Anti-Hedging Policy

We prohibit our employees (including our executives and any entity over which any employee or immediate family member sharing the same household of any employee has or shares voting or investment control) 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.

Incentive Design

We establish maximum payout levels in our annual cash incentives, we utilize a holistic array of performance metrics to ensure performance is evaluated and achieved from an operational, financial and shareholder perspective, and we utilize multi-year performance metrics to ensure performance is sustained and not achieved for a one-year period at the expense of long term growth. Finally, we also maintain Compensation Committee discretion to reduce awards if circumstances beyond those reflected in the metrics need to be considered.

Elements of Our Executive Compensation Program for 2020

An overview of the primary elements of our executive compensation program and their purposes appears below. Not all elements are applicable to all named executive officers. We aim to incentivize our executives to drive corporate financial and operational 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 rate for an executive officer, the Compensation Committee considers an individual’s role, performance, and annualized total compensation opportunities; salaries paid to the executive’s peers within the Company; and the total compensation opportunities of executives in comparable positions and with similar responsibilities 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.

 

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None of our named executive officers have contractual entitlements to salary increases (see “—Employment Agreements” below). Salary increases are generally only provided to an executive officer:

Reduced CEO Compensation In 2020, the CEO, after consultation with the Compensation Committee, voluntarily elected to take no pay for the last four pay periods of the year, equating to a 15% reduction in his annual salary. Additionally, in April 2021, the CEO agreed, based on discussions with the Compensation Committee, to reduce his salary rate in 2021 from $1,750,000 to $875,000, equating to a 50% reduction in his contractual annual salary. The Compensation Committee took these actions to address shareholder concerns regarding the quantum of the CEO’s compensation and result in salary being positioned below the current peer 25th percentile of $1,000,000. These are the first changes to his base pay since 2017. The base salaries for our other named executives have not changed since February 2019 or, if more recent, their date of appointment.

 

The table below reflects the annual base salary rates approved for 2020 during our annual review process, along with any other adjustments since that time:

 

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Corporate Annual Incentive Plan (CAIP) Bonuses

The CAIP is designed to drive our financial results and to incentivize individual contributions toward operational and strategic initiatives. The fundamental structure of the plan is consistent with 2019, with 60% of an executive officer’s opportunity contingent on financial objectives, and 40% contingent on individual strategic objectives aligned with our long-term strategic priorities. In addition, for any bonus to be earned a threshold level of adjusted operating income, set at 90% of the AOP (i.e., the annual operating plan), must be achieved. If this threshold is not achieved, no executive officer is eligible to receive a bonus under the CAIP.

 

 

 

 

Target CAIP Awards

In establishing the target payout opportunities for an executive officer under the CAIP for 2020, the Compensation Committee considers the bonus target set forth in their employment agreement, their annualized total compensation opportunities, our desired pay mix, and the total compensation opportunities of the executive’s peers within the Company and in comparable positions and with similar responsibilities at other companies by reference to data from our comparator group and published surveys. The following target opportunities were approved for 2020:

 

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Financial Performance Score (60%)

For each named executive officer, 60% of their target opportunity under the CAIP for 2020 was based on AB Adjusted EPS, AB Adjusted Operating Income, and AB Adjusted Free Cash Flow. The Compensation Committee believes that these financial measures 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 objectives that contribute to increasing shareholder value. If 2020 AB Adjusted Operating Income for the year was less than 90% of the AOP, none of our executive officers would have been eligible to receive a bonus under the CAIP for the year, regardless of the level at which their individual financial or strategic objectives was achieved. Assuming the overall threshold objective was satisfied, threshold and maximum opportunities are established in respect of each of the financial objectives.

 

 

 

CAIP goals are set with reference to our AOP, which is set through a rigorous process 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. Ranges are established around the AOP “target” to reflect the minimum level of performance that will be rewarded, and a maximum level of performance reflective of potential stretch scenarios. With regard to maximum levels of performance, while many companies require achievement at 110 - 125% of the target to earn maximum payouts, our plans require achievement of 150 - 200% of target performance to earn maximum payouts.

In 2020, our AOP targets represented significant growth in two of three financial metrics. The AB Adjusted Free Cash Flow target, while rigorous, was set below 2019, reflecting expected cash tax payments for settlements and other matters that were planned in 2020. The threshold, target and maximum were deemed to be appropriate in the context of our AOP:

 

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Actual performance resulted in significant growth in all three financial metrics compared to 2019, with results for both AB Adjusted Operating Income and AB Adjusted EPS at 135% of target and AB Adjusted Free Cash Flow at 149% of target:

 

Note: Given our AB Adjusted EPS performance was more than 20% greater than the AB Adjusted EPS AOP objective for the prior year and the prior year’s actual AB Adjusted EPS, Mr. Alegre was eligible to receive a target bonus of 200% of salary in accordance with his employment agreement.

 

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Individual Strategic Objectives (40%)

For each named executive officer, 40% of the target opportunity was based on strategic priorities established by the Compensation Committee for the year. Payouts in respect of the strategic objectives can range from 0% - 120% of an executive officer’s target opportunity.

The Compensation Committee believes that the use of strategic objectives, in addition to financial objectives, allows us to incentivize the specific behaviors the Compensation Committee thinks are most critical to the Company’s success, thus best aligning the interests of our executive officers with the Company’s strategic priorities. While the executive officers’ strategic objectives have not been previously made public due to competitive concerns, in response to shareholder feedback, we have outlined them below and committed to do so going forward.

The exact objectives varied by executive officer, reflecting areas of importance and influence by role. For 2020, objectives generally fell into the following categories:

The table below summarizes the objectives for Mr. Kotick and the Compensation Committee’s year-end assessment.

 

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For other NEOs, multiple strategic objectives were shared or were similar. These objectives were not fully met in 2020 and therefore none of these were paid out: