ACTIVISION BLIZZARD, INC. - DEF 14A

UNITED STATES

 

SECURITIES AND EXCHANGE COMMISSION

 

Washington, DC 20549

 

SCHEDULE 14A

 

PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934

(Amendment No.     )

 

  Filed by the Registrant   Filed by a Party other than the Registrant

 

Check the appropriate box:
Preliminary Proxy Statement
Confidential, for Use of the Commission Only (as permitted by Rule 14A-6(E)(2))
Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material under §240.14a-12

 

ACTIVISION BLIZZARD, INC.

 

 

(Name of Registrant as Specified in Its Charter)

 

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

 

Payment of Filing Fee (Check all boxes that apply):
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Fee paid previously with preliminary materials.
Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11.


April 29, 2022

DEAR SHAREHOLDERS:

Throughout 2021, Activision Blizzard continued to engage the world through epic entertainment. We upheld our legacy of delivering great games to more than 350 million players globally—providing people a sense of community, excitement, and joy. We are incredibly proud of our team members for their unwavering dedication, creativity, and passion; our Company’s continued success is the result of the continued commitment to excellence demonstrated by our talented employees in 15 countries.

Activision Blizzard has some of the world’s largest audiences, most recognizable intellectual properties, and iconic games. These unique assets—developed over three decades—enabled us to deliver long-term financial performance and value creation for shareholders. In 2021, we delivered record full-year GAAP results, growing GAAP revenue 9%, GAAP operating profit 19%, and GAAP EPS 22%, in each case year-over-year. Net bookings was broadly consistent at 1% lower year-over-year, following historic and unprecedented performance in 2020.

Our performance last year was driven by our increased investment in our most successful franchises and the commitment and focus of our dedicated employees. The King business and its Candy Crush™ franchise grew strongly; King passed the $1 billion annual operating income milestone for the first time. In the Call of Duty® franchise, full year results benefited from the availability of free-to-play experiences across PC, console, and mobile devices. While Call of Duty: Vanguard did not meet our expectations, we are planning the most ambitious effort in franchise history and expect significant improvement in franchise performance. World of Warcraft® continues to remain vibrant after almost two decades of delighting players. And, of course, we have exciting efforts underway for many of our other franchises, as well as new potential franchises on which we previously reported.

Our strategy of increasing reach, engagement, and player investment for our largest, globally-recognized intellectual properties, combined with our track record of focus and operational excellence, should allow Activision Blizzard to continue to deliver superior operating results over time. This approach has also driven substantial long-term value creation for our shareholders. If you had invested $1,000 in our Company at the end of 1991, your investment, including dividend reinvestment, would have been worth $63,650 at the end of 2021, or more than three times the S&P 500’s $20,822. During that same period, our market capitalization grew from less than $10 million in 1991 to over $50 billion.

Proposed Microsoft Transaction

In January of this year, we announced that we entered into a merger agreement with Microsoft Corporation. Microsoft has agreed to acquire all outstanding shares of Activision Blizzard for $95 per share in cash(1). Upon the closing of the transaction, Activision Blizzard will cease to be a publicly traded company but our mission to deliver the world’s best interactive entertainment will continue with greater resources and opportunity.

This combination represents an exciting, new phase of our Company’s journey to continue delivering fun, joy, and connection through epic entertainment. The combination of Activision Blizzard’s world-class talent and extraordinary franchises with Microsoft’s technology, distribution, even greater access to talent, ambitious vision, and shared commitment to a welcoming and inclusive workplace will help ensure our continued success in an increasingly competitive industry.

 

 

 

 

(1)

For additional information related to the Agreement and Plan of Merger, dated as of January 18, 2022, by and among Activision Blizzard, Microsoft Corporation, and Anchorage Merger Sub Inc., a wholly owned subsidiary of Microsoft Corporation, please refer to the Definitive Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on March 21, 2022, and other relevant materials in connection with the proposed transaction that we may file with the SEC containing important information about Activision Blizzard and the merger. 

 

www.activisionblizzard.com ACTIVISION BLIZZARD, INC.   2022 Proxy Statement 1

Activision Blizzard’s Board of Directors believe this is the right transaction with the right partner at the right time. The price of $95 per share in cash delivers a premium of approximately 45 percent to Activision Blizzard’s share price as of January 14, 2022, the last trading day before the merger was announced. The proposed transaction has been approved by Activision Blizzard’s shareholders and is expected to close in Microsoft’s fiscal year ending June 30, 2023, subject to the satisfaction of customary regulatory approvals, and other customary closing conditions. Until that time, both companies will continue to operate independently.

Ensuring a Safe and Diverse Working Environment

Activision Blizzard has implemented a number of initiatives designed to enhance our workplace culture. Maintaining the very best workplace remains our focus, and we believe having such a workplace will give us a competitive advantage in attracting and retaining the highly in-demand talent we need to operate successfully.

We intend for Activision Blizzard to be recognized as a model for other companies to emulate in the areas of inclusion, respect, and safety. We have made achieving this objective a top priority for the near and long term as we believe this will enable us to deliver the very best games for our players and returns for our shareholders.

In 2021, we made a number of workplace-related commitments and significant progress toward achieving them. We announced new resources, commitments, and investment in our workplace with respect to the prevention of harassment, discrimination, and retaliation. We announced the launch of a new, more stringent approach to harassment Company-wide. We implemented several more aggressive measures in October 2021: we adopted a new policy waiving mandatory arbitration of individual sexual harassment, unlawful discrimination, or related retaliation claims arising from conduct after October 28, 2021; we began releasing data on the Company’s pay equity analyses; we released detailed U.S. representation data; and we again increased investment in training and compliance. While our benefits programs are very generous and provide a broad set of programs designed to support the health and personal needs of a diverse population, we also improved programs for a larger portion of our employees, including increased holiday, sick, and vacation time off. We have increased investment in our people, including converting approximately 500 temporary workers to full-time employees in 2021 and converting more than 1,000 this year, with most receiving increased pay and expanded benefits. Our effort to continuously improve our workplace is ongoing. We will strive to strengthen our culture and remain committed to an exemplary work environment for all employees.

Commitment to Good Governance

At Activision Blizzard, we have always been committed to maintaining an active dialogue with stakeholders. Last year, as a direct result of conversations with our stakeholders, we undertook a review of—and again improved—various policies and practices related to executive compensation and human capital management. In November 2021, the Board of Directors established a Workplace Responsibility Committee to oversee workforce initiatives and ensure our accountability as we deliver on our pledges.

We continue to broaden the diversity, skills, and experiences of our Board as part of our ongoing commitment to refreshing our Board. We recently announced Lulu Cheng Meservey’s appointment to our Board of Directors and Kerry Carr’s nomination for election at our 2022 Annual Meeting. In addition, we announced Hendrik J. Hartong III and Casey Wasserman have chosen to not stand for re-election. We are extremely grateful for Henk’s and Casey’s commitment to Activision Blizzard and strategic leadership and counsel over the years.

This is a very exciting time for our Company. While this past year had unique challenges, we have experienced three decades of extraordinary success, and we remain optimistic about our future. We would like to express our appreciation to the Activision Blizzard leadership team and our employees, who have been instrumental to our success. We remain grateful to our shareholders and debt holders, for your continued support and investment in Activision Blizzard.

 

Sincerely,

 

Robert A. Kotick

Brian Kelly

 

 

 

www.activisionblizzard.com ACTIVISION BLIZZARD, INC.   2022 Proxy Statement 2

MEETING INFORMATION

WHEN

Tuesday, June 21, 2022,

9:00 a.m., Pacific Time

WHERE

Via live audio webcast at: https://viewproxy.com/ATVI/2022

WAYS TO VOTE

BY INTERNET

www.proxyvote.com

 

BY TELEPHONE

Call (800) 690-6903 or the number on your proxy card.

BY MAIL

Sign, date, and return your proxy card.

NOTICE OF 2022 ANNUAL MEETING OF SHAREHOLDERS

The Annual Meeting of Shareholders of Activision Blizzard, Inc. will be held via live audio webcast, on Tuesday, June 21, 2022, at 9:00 a.m., Pacific Time.

To attend the meeting, visit https://viewproxy.com/ATVI/2022. 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.

Our Board of Directors set April 22, 2022, as the record date for determining the shareholders entitled to receive notice of, and to vote at, the Annual Meeting.

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 29, 2022.

 

www.activisionblizzard.com ACTIVISION BLIZZARD, INC.   2022 Proxy Statement 3

 

Shareholders are being asked to vote on the following matters at the 2022 annual meeting of shareholders.

 

OUR BOARD’S

RECOMMENDATION

Proposal 1. Election of Directors (page 18)

Our Board and its Nominating and Corporate Governance Committee believe 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 52)

Our Board and its Compensation Committee believe our compensation policies and practices enable us to deliver superior returns to our shareholders and 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 132)

Our Board and its Audit Committee believe that continuing to retain PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm is in the best interests of the Company and our shareholders

FOR

Proposal 4. Shareholder proposal regarding the nomination of an employee representative director (page 134)

Our Board unanimously recommends that you vote AGAINST the shareholder proposal regarding the nomination of an employee representative director

AGAINST

Proposal 5. Shareholder proposal regarding the preparation of a report about the Company’s efforts to prevent abuse, harassment, and discrimination (page 137)

Our Board unanimously recommends that you vote AGAINST the shareholder proposal regarding the preparation of a report about the Company’s efforts to prevent abuse, harassment, and discrimination

AGAINST

 

Your vote is important. Even if 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 147 of the enclosed proxy statement. If you 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 29, 2022

Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to be Held on Tuesday,
June 21, 2022.
The proxy statement and our 2021 annual report to shareholders are both available at:

https://materials.proxyvote.com/00507V

 

www.activisionblizzard.com ACTIVISION BLIZZARD, INC.   2022 Proxy Statement 4

 

TABLE OF CONTENTS

Proxy Summary

7

Proposal 1 Election of Directors

18

Corporate Governance Matters

26

Director Compensation

48

Proposal 2 Advisory Vote to Approve the Company’s Executive Compensation

52

Compensation Committee Letter

53

Compensation Discussion and Analysis

55

Compensation Committee Report

86

Executive Compensation Tables

87

Certain Relationships and Related Person Transactions

128

Audit-Related Matters

130

Proposal 3 Ratification of Appointment of Independent Registered Public Accounting Firm

132

Proposal 4 Shareholder Proposal Regarding the Nomination of an Employee Representative Director

134

Proposal 5 Shareholder Proposal Regarding the Preparation of a Report about the company’s Efforts to Prevent Abuse, Harassment, and Discrimination

137

Beneficial Ownership Matters

141

Equity Compensation Plan Information

144

Information About the 2022 Annual Meeting

145

Director Nominations and Other Shareholder Proposals for our 2023 Annual Meeting

149

Availability of Proxy Materials on the Internet; Delivery of Documents to Security Holders Sharing an Address; Financial and Other Information

151

Other Matters

152

Helpful Resources

153

 

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PROXY SUMMARY

This summary highlights information contained elsewhere in this proxy statement for the 2022 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 2021 performance, please review our 2021 annual report, which is being provided to our shareholders at the same time as this proxy statement.

 

HOW OUR 2021 FINANCIAL PERFORMANCE BUILT ON A BREAKOUT 2020

Activision Blizzard delivered record full-year GAAP results in 2021, growing net revenues 9% year-over-year, operating profit 19% year-over-year, EPS 22% year-over-year, and operating cash flow 7% year-over-year, building upon very strong results in 2020. Net bookings, which is an operating metric, was broadly consistent at 1% lower year-over-year, following the Company's historic and unprecedented performance in 2020.

This performance was driven by increased investment in our biggest franchises and opportunities, and the commitment and focus of our talented employees despite the ongoing challenges of working remotely. Growing our developer base remains one of our strategic priorities, and we increased our developer headcount in 2021, adding hundreds of talented professionals to our teams.

 

www.activisionblizzard.com ACTIVISION BLIZZARD, INC.   2022 Proxy Statement 7

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EXECUTIVE COMPENSATION HIGHLIGHTS

Our executive compensation program is designed to motivate and reward exceptional performance, while holding executives accountable for driving future growth.

A majority of the shareholders who voted at our 2021 annual meeting, representing approximately 56% of the total votes cast, voted in support of our say-on-pay proposal. Going forward, our program is better designed to align executive performance and compensation with the interests of our shareholders. We continued our dialogue with shareholders throughout 2021 and heard that many of our investors approved of the changes we implemented in our executive pay practices. Those changes included making substantial adjustments to our CEO’s compensation, increasing the focus on financial performance and adding ESG objectives in our short-term incentive plan, placing more emphasis on performance-based equity incentive awards, and increasing disclosure around executive pay decision-making.

Compensation Aligns Pay with Performance

In recent years, the Company has continued to deliver financial success, including through launching free-to-play and mobile offerings in the multi-billion-dollar Call of Duty franchise, creating new experiences for World of Warcraft®, and driving growth in in-game spending and advertising for Candy Crush.

While our 2021 results represent strong performance following a very successful 2020, the Company did not reach all the financial targets that management established and our Board approved. As discussed in detail herein, this performance was directly reflected in our executive compensation, including a zero payout for our annual incentive plan, and an average payout of 41% on our performance-based stock awards based in whole or in part on 2021 performance.

For a further discussion of how our 2021 performance impacted executive compensation, please see “Executive Compensation—Compensation Discussion and Analysis,” which begins on page 55 of this proxy statement.

Reduction to CEO Compensation

Our Compensation Committee took steps in April 2021 to specifically address feedback from our shareholders by both amending our CEO’s employment agreement and extending it through March 31, 2023, including:

Substantially reducing his target cash compensation, which brought his base salary and target bonus below the 25th percentile of the combined base salary and target bonus of our peer group CEOs;

Limiting the target grant date value of his annual long-term incentive awards for 2021 and 2022 to no greater than the 50th percentile of the peer CEO LTI grant values and ensuring these awards are denominated in performance-vesting restricted share units; and

Eliminating applicability of certain provisions, including:

the “shareholder value creation incentive” that created the potential for increased levels of vesting on certain performance-based awards if the Company achieved significant stock price appreciation (see “Executive Compensation—Employment Agreements—Robert Kotick—Shareholder Value Creation Incentive” below); and

the “transformative transaction award” that created the potential for an additional payment in the event of a transformative transaction (see “Executive Compensation—Employment Agreements—Robert Kotick—Transformative Transaction Award” below).

Further, in October 2021, Mr. Kotick asked that his total compensation be reduced to the lowest amount permitted to be paid to exempt employees under California law until the Company has made appropriate progress toward the achievement of the Transformational Goals (as defined below under “Corporate Governance Matters—Workplace and Culture”). Mr. Kotick’s annual base salary was reduced to $62,500, effective as of October 28, 2021, and he did not receive an equity award or a bonus award for 2021. The base salaries for each of our other NEOs have not changed since they became executive officers.

 

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For a further discussion about Mr. Kotick’s compensation, please see “Executive Compensation—Compensation Discussion and Analysis,” which begins on page 55 of this proxy statement.

 

HOW WE ENSURE A SAFE AND DIVERSE WORKING ENVIRONMENT

We are committed to becoming the most welcoming, inclusive company in our industry. Our continued success and growth are directly related to our ability to attract, recruit, enable, retain, and develop diverse and innovative talent.

During 2021, the Company worked to address concerns raised regarding our workplace and related matters. Company leadership has committed to take action to produce meaningful change and provide employees with the resources and support they need to succeed in our collective aspiration to be the model workplace in our industry.

Steps we have taken to improve our workplace and address concerns include:

In November 2021, our Board formed a Workplace Responsibility Committee (see “Corporate Governance Matters—Workplace and Culture”), which currently consists of three independent directors, to oversee the Company’s progress in successfully implementing new and updated workplace policies, procedures, and commitments. In consultation with management, the Workplace Responsibility Committee is responsible for developing key performance indicators and/or other means to measure progress and ensure accountability. The committee has begun receiving progress reports from executive management and briefing the full Board.

We have investigated—and will continue to investigate—complaints of harassment, discrimination, and retaliation raised through various reporting channels. In October 2021, we combined our investigations groups into one centralized “investigations unit” within the ethics & compliance team. This centralized unit, with expanded resources, increases our ability to conduct prompt investigations and maintain and measure consistency throughout investigations of all types and across the Company.

For any Activision Blizzard employee who chooses not to arbitrate an individual claim of sexual harassment, unlawful discrimination, or related retaliation arising after October 28, 2021, the Company will waive any obligation to do so.

We are committed to continuing to grow our investment in anti-harassment and anti-discrimination training resources.

Our ”Way2Play Heroes”—volunteers who help our other employees understand their reporting options, champion speaking up, and provide feedback and advice on how to strengthen our overall ethics & compliance program—are receiving additional resources and recognition (including an additional personal day each quarter) through an overall expansion of the program.

In October 2021, we announced the launch of a new Company-wide zero-tolerance harassment policy.

In November 2021, we announced a global drug and alcohol policy for Company-sponsored events and zero tolerance for alcohol consumption in the workplace.

In December 2021, we launched “Upward Feedback,” an annual process where employees share constructive, actionable feedback with their managers through an anonymous survey. This feedback—about each people manager's inclusive behaviors and commitment to living our values—will be considered in the annual evaluation of each manager’s performance.

We removed content from our games that we believe to be inappropriate.

We released our “U.S. Pay Equity Review 2020” in October 2021.

We released our "2021 Representation Data" report in December 2021.

For further discussion of steps we have taken to improve our workplace, please see “Corporate Governance—Workplace and Culture,” which begins on page 41 of this proxy statement.

www.activisionblizzard.com ACTIVISION BLIZZARD, INC.   2022 Proxy Statement 9

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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 except for Kerry Carr, including the Board committees on which each will serve following the 2022 annual meeting (pending, in each case, their election or re-election by our shareholders):

 

Name/ Principal Occupation

Age

Director

Since

Independent

Committee Memberships

Audit

Committee

Compensation

Committee

Nominating

and Corporate

Governance

Committee

Workplace

Responsibility

Committee

Reveta Bowers

Interim Head of School of the Center for Early Education

73

2018

 

 

Kerry Carr

Senior Vice President Global Performance Management, Revenue Growth Management and Shared Services of Bacardi

59

 

 

 

Robert Corti

Retired CFO of Avon Products

72

2003

 

Brian Kelly (Chairman)

Chairman of the Board of Activision Blizzard

59

1995

 

 

 

 

Robert Kotick

CEO of Activision Blizzard

59

1991

 

 

 

Lulu Meservey

Vice President of Communications at Substack

35

2022

 

 

 

Barry Meyer

Retired Chairman and CEO of Warner Bros. Entertainment

78

2014

 

 

 

Robert Morgado
(Lead Independent Director)

Retired Chairman and CEO of Warner Music Group

79

1997

 

 

Peter Nolan

Senior Advisor to
Leonard Green & Partners

63

2013

 

 

Dawn Ostroff

Chief Content and Advertising Business Officer of Spotify

62

2020

 

  Member

 

 

   Chairperson

 

 

 

 

 

 

   Financial Expert

 

 

 

 

 

 

 

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Summary of Director Nominee Experience and Qualifications

Below is a summary of some of the skills, experience, and expertise our Board believes are most relevant in light of the Company’s business and strategy. While these were among the attributes considered by the Board in connection with this year’s director nomination process, the following matrix does not encompass all experience, qualifications, attributes, or skills of our director nominees.

 

Gaming

Industry

Entertainment

Industry

Technology/

Digital

Audit/

Accounting

Financial/

Capital

Allocation

Public

Company

Executive

Public Board

Experience

International

Expertise

Educational

Experience

Reveta Bowers

 

 

 

 

 

Kerry Carr

 

 

 

 

Robert Corti

 

 

 

 

 

Brian Kelly

 

 

 

Robert Kotick

 

 

Lulu Meservey

 

 

 

 

 

Barry Meyer

 

 

Robert Morgado

 

 

Peter Nolan

 

 

 

Dawn Ostroff

 

 

 

 

 

Total

3

7

7

3

7

7

7

8

5

For a further discussion about our director nominees, please see “Proposal 1—Election of Directors—Information About Our Director Nominees,” which begins on page 18 of this proxy statement.

www.activisionblizzard.com ACTIVISION BLIZZARD, INC.   2022 Proxy Statement 11

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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 are shown below.

 

 

Accountability to Shareholders

Our common stock is our only outstanding class of stock, with one vote per share.

Shareholders elect directors every year, for one-year terms, with a majority vote standard for uncontested elections.

All shareholder voting matters are decided by a simple majority vote.

The proxy access provision in our Bylaws permits certain shareholders to include director nominees in our proxy statements.

We have not adopted a “poison pill” or similar anti-takeover provision.

Our shareholders have the right to act by written consent.

Board Oversight of Workplace Concerns

Our Board’s newly-formed Workplace Responsibility Committee oversees our progress in successfully implementing our new and updated workplace policies, procedures, and commitments.

In consultation with management, the Workplace Responsibility Committee is responsible for developing key performance indicators and/or other means to measure progress and ensure accountability.

The Workplace Responsibility Committee has begun receiving progress reports from executive management and briefing the full Board.

Board Independence

Eight of our ten director nominees are independent, including our new director nominee.

The roles of Chairman, Chief Executive Officer, and Lead Independent Director are held by three different people.

Our independent directors regularly meet in executive sessions.

All members of our Board committees—Audit, Compensation, Nominating and Corporate Governance, and Workplace Responsibility—are independent.

Board Diversity

We codified our longstanding commitment to including qualified women and racially/ethnically diverse candidates in the pool from which any new independent director nominee is chosen and publicly committed to apply this practice for all future Board searches.

Four of our ten director nominees are women, and three of our ten director nominees identify as underrepresented minorities.

Board Policies and Practices

Our Board formally reviews its performance, as well as the performance of its committees, on an annual basis, including to ensure the Board has the appropriate mix of skills and experience to align with our corporate strategy. In addition, the Board and its committees maintain a dialogue in executive session throughout the year focused on strengthening our Board’s performance.

Our Board actively engages in chief executive officer succession planning, and regularly reviews succession plans for other executives.

Our Compensation Committee annually evaluates our Chief Executive Officer’s performance and determines the most appropriate metrics by which to measure that executive's performance.

Active Board Oversight of Risk Strategy

Our Board regularly reviews management’s conclusions and recommendations regarding current and future potential strategic enterprise-level risks, as well as the strategies proposed to mitigate such risks.

Our Board assumes an active role in overseeing risk management and in providing strategic guidance for the Company, while delegating certain risk management oversight functions to its committees, each of which regularly reports to our Board.

Our Nominating and Corporate Governance Committee actively oversees risks associated with overall governance and Board succession planning, as well as ESG-related matters.

Our Audit Committee actively oversees cybersecurity risk.

Our Compensation Committee actively oversees risks relating to human capital management.

Our Workplace Responsibility Committee actively oversees management’s progress in implementing our new and updated workplace policies, procedures, and commitments

 

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Risk Mitigation and Alignment of Interests

Executive officers and directors are expected to comply with stock ownership guidelines. Our Chief Executive Officer is required to beneficially own shares of our common stock with a value at least equal to 50 times his then-current annual base salary. When our CEO reduced his annual base salary to $875,000, he held shares of our common stock with a value of almost 400 times that salary. He currently holds shares of our common stock with a value of approximately 5,500 times his current annual base salary of $62,500. We do not include restricted stock or restricted stock units in determining compliance with these requirements.

In the event of an earnings restatement due to the misconduct of an officer, we have a policy that enables us to “claw back” certain performance-based compensation (both cash and equity) paid or awarded to such officer.

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

We prohibit our directors, NEOs and other Section 16 officers, and the President of each of Activision Publishing, Blizzard, and King from pledging Company securities as collateral for any type of loan.

 

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PROXY STATEMENT

 

GENERAL

PURPOSE OF THIS PROXY STATEMENT

This proxy statement is furnished in connection with the solicitation by our Board of Directors (our “Board”) of proxies from holders of issued and outstanding shares of the Company’s common stock (“Common Stock”). The proxies being solicited will be used at the annual meeting of our shareholders to be held on Tuesday, June 21, 2022, via live audio webcast at https://viewproxy.com/ATVI/2022, 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.

 

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, management uses certain non-GAAP financial measures to assess our operating results, as well as for planning and forecasting. In particular, management believes these measures facilitate a comparison of operating performance between periods and an understanding of Activision Blizzard’s operating results by excluding certain items that may not be indicative of the Company’s core business, operating results, or future outlook. These non-GAAP measures are not intended to be considered in isolation from, as a substitute for, or as more important than 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 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 give investors an accurate way to compare Activision Blizzard’s performance to the performance of other companies.

 

Financial Metrics Used to Measure 2021 Compensation-Related Performance

Consistent with past years, the financial objectives used by management and our Compensation Committee to assess our employees’ 2021 performance were based on adjusted non-GAAP measures rather than the non-GAAP measures we use when reporting our financial results. Unlike our non-GAAP measures, adjusted non-GAAP measures exclude the impact of deferrals from our revenue accounting treatment on certain of our online-enabled products. Internally, management uses these adjusted non-GAAP measures in assessing our operating results, and they inform our planning and forecasting. Management believes this is appropriate because these adjusted non-GAAP measures enable management to analyze performance based on the timing of actual transactions with our customers and can provide a more timely indication of trends in our operating results. Since 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 expects to continue using them when defining compensation-related performance objectives in the future.

The Compensation Committee used the following adjusted non-GAAP measures to assess the 2021 performance of one or more of our named executive officers (our “named executive officers” or “NEOs”).

 

www.activisionblizzard.com ACTIVISION BLIZZARD, INC.   2022 Proxy Statement 14

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“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 below under “AB Adjusted OI,” along with the associated tax impacts of those items, and losses incurred on extinguishment of debt from redemption activities and the associated tax impact.

“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 OI.

“AB Adjusted OI” means Activision Blizzard’s GAAP operating income, excluding the impacts from: share-based compensation (other than $160 million of share-based compensation related to achievement against 2021 performance targets that otherwise would have been included in our reportable segment operating income); 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 2021 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). For 2021, $26 million in legal and other related expenses were excluded from both AB Adjusted OI and AB Adjusted EPS and $18 million of related cash payments were excluded from AB Adjusted Free Cash Flow.

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 United States (“U.S.”) dollars.

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; (5) statements regarding the proposed transaction between Activision Blizzard and Microsoft Corporation (“Microsoft”) (such transaction, “the proposed transaction with Microsoft”), including any statements regarding the expected timetable for completing the proposed transaction with Microsoft, the ability to complete the proposed transaction with Microsoft, and the expected benefits of the proposed transaction with Microsoft; and (6) statements of assumptions underlying such statements. Activision Blizzard 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 the negative version of these words 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.

 

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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 risk that the proposed transaction with Microsoft may not be completed in a timely manner or at all, which may adversely affect our business and the price of our common stock; the failure to satisfy the conditions to the consummation of the proposed transaction with Microsoft, including the receipt of certain governmental and regulatory approvals; the occurrence of any event, change, or other circumstance that could give rise to the termination of the Agreement and Plan of Merger, dated as of January 18, 2022, by and among Activision Blizzard, Microsoft, and Anchorage Merger Sub Inc., a wholly owned subsidiary of Microsoft (the “Microsoft Merger Agreement”); the effect of the announcement or pendency of the proposed transaction with Microsoft on our business relationships, operating results, and business generally; risks that the proposed transaction with Microsoft disrupts our current plans and operations and potential difficulties in employee retention as a result of the proposed transaction with Microsoft; risks related to diverting management’s attention from ongoing business operations; the outcome of any legal proceedings that have been or may be instituted against us related to the Microsoft Merger Agreement or the transactions contemplated thereby; restrictions during the pendency of the proposed transaction with Microsoft that may impact our ability to pursue certain business opportunities or strategic transactions; the potential for receipt of alternative acquisition proposals from potential acquirors; the global impact of the ongoing COVID-19 pandemic (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, distributors, and manufacturers who sell our physical products to customers and the platform providers on whose networks and consoles certain of our games are available; effects on our ability to release our content in a timely manner and with effective quality control; effects on our ability to prevent cybersecurity incidents while our workforce is disbursed; effects on the operations of our professional esports leagues; the impact of large-scale intervention by the Federal Reserve and other central banks around the world, including the impact on interest rates; increased demand for our games due to stay-at-home orders and curtailment of other forms of entertainment, which may not be sustained and may fluctuate as stay-at-home orders are reduced, lifted, and/or reinstated; macroeconomic impacts arising from the long duration of the COVID-19 pandemic, including labor shortages and supply chain disruptions; and volatility in foreign exchange rates); our ability to consistently deliver popular, high-quality titles in a timely manner, which has been made more difficult as a result of the COVID-19 pandemic; our ability to satisfy the expectations of consumers with respect to our brands, games, services, and/or business practices; negative impacts on our business from concerns regarding our workplace; our ability to attract, retain, and motivate skilled personnel; competition; concentration of revenue among a small number of franchises; negative impacts from unionization or attempts to unionize by our workforce; rapid changes in technology and industry standards; increasing importance of revenues derived from digital distribution channels; our ability to manage growth in the scope and complexity of our business; substantial influence of third-party platform providers over our products and costs; success and availability of video game consoles manufactured by third parties, including our ability to predict the consoles that will be most successful in the marketplace and develop commercially-successful products for those consoles; risks associated with the free-to-play business model, including our dependence on a relatively small number of consumers for a significant portion of revenues and profits from any given game; risks and uncertainties of conducting business outside the U.S., including the need for regulatory approval to operate, impacts on our business arising from the current conflict between Russia and Ukraine, the relatively weaker protection for our intellectual property rights, and the impact of cultural differences on consumer preferences; risks associated with the retail sales business model; our ability to realize the expected benefits of our recent restructuring actions; difficulties in integrating acquired businesses or otherwise realizing the anticipated benefits of strategic transactions; the seasonality in the sale of our products; fluctuation in our recurring business; risks relating to behavior of our distributors, retailers, development, and licensing partners, or other affiliated third parties that may harm our brands or business operations; our reliance on tools and technologies owned by third parties; risks associated with our use of open source software; risks associated with undisclosed content or features that may result in consumers’ refusal to buy or retailers’ refusal to sell our products; risks associated with objectionable consumer- or other third-party-created content; outages, disruptions or degradations in our services, products, and/or technological infrastructure; data breaches, fraudulent activity, and other cybersecurity risks; significant disruption during our live events; risks related to the impacts of catastrophic events; climate change; provisions in our corporate documents that may make it more difficult for any person to acquire control of our company; ongoing legal proceedings

 

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related to workplace concerns and otherwise, including the impact of the complaint filed in 2021 by the California Department of Fair Employment and Housing alleging violations of the California Fair Employment and Housing Act and the California Equal Pay Act and separate investigations and complaints by other parties and regulators related to certain employment practices and related disclosures; successful implementation of the requirements of the court-approved consent decree with the Equal Employment Opportunity Commission (“EEOC”); intellectual property claims; increasing regulation in key territories; regulation relating to the Internet, including potential harm from laws impacting “net neutrality”; regulation concerning data privacy, including China’s recently passed Personal Information Protection Law; scrutiny regarding the appropriateness of our games’ content, including ratings assigned by third parties; changes in tax rates and/or tax laws or exposure to additional tax liabilities; fluctuations in currency exchange rates; impacts of changes in financial accounting standards; insolvency or business failure of any of our business partners, which has been magnified as a result of the COVID-19 pandemic; risks associated with our reliance on discretionary spending; and the other factors included in “Risk Factors” included in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the U.S. Securities and Exchange Commission (“SEC”) on February 25, 2022 (our “2021 10-K”).

 

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GENERAL

Our shareholders are being asked to elect ten directors at the Annual Meeting. Those elected will serve for 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 the ten nominees. However, if any nominee becomes unable to serve or, for good cause, will not serve as a director at the Annual Meeting, the proxy may be voted for a substitute designated by our Board.

 

HOW WE IDENTIFY CANDIDATES FOR OUR BOARD

Nominating and Corporate Governance Committee Process

The Nominating and Corporate Governance Committee identifies and evaluates potential candidates to serve on our Board. The committee may consider candidates suggested by its members, other directors, senior management, and, as described immediately below, our shareholders. In addition, the Nominating and Corporate Governance Committee may, at the Company’s expense, retain search firms, consultants, and other advisors to identify, screen, or evaluate candidates.

This year’s nominees include two new persons. Ms. Meservey joined our Board in April 2022 and is standing for re-election by our shareholders for the first time at the Annual Meeting. In addition, our Board has nominated Ms. Carr to stand for election at the Annual Meeting. Potential candidates for both of these nominations were recommended by a third-party search firm, as well as members of the Board. Members of the Nominating and Corporate Governance Committee considered multiple candidates so recommended, including Mses. Carr and Meservey, both of whom were recommended by members of our Board and the third-party search firm. Each potential candidate was evaluated based on the established criteria for persons to be nominated, including the perceived needs of our Board at the time, as described below. The Nominating and Corporate Governance Committee determined that Mses. Carr and Meservey both met these criteria and, further, that they were the best qualified of the potential candidates considered for nomination to join our Board. The nomination of each was recommended by the Nominating and Corporate Governance Committee and approved by our Board.

How Shareholders Can Recommend Director Candidates

Our shareholders may recommend independent director nominees directly to the Nominating and Corporate Governance Committee. Shareholders should submit their recommendations in writing and include the following information:

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

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

a description of any agreements, arrangements, understandings, or relationships between the shareholder and the director candidate and any other persons (by name), pursuant to which the recommendation is made.

In addition, shareholders may submit nominees directly to our shareholders for election at an annual meeting. For more information, please see “Director Nominations and Other Shareholder Proposals for Our 2023 Annual Meeting” below.

Candidates recommended by shareholders are evaluated using the same criteria as are applied for all other candidates.

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Characteristics of Our Director Nominees

Experience and Skills

We believe an effective board of directors has members with a diverse set of perspectives, backgrounds, and experiences that provide the collective skills, expertise, and independence necessary to promote independent oversight. As a company with a global customer base in the interactive entertainment industry, we consider leadership abilities gained from senior roles as executive officers or board members of large, global corporations in the media, entertainment, or technology fields to be particularly relevant to our business. Typically, the skills we consider critical are the following:

Experience and Skills

 

Gaming Industry Expertise

 

Educational Expertise

 

Audit/Accounting Expertise

 

Technology/Digital Industry Expertise

 

International Operations Experience

 

Public Company Board Experience

 

Financial/Capital Allocation Expertise

 

Entertainment Industry Expertise

 

Public Company Executive Experience

The Nominating and Corporate Governance Committee also considers the following attributes: personal and professional integrity; character; business judgment; time availability in light of other commitments; and independence. The committee evaluates all nominees individually to ensure their experience, skills, and other attributes are consistent with the interests of our shareholders and complement our Board’s composition and needs.

Personal Diversity

The Nominating and Corporate Governance Committee also takes diversity into account and, to that end, has committed that the pool from which new independent director nominees are chosen will include qualified women and racially/ethnically diverse candidates. The following chart provides diversity information with respect to our director nominees.

Board Diversity Matrix

as of April 29, 2022

 

Female

Male

Non-Binary

Did Not Disclose

Gender

Part I: Gender Identity

Directors

4

6

Part II: Demographic Background

African American or Black

1

Alaskan Native or Native American

Asian

1

Hispanic or Latinx

Native Hawaiian or Pacific Islander

1

White

2

5

Two or More Races or Ethnicities

LGBTQ+

 

 

Did Not Disclose Demographic Background

 

 
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With the addition to our Board of Ms. Meservey, the Board satisfies California requirements with respect to the number of women on our Board—and, upon the election of Ms. Carr, will exceed them. In addition, our Board currently exceeds California requirements with respect to the number of directors from underrepresented communities (individuals who self-identify as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaska Native, or who self-identify as gay, lesbian, bisexual, or transgender).

INFORMATION ABOUT OUR DIRECTOR NOMINEES

We believe all of our director nominees bring or, in the case of our new director nominee, Kerry Carr, 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. The following biographies of our director nominees describe their noteworthy experience, individual qualifications, and skills that we believe contribute, or will contribute, to our Board’s effectiveness and success.

     

REVETA BOWERS

Independent Director

Interim Head of School of the Center for Early Education

Director
since: 2018

Activision Blizzard Committee Membership(s):

Compensation Committee

Workplace Responsibility Committee

Age: 73

Ms. Bowers has served as an independent governance and organizational consultant for nonprofit organizations since 2016. From 1972 to 2016, she served as a teacher and administrator at The Center for Early Education, an independent school for children, and on July 1, 2020, she returned as Interim Head of School. From 1993 to 2003, she served on the Board of Directors of The Walt Disney Company, a global entertainment company.

 

Key Experience/Qualifications:

Extensive public board experience, with ten years as an outside director of The Walt Disney Company and as a member of four committees of Disney’s board

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

Serves as an advocate for the use of gaming and technology to enhance childhood education

Involvement with Other Organization(s):

California Teacher Development Collaborative (seminar faculty member)

Common Sense Media (Chair Emeritus)

Dream Fund for Scholars (Member of Advisory Board)

Edward E. Ford Foundation (Member of Board of Advisors)

FEDCO Charitable Foundation (Board of Directors)

L.A. Philharmonic (Vice Chair of Board of Directors)

Rossier School of Education, University of Southern California (Chair of Board of Councilors)

Education:

B.A. in humanities from the University of Southern California

M.A. in developmental psychology from the College of Developmental Studies

 

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KERRY CARR

Independent Director Nominee

Senior Vice President Global Performance Management, Revenue Growth Management and Shared Services of Bacardi

New Director Nominee

Activision Blizzard Committee Membership(s):

Audit Committee (pending election)

Age: 59

Ms. Carr is the Senior Vice President Global Performance Management, Revenue Growth Management and Shared Services at Bacardi Limited, a privately-held spirits company. She has held the role of Senior Vice President Global Performance Management since April 2020, and in April 2021, became the Senior Vice President Global Performance Management, Revenue Growth Management and Shared Services and was appointed to the CEO’s Global Leadership Team. Prior to that, Ms. Carr served as Global Senior Vice President—Continuous Improvement and Special Projects from 2014 until 2020 at Bacardi. Ms. Carr held a number of positions in finance, operations, supply chain and organizational design before joining Bacardi, including serving as: Executive Vice President, Chief Operating Officer, and Chief Financial Officer at Kid Brands, Inc. from 2012 to 2014 (Kid Brands, Inc. filed a voluntary petition for Chapter 11 bankruptcy in 2014); in positions of increasing responsibility in finance and operations at Avon Products, Inc. from 2003 to 2012; Vice President of Internal Audit and Corporate Security at AT&T Inc. from 2001 to 2003; Senior Vice President & Chief Financial Officer at ABC Television Stations and Radio Group from 1999 to 2001; Vice President Worldwide Management Audit and International Labor Standards Compliance at The Walt Disney Company from 1996 to 1999; Vice President of Internal Audit at Capital Cities/ABC, Inc. from 1991 to 1996; and various financial management and audit roles at Deloitte & Touche from 1985 to 1991.

 

Key Experience/Qualifications:

Finance, operations, supply chain and organizational design expertise through, among others, her roles at Bacardi, The Walt Disney Company, and Avon Products

Experience leading global organizations in strategic business planning and driving and overseeing business performance, including in the entertainment and consumer products industries

Certified public accountant

Involvement with Other Organization(s):

Junior Achievement (Member of Board of Directors)

Literacy Volunteers of America (volunteer)

Sanctuary for Families Domestic Violence Agency (Member of Board of Directors, Audit Committee and Development Committee)

Brooklyn Coalition Against Domestic Violence (Member of Board of Directors)

Education:

B.B.A. in public accounting from Hofstra University

     

ROBERT CORTI

Independent Director

Retired Chief Financial Officer of Avon Products

Director
since: 2003

Activision Blizzard Committee Membership(s):

Audit Committee (Chair)

Nominating and Corporate Governance Committee (pending re-election)

Age: 72

Mr. Corti worked at Avon Products, a global manufacturer and marketer of beauty and related products, for more than 25 years. He joined Avon as a tax associate in 1976 and held positions of increasing responsibility in the company’s finance department throughout his tenure there, including serving as Executive Vice President and Chief Financial Officer of Avon Products from 1998 until he retired from the Chief Financial Officer role in 2005 and from the Executive Vice President role in 2006.

 

Key Experience/Qualifications:

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

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

Consumer products industry experience from his tenure at Avon

Certified public accountant

Private Company Directorship(s):

Bacardi Limited (since 2006)

Involvement with Other Organization(s):

Manhattan Chapter of the Cystic Fibrosis Foundation (Member of Board Of Directors)

Education:

B.A. in accounting from Queens College

M.B.A. in taxation from St. John’s University

 

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BRIAN KELLY

Chairman of the Board of Activision Blizzard

Director
since: 1995

Age: 59

Mr. Kelly has been a director of the Company since 1995. He has served as Chairman of our Board of Directors since 2013 and previously served as the Co-Chairman of our Board from 1998 to 2013. Prior to that, he served in several executive roles for the Company, including as President from 1997 to 1998, as Chief Operating Officer from 1995 to 1998, as Chief Financial Officer from 1991 until 1997, and as Secretary from 1991 until 1997.

 

Key Experience/Qualifications:

Depth of institutional knowledge and understanding of our organization, by virtue of his service as a senior executive of the Company from 1991 until 2008 and as a director of the Company for over 25 years

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

Involvement with Other Organization(s):

Call of Duty Endowment (Co-Founder)

New York-Presbyterian Hospital (Trustee)

Juvenile Diabetes Cure Alliance (Founder and Chairman)

Brian and Joelle Kelly Family Foundation (Trustee)

Education:

B.A. in accounting from Rutgers University

J.D. from Fordham University School of Law

     

ROBERT KOTICK

Chief Executive Officer of Activision Blizzard

Director
since: 1991

Age: 59

Mr. Kotick, our founder and Chief Executive Officer, has been a director of Activision Blizzard since 1991, when he purchased a significant interest in the Company, which was then on the verge of insolvency. Mr.Kotick was our Chairman and Chief Executive Officer from 1991 until 2008, when he became our President and Chief Executive Officer. He served as President from 2008 until 2017.

 

Key Experience/Qualifications:

Depth of institutional knowledge and understanding of our organization, as well as practical experience in a chief executive officer role, by virtue of his 30 years of service to the Company, including as our Chief Executive Officer and, previously, as our President and the Chairman of our Board

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

Other Public Company Directorship(s):

The Coca-Cola Company (since 2012)*

Involvement with Other Organization(s):

Call of Duty Endowment (Co-Founder and Co-Chairman)

Los Angeles County Museum of Art (Vice Chairman of Board and Chairman of Committee of Trustees)

Harvard-Westlake School (Member of Board of Trustees)

 

*

Mr. Kotick has decided not to stand for re-election to The Coca-Cola Company’s board in 2022.

 

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LULU MESERVEY

Independent Director

Vice President of Communications at Substack

Director
since: 2022

Activision Blizzard Board Committee Membership(s):

Workplace Responsibility Committee

Age: 35

Ms. Meservey is the Vice President of Communications at Substack, an online platform for independent publishers of newsletters and podcasts, a role she has held since June 2021. Prior to joining Substack, Ms. Meservey co-founded the communications agency TrailRunner International and served as its Chief Operating Officer from May 2016 to January 2021 and as its President from January 2021 to June 2021. From 2013 to 2016, Ms. Meservey worked in the office of the chairman at McLarty Associates (formerly Kissinger McLarty), a global strategic advisory firm headquartered in Washington, D.C., and she continued to serve as an advisor from 2016 to 2021. Her prior experience includes positions with the World Bank, where she advised on international open data initiatives, the MIT Lincoln Laboratory, where she worked on an international framework of norms in cyberspace, and as a financial analyst at J.P. Morgan.

 

Key Experience/Qualifications:

Expertise in communications, including as a communications executive at a content publishing company and co-founder and executive of a firm focused on corporate and communications

Experience in a broad range of disciplines, including tech, finance, policy, and international expansion and financial communications strategy

Involvement with Other Organization(s):

TrailRunner International (Advisor)

Dr. B (Advisor)

Synthesis School (Advisor)

The Fletcher School (former Member of Board of Directors)

Education:

B.A. in political science from Yale University

M.A. in international relations from The Fletcher School of Law and Diplomacy at Tufts University

   
     

BARRY MEYER

Independent Director

Retired Chairman and Chief Executive Officer of Warner Bros. Entertainment

Director
since: 2014

Activision Blizzard Board Committee Membership(s):

Nominating and Corporate Governance Committee

Age: 78

Mr. Meyer retired as the Chairman of Warner Bros. Entertainment Inc., an American producer of film, television, and music, at the end of 2013. He joined Warner Bros. as a director of business affairs in 1971 and held positions of increasing responsibility throughout his tenure there, eventually serving as Warner Bros.’ Chief Executive Officer and Chairman from 1999 until 2013. Mr. Meyer founded the consulting firm North Ten Mile Associates following his retirement from Warner Bros., and currently serves as the Manager and Co-Chief Executive Officer of that firm.

 

Key Experience/Qualifications:

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

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

Wealth of experience in nearly every facet of the entertainment industry

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

Involvement with Other Organization(s):

Federal Reserve Bank of San Francisco (former Chairman)

Academy of Motion Picture Arts & Sciences (Member)

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

Hollywood Radio and Television Society (Member)

Human Rights Watch (Director Emeritus)

Education:

B.A. in English from the University of Rochester

J.D. from Case Western Reserve University School of Law

   

 

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ROBERT MORGADO

Independent Director

Retired Chairman and Chief Executive Officer of Warner Music Group

Director
since: 1997

Activision Blizzard Board Committee Membership(s):

Compensation Committee (Chair)

Nominating and Corporate Governance Committee (Chair)

Age: 79

Mr. Morgado, our Lead Independent Director, is Chairman of Maroley Media Group, a media entertainment investment company he established in 1995. He previously served as the Chairman and the Chief Executive Officer of Warner Music Group, a music content company made up of recorded music and music publishing businesses, from 1985 to 1995.

 

Key Experience/Qualifications:

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

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

Private Company Directorship(s):

Kaanapali Kai (Chairman) (since 2006)

Nest Top (controlling shareholder of Nest Family and Nest Learning Systems) (since 1997)

Involvement with Other Organization(s):

Maui Arts & Cultural Center (Member of Board of Directors)

Education:

B.A. in history and philosophy from Chaminade University of Honolulu

M.P.A. from The State University of New York

 

     

PETER NOLAN

Independent Director

Senior Advisor to Leonard Green & Partners

Director
since: 2013 (and from 2003 to 2008)

Activision Blizzard Board Committee Membership(s):

Audit Committee

Age: 63

Mr. Nolan has served as the Chairman of Nolan Capital, a private investment company, since 2014 and is also a senior advisor to Leonard Green & Partners, L.P., a private equity firm. He was previously the Managing Partner of Leonard Green & Partners. Before becoming a partner at Leonard Green & Partners in 1997, Mr. Nolan served as a managing director and the co-head of Donaldson, Lufkin and Jenrette’s Los Angeles Investment Banking Division from 1990 to 1997, as a first vice president in corporate finance at Drexel Burnham Lambert from 1986 to 1990, and as a vice president at Prudential Securities, Inc. from 1982 to 1986. Prior to 1982, Mr. Nolan was an associate at Manufacturers Hanover Trust Company. Mr. Nolan served on the Company’s Board from 2003 until 2008.

 

Key Experience/Qualifications:

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

Extensive and wide-ranging experience, demonstrated by directorships in other companies operating in various industries

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

Other Public Company Directorship(s):

AerSale Corporation (a company in which Leonard Green & Partners, L.P. has an ownership interest) (since 2020)

Private Company Directorship(s):

Board seats held where Nolan Capital has a controlling ownership interest:

Diamond Wipes International, Inc. (since 2016)

Golden Road Food Services, LLC (since 2015)

Ortega National Parks (since 2019)

Coastal Farm & Ranch (since 2021)

Education:

B.S. in agricultural economics and finance from Cornell University

M.B.A. from Cornell University

 

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DAWN OSTROFF

Independent Director

Chief Content and Advertising Business Officer of Spotify

Director
since: 2020

Activision Blizzard Board Committee Membership(s):

Compensation Committee

Workplace Responsibility Committee (Chair)

Age: 62

Ms. Ostroff is the Chief Content and Advertising Business Officer of Spotify Technology S.A., an international media services provider. She has held the role of Chief Content Officer since 2018, and in January 2020, became the Chief Content and Advertising Business Officer. Before joining Spotify, Ms. Ostroff co-founded Condé Nast Entertainment, a studio and distribution network for film, television, premium digital video, social media, and virtual reality, where she served as the President from 2011 to 2018. Ms. Ostroff held a number of positions in the media and entertainment industry before founding Condé Nast Entertainment, including serving as: President of Entertainment for The CW Television Network from 2006 to 2011; President of United Paramount Network from 2002 to 2006; Executive Vice President of Entertainment at Lifetime Television from 1999 to 2002; Senior Vice President of Programming and Production at Lifetime Television from 1996 to 1999; Division Senior Vice President, Creative Affairs of Twentieth Century Fox Film from 1993 to 1996; President of Michael Jacobs Productions at The Walt Disney Company from 1989 to 1993; and Vice President of Business Development at The Kushner-Locke Company from 1984 to 1989.

 

Key Experience/Qualifications:

Wealth of experience in media, entertainment, and advertising, stemming from over 35 years of experience at a variety of media and entertainment companies

Strong leadership skills, gained through numerous positions of responsibility throughout her career, including as an executive of an international media services provider and founder of a studio and distribution network

Other Public Company Directorship(s):

Westfield Corporation (2016 to 2018)

Private Company Directorship(s):

Anonymous Content (2019 to 2020)

Involvement in Other Organization(s):

New York University Faculty of Arts and Science (Member of The Board of Overseers)

Education:

B.S. in journalism from Florida International University

 

Hendrik Hartong III and Casey Wasserman, both of whom have served on our Board since 2015, will not be seeking re-election at the Annual Meeting.

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 voted “against” that nominee. For more information, see “Information About the 2022 Annual Meeting—What are my voting options with respect to each proposal and how many votes are required to approve each proposal” and “Corporate Governance Matters—Mandatory Offers to Resign from Our Board” below.

 

 

 

YOUR BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF EACH NOMINEE FOR DIRECTOR.

 

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CORPORATE GOVERNANCE MATTERS

OVERVIEW

Our Board is responsible for overseeing management and providing strategic guidance for the Company. Consequently, our Board strives to remain well-informed about the issues, risks, and opportunities facing the Company. Our Corporate Governance Principles and Policies, which are available from the Investor Relations section of our website, are designed to ensure the Board’s continued vitality and excellence. Our Board regularly reviews the specific elements of our corporate governance framework and updates them when doing so would be in the best interests of the Company and our shareholders.

BOARD LEADERSHIP STRUCTURE

Our Board believes it is appropriate to divide the roles of Chief Executive Officer and Chair of the Board. The primary responsibility of the Board is to oversee the affairs of the Company for the benefit of shareholders. Our Chief Executive Officer is responsible for the day-to-day management of the Company, while the Board is responsible for overseeing how the Chief Executive Officer performs that function. Having different individuals serve as the Chief Executive Officer and the Chair allows the Chief Executive Officer to focus on operational responsibilities and keeps a measure of independence between operating decisions and the Board’s oversight function. It is also reflective of the division of our risk management oversight between management and our Board, as described below in “—Our Board’s Role in Risk Oversight.”

Our independent directors also have appointed a Lead Independent Director, whose duties include:

coordinating the activities of the independent directors, and serving as a liaison between them and the Chief Executive Officer, the Chair, and senior management;

presiding at Board meetings in the Chair’s absence;

presiding at executive sessions of the independent directors, with the authority to call additional executive sessions or meetings of the independent directors;

being available for consultation and direct communication with major shareholders;

assisting the Board, the Chief Executive Officer, and other members of management in promoting implementation of and compliance with the Company’s Corporate Governance Principles and Policies; and

monitoring and evaluating the performance of the Chief Executive Officer, along with the members of the Compensation Committee, and the other independent directors.

DIRECTOR INDEPENDENCE

Every year, our Board reviews and discusses all relevant information regarding each director’s relationships, transactions, or arrangements, as required by the rules for companies listed on The Nasdaq Stock Market (the “Nasdaq Rules”). This review includes 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 help our Board make independence determinations, each director and director nominee completes a detailed annual questionnaire.

Based on information provided concerning our directors’ background, employment, and affiliations, our Board affirmatively determined that each of Messrs. Corti, Meyer, Morgado, and Nolan and Mses. Bowers, Carr, Meservey and Ostroff, as well as departing directors Messrs. Hartong and Wasserman is, or will be upon election to our Board, an independent director within the meaning of the Nasdaq Rules. Specifically, our Board determined there are no relationships or activities between the Company and any of these directors and/or director nominees 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.

 

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In determining that Ms. Ostroff is independent, the Board considered the Company’s relationship with Spotify, where Ms. Ostroff is the Chief Content and Advertising Business Officer. The Company purchases advertising on Spotify’s platform. The Board determined that the relationship was not material and did not impair Ms. Ostroff’s independence since (1) the revenues received by Spotify from the Company were immaterial to either company (less than 0.01% of Spotify’s 2021 revenues and approximately 0.01% of the Company’s 2021 revenues); (2) the advertising sales were conducted in the ordinary course of business, on terms consistent with business done by Spotify with other companies; and (3) Ms. Ostroff has no special interest in the business done between Spotify and the Company.

BOARD EFFECTIVENESS

How the Board Oversees Our Business

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

 

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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. Accordingly, the Chairman of our Board annually leads an evaluation of the Board’s performance to identify opportunities, if any, for improvement. These evaluations follow a process overseen by our Nominating and Corporate Governance Committee, as described below.

 

While this self-evaluation is done formally through the process discussed above on an annual basis, the Board and its committees evaluate their performance throughout the year in numerous one-on-one discussions between the Chairman or the Lead Independent Director and individual board members.

 

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OUR BOARD’S ROLE IN RISK OVERSIGHT

General Risk Oversight

Senior management is responsible for developing and implementing the Company’s financial and strategic plans, and identifying, evaluating, managing, and mitigating the risks inherent in those plans. Our Board is responsible for understanding and overseeing those plans, the associated risks, and the steps that senior management is taking to manage and mitigate risk. Our Board, its committees, and senior management exercise this risk oversight function in a variety of ways, as shown below.

 

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Cybersecurity Risk Oversight

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 updates at least quarterly from members of management with information security responsibilities with respect to the threats we face, and our risk mitigation plans to address those threats. These updates include 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. As part of the Audit Committee’s oversight, the Chair met with cybersecurity risk experts from the Company’s independent registered public accounting firm, PricewaterhouseCoopers LLP (“PwC”), to better understand the current cybersecurity risk environment, leading board governance practices, strategic cyber reporting, and cyber resiliency.

Compensation Risk Management

The Compensation Committee, together with its independent compensation consultant, its legal counsel, and members of our human resources team, reviews the Company’s incentive compensation plans and practices annually to determine whether they encourage employees to take risks that are reasonably likely to have a material adverse effect on the Company. In 2021, 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). The Compensation Committee concluded that our compensation programs do not incentivize employees to take such risks. One notable item considered in the 2021 assessment was the way annual bonuses for employees below the executive officer level were measured. Given the challenging year, the Compensation Committee decided that financial performance metrics underlying cash bonuses for these employees would be deemed to be achieved at the higher of target and actual performance. The Compensation Committee and its advisors determined this assurance of at least a target payout on the financial portion of the bonuses did not result in excessive risk-taking since it was not a change to plan design. Further, the Compensation Committee continually reviews the Company’s overall compensation structure and philosophy. As a result, we began implementing changes to our compensation payments for 2021, primarily to enhance employee equity ownership and bring our employee equity compensation in line with current industry practice. As an aspect of this change, we settled amounts not yet paid as of December 31, 2021, under our annual performance plans in stock rather than cash, and those bonuses were generally paid at an approximate 10% premium to the cash amount.

The incentive compensation plans for our employees 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 the following features help mitigate risk:

performance objectives underlying awards generally focus on long-term shareholder value creation and include an appropriate mix of financial and strategic targets and short- and long-term time horizons;

cash bonuses represent just one element of our employees’ total compensation;

other than the exception cited above, cash bonuses are paid only if established performance metrics are achieved and/or the underlying business unit is profitable;

our shareholder-approved incentive plan limits the size and value of the short- and long-term incentive awards that any individual may receive for a given year;

equity awards, which represent a meaningful portion of the compensation paid to our executive officers, generally are subject to multi-year vesting schedules, and awards are capped, even if the Company exceeds the underlying performance goals; and

incentive awards for our executive officers are tied to an array of performance metrics, which reduces the incentive to place undue focus on any individual performance goal.

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

cash-based incentive awards for executive officers generally require two levels of approval—from the Compensation Committee and, except for awards to the Chief Executive Officer, from the Chief Executive Officer;

 

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all equity-based awards to any employee require Compensation Committee approval, in addition to management-level approval;

we require written documentation of the terms and conditions underlying the cash-based incentive programs for our principal business units;

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

we have a “clawback policy,” pursuant to which performance-based compensation to an executive officer may be recovered in the event of an earnings restatement attributable to the executive’s misconduct to the extent the amount paid exceeded the amount that would have been paid based on the correct numbers;

our equity award agreements provide that the Company may recover certain realized gains from any employee who breaches their employment agreement with the Company, including post-termination obligations;

we have stock ownership guidelines for our executive officers and the President of each of Activision Publishing, Inc. (“Activision Publishing”), Blizzard Entertainment, Inc. (“Blizzard”), and King Digital Entertainment Limited (“King”);

our insider trading policies prohibit “shorting” our securities, engaging in “puts,” “calls,” or other hedging transactions involving our securities, or using margin accounts with our securities and our anti-pledging policy prohibits directors, NEOs, other Section 16 officers, and the President of each of Activision Publishing, Blizzard, and King from otherwise pledging Company securities as collateral for any type of loan; and

every employee—whether full-time, part-time or temporary, and including the CEO—must acknowledge our Code of Conduct on an annual basis.

EXECUTIVE SUCCESSION PLANNING

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. 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 our other most senior officers. In these sessions, among other things, our Board:

reviews the assumptions, processes, and strategy for expected and unexpected events that may necessitate changes to our executive team;

evaluates the Company’s organizational and operational needs and the overall qualifications, tenure, and experience of our executive team;

considers the experience, performance, and skills of, and development opportunities for, possible internal successors to our chief executive officer and other executives; and

discusses potential external successors to our Chief Executive Officer and other executives.

BOARD MEETINGS

Our Board generally meets at least quarterly, as well as in conjunction with the annual meeting of our shareholders. Our Board met 19 times during 2021, and also convened to receive five compliance updates from management. Meetings were held at least once per quarter and in conjunction with the 2021 annual meeting of our shareholders. Fifteen of the 19 meetings and all the compliance updates were held in the second half of 2021. Everyone who served on our Board during 2021 attended at least 90% of the aggregate of (1) the total number of meetings held by the Board, and (2) the total number of meetings held by each standing committee on which they served.

All directors are expected to attend annual meetings of our shareholders. All ten directors who were then serving on the Board attended the 2021 annual meeting.

The independent directors meet in executive session outside the presence of management at least twice each year. Two such executive sessions took place during 2021.

 

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BOARD COMMITTEES

Standing 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. The charters for each of the three standing committees are available on our website at http://investor.activision.com/corporate-governance.cfm. From time to time, our Board also forms special or ad hoc committees, typically to address discrete issues. For example, in 2021, the Board formed the Workplace Responsibility Committee, which is described below.

Set forth below is a summary of the purpose and key responsibilities of the three standing Board committees. Each current committee member served in the role shown below through 2021 and continues to serve in that role.

AUDIT COMMITTEE

Current Members: Robert Corti (Chair), Hendrik Hartong III, Peter Nolan

Meetings Held in 2021: Six, including at least once per quarter

Purposes & Key Responsibilities

Selecting, evaluating, and overseeing our independent registered public accounting firm, including determining that firm’s compensation, evaluating that firm’s independence, and otherwise monitoring that firm’s compliance with rules and regulations promulgated by the SEC

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

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

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

Overseeing our financial reporting process and internal control, including:

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

reviewing, and discussing with the independent registered public accounting firm, the results of the annual audit of our financial statements, including that firm’s comments or recommendations, and recommending to our Board whether those financial statements should be included in our Annual Reports on Form 10-K

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

discussing with management the Company’s process for assessing and managing our exposure to risk, including overall enterprise risk and insurance

discussing our earnings, press releases (including the use of “pro forma” or “adjusted” information), and the financial information and earnings guidance we provide to analysts and rating agencies

meeting periodically with management, including our Chief Financial Officer, our Chief Accounting Officer, our chief internal audit executive, and our independent registered public accounting firm in separate executive sessions, to discuss any matters that the Audit Committee or any of the above persons or firms believe warrant Audit Committee attention

Overseeing policies regarding hiring employees from our independent registered public accounting firm

Establishing procedures to receive and retain accounting-related complaints and concerns

Monitoring the adequacy of the Company’s ethics & compliance program, including compliance with the Company’s Code of Conduct, and receiving periodic updates from management regarding ongoing projects, training programs, compliance issues, and other matters managed by the Chief Compliance Officer

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

Overseeing our cybersecurity risk management programs and receiving periodic updates from management regarding cybersecurity, data privacy, data security, and other risks relevant to the Company’s information technology (see”—Our Board’s Role in Risk Oversight—Cybersecurity Risk Oversight” above)

Membership

All Audit Committee members satisfy the independence and additional requirements for audit committee membership prescribed by the Nasdaq Rules and SEC rules. In particular, our Board has determined that each Audit Committee member is an “audit committee financial expert” as defined in the SEC rules and that each is “financially sophisticated” within the meaning of the Nasdaq Rules

Meetings

Must meet at least quarterly

Engagement of Outside Consultants

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

 

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COMPENSATION COMMITTEE

Current Members: Robert Morgado (Chair), Reveta Bowers, Dawn Ostroff

Meetings Held in 2021: Fourteen, including at least once per quarter

Purposes & Key Responsibilities

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

The Compensation Committee consults with management in formulating compensation plans, but ultimately the Compensation Committee exercises independent judgment in approving the compensation of our executive officers

Please see “Executive Compensation—Compensation Discussion and Analysis—How We Make Decisions About Executive Compensation—Key Participants in the Executive Compensation Decision-Making Process” below and “—Our Board’s Role in Risk Oversight—Compensation Risk Management” above for a further description of such responsibilities

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

Reviewing and overseeing matters related to human capital management, including how the Company attracts, retains, and develops talent

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

Engagement of Outside Consultants

Our Compensation Committee’s charter authorizes it to engage independent counsel or other consultants or advisors, including compensation consultants, to advise the Compensation Committee with respect to compensation and benefits for our directors and our executive officers and other employees

Since October 2013, the Compensation Committee has engaged Exequity LLP (“Exequity”) to act as its independent compensation consultant and to advise on issues related to executive compensation and benefits

Exequity reports directly to the Compensation Committee and does not provide any services to us other than the services provided to the Compensation Committee

The Compensation Committee has also retained the law firm of Paul Hastings LLP (“Paul Hastings”) as its legal advisor

Our Compensation Committee assessed its engagement of each of Exequity and Paul Hastings, including on the basis of information provided by the two firms, and does not believe the services of either firm to the Compensation Committee raise any conflicts of interest

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

Membership

The Board has determined that all members of the Compensation Committee satisfy the independence and other requirements for compensation committee members prescribed by the Nasdaq Rules and SEC rules, and are “outside directors” as defined under Section162(m) of the Internal Revenue Code, as amended

Our Board has also determined that no member of the Compensation Committee has a relationship to the Company that is material to such director’s ability to be independent of management in connection with the duties of a Compensation Committee member

Meetings

Must meet at least four times annually

Compensation Committee Interlocks and Insider Participation

During 2021, Robert Morgado, Reveta Bowers, and Dawn Ostroff served as members of our Compensation Committee. No member of our Compensation Committee is or has been an executive officer or other employee of the Company. Additionally, in 2021, none of our executive officers served on the board of directors or compensation committee (or other committee serving an equivalent function) of any entity that had an executive officer serving on our Board or Compensation Committee

 

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NOMINATING AND CORPORATE GOVERNANCE COMMITTEE

Current Members: Robert Morgado (Chair), Barry Meyer,
Casey Wasserman

Meetings Held in 2021: Two

Purposes & Key Responsibilities

Assisting in identifying and recruiting director nominees, and ensuring that the pool from which any new independent director nominee is chosen and the pool created in any external search for a new chief executive officer include qualified women and racially/ethnically diverse candidates

Periodically evaluating the size of our Board and recommending any appropriate increase or decrease

Making recommendations regarding the size and composition of the Board’s committees

Overseeing the evaluation of our Board and its committees

Overseeing our corporate governance affairs and the structure, policies, and practices of our Board

In consultation with the Board and each of the other Board committees, as needed, overseeing the Company’s environmental, social, and governance (“ESG”) strategy, practices, and policies, including the Company’s reporting on ESG matters

Determining the appropriate engagement with shareholder groups and proxy advisory firms on our submissions to our shareholders (which, for matters relating to executive compensation, is done in conjunction with the Compensation Committee)

Evaluating any shareholder proposals submitted for inclusion in any proxy statement for, and for consideration at, any meeting of our shareholders (which, for shareholder proposals relating to the compensation of our directors or employees, is done in conjunction with the Compensation Committee)

Membership

Our Board has determined that each member of the Nominating and Corporate Governance Committee is an independent director under the Nasdaq Rules

Meetings

Must meet at least two times annually

Engagement of Outside Consultants

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

Ad Hoc Committee

In November 2021, our Board formed a Workplace Responsibility Committee. The duration of this committee is at the discretion of the Board and will be reviewed annually.

WORKPLACE RESPONSIBILITY COMMITTEE

Current Members: Dawn Ostroff (Chair), Reveta Bowers,
Lulu Meservey

 

Purposes & Key Responsibilities

Overseeing the Company’s progress in successfully implementing new and updated workplace policies, procedures and commitments, including commitments made to appropriate regulatory agencies, and working with management in developing such additional enhancements or best practices as the committee deems appropriate

In consultation with management, developing key performance indicators and/or other means to measure progress and ensure accountability

Receiving progress reports from the Company’s Chief Executive Officer, Chief People Officer, and Chief Compliance Officer

The independent EEO consultant engaged pursuant to the consent decree between the EEOC and the Company and the Company’s internal EEO coordinator will have regular access to the Workplace Responsibility Committee

Membership

Our Board has determined that each member of the Workplace Responsibility Committee is an independent director under the Nasdaq Rules

Meetings

No specified number of meetings required, but must report to the Board on at least a quarterly basis

 

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DIRECTOR ORIENTATION AND CONTINUING EDUCATION

Board Orientation

New directors receive a director orientation manual 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 also is invited to attend an “onboarding day,” during which they meet with our executives and other key members of senior management.

Continuing Education

We recognize the benefit of continuing education for our directors. Our executives and other key members of senior management routinely speak at Board and committee meetings on topics impacting the Company, including emerging risks, industry trends, technological developments, economic forecasts, and competitive challenges. In addition, we may engage third parties to provide in-boardroom education. We also encourage our directors to attend external educational programs and provide financial and administrative support for that purpose.

LIMITS ON OTHER DIRECTORSHIPS

Directors must obtain the approval of the Nominating and Corporate Governance Committee before accepting a board membership at another publicly held company. No director may serve on the boards of more than four other publicly held companies. In addition, no director may serve as a member of our Audit Committee if that director serves on the audit committees of more than two other public companies, unless our Board determines that the simultaneous service would not impair the ability of the director to effectively serve on our Audit Committee.

MANDATORY OFFERS TO RESIGN FROM OUR BOARD

Directors Who Fail to Receive a Majority of “For” Votes

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 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 a successor has been duly elected and qualified, or until the director’s earlier death, resignation, or removal). However, our Corporate Governance Principles and Policies require a director who fails to receive the required number of votes for re-election to offer to resign from our Board.

In such an instance, our Board or, at the Board’s discretion, the Nominating and Corporate Governance Committee, without the participation of the “holdover” director, will consider whether the continued service of the director offering to resign is appropriate, based on any factors it deems relevant (e.g., the underlying reasons for the “against” votes, the length of service and qualifications of the director, the director’s contributions to our Company, and the skills and characteristics of the director). 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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Directors Who Change Their Professional Role

An independent director who retires, changes employment, or otherwise has a significant change in professional role or responsibilities that may reasonably be seen to affect the director’s ability to serve 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 Activision Blizzard retires, resigns, or otherwise has a significant change in professional role or responsibilities, that director must offer to resign from our Board.

In any such instance, our Board or, at our Board’s discretion, the Nominating and Corporate Governance Committee, without the participation of the director offering to resign, will consider whether the continued service of such director is appropriate in light of such professional change. 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.

HOW TO COMMUNICATE WITH OUR BOARD

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

By Mail

Email

Phone

mail to

Activision Blizzard, Inc.

c/o Corporate Secretary

2701 Olympic Boulevard, Building B,

Santa Monica,

California 90404

send email to

ir@activision.com

Investor
Relations

(310) 255-2000

 

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Following our 2021 annual meeting, we continued our focus on shareholder outreach and extended invitations to shareholders owning 64% of our outstanding shares. Ultimately, we held over 60 meetings with shareholders owning approximately 53% of our outstanding shares (based on shareholding estimates at the outset of our engagement efforts in February 2022). We also identified and engaged with many of the large institutional investors that voted against our 2021 say-on-pay proposal, as well as with proxy advisors Institutional Shareholder Services (ISS) and Glass Lewis. Our Board was directly involved in these conversations. The Chair of our Compensation Committee and Lead Independent Director, Mr. Morgado, or the CEO (and, in many cases, both) personally participated in over 20 meetings with shareholders owning approximately 40% of our outstanding shares (also based on shareholding estimates at the outset of our engagement efforts in February 2022). To ensure candid discussions, the CEO always offered to step away from these calls when CEO or broader NEO compensation was discussed, leaving our non-executive officer participants to conduct discussions on those topics. The institutional investor participants typically included several individuals involved in making proxy voting and investment decisions, including investment stewardship team leads, ESG specialists, analysts, and portfolio managers.

 

 

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At these meetings, which were primarily conducted virtually for the safety of all participants, the parties discussed our human capital management initiatives; executive compensation plans and decisions; corporate governance best practices; our commitment to diversity, equity, and inclusion (DE&I); the proposed transaction with Microsoft; and environmental, social, and governance (i.e., ESG) matters more broadly. We also sought input as to any areas about which shareholders would like to see changes or increased disclosure.

Shareholder feedback generally fell into four categories:

Human Capital Management—Shareholders asked about our operational initiatives to ensure a safe working environment; our commitments around increasing our workforce diversity; our recruitment and retention of talent; and our Board’s role in overseeing the Company’s progress in successfully implementing its workplace policies, procedures, and commitments.

ESG Disclosures—Shareholders provided feedback on our inaugural ESG Report and detailed their key areas of focus for ESG and their preferred frameworks for ESG reporting.

Executive Compensation—Shareholders provided feedback on our executive compensation program and prior say-on-pay votes. This presented us with an opportunity to further explain the numerous modifications made to our pay program design over the past two years in direct response to shareholder feedback.

The Proposed Transaction with Microsoft—Shareholders inquired about what, if any, impact the proposed transaction with Microsoft would have on our human capital and ESG initiatives.

These discussions resulted in extensive feedback, which our Compensation Committee Chair and Lead Independent Director shared with the entire Board. Shareholder feedback continues to be instrumental in shaping our decisions and priorities relating to our human capital management initiatives, corporate governance, executive compensation, and ESG disclosures.

As a result of this feedback process over the past several years, we have implemented changes that we believe are simultaneously responsive to shareholder concerns and appropriate for the Company. For instance, shareholder feedback informed the modifications to our executive pay program implemented in 2021, before the 2021 annual meeting, and shareholder feedback received after the 2021 annual meeting indicated a generally favorable view of the pay program now in place. Please see “Executive Compensation—Compensation Discussion and Analysis—How the Board is Addressing Shareholder Feedback About Our Compensation Program” below for a discussion of how feedback we received in the past two years informed changes to our executive compensation program, our CEO’s employment agreement, and our compensation-related disclosures.

We will continue to incorporate such feedback into our decision-making processes.

 

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GOVERNANCE DOCUMENTS

Many of our corporate governance documents, including our Corporate Governance Principles and Policies, Audit Committee Charter, Compensation Committee Charter, Nominating and Corporate Governance Committee Charter, Code of Conduct, and our “clawback” policy (i.e., our Policy on Recoupment of Performance-Based Compensation Related to Certain Financial Restatements), can be found on our website at http://investor.activision.com/corporate-governance.cfm. Please see “Helpful Resources” below for more information.

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.

Code of Conduct

We have a code of ethics—our Code of Conduct—that applies to all of our directors, executives, and other employees worldwide. The members of our Board and all employees are required to acknowledge our Code of Conduct on an annual basis. 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 our website. Our Chief Compliance Officer administers our ethics & compliance program.

Forum Selection Bylaws

On January 17, 2022, in connection with entering into the Microsoft Merger Agreement, we amended our Bylaws to implement a forum selection provision stating that, unless the Company consents in writing to the selection of an alternative forum, the sole and exclusive forum for certain legal actions involving the Company will be the Court of Chancery of the State of Delaware. If the Court of Chancery of the State of Delaware lacks subject matter jurisdiction, the forum for any such action will be another state or federal court located within the State of Delaware or, if no court of the State of Delaware has jurisdiction, the United States District Court for the District of Delaware. The provision further provides that the federal district courts of the U.S. will be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. Forum selection provisions are commonly adopted so duplicative shareholder lawsuits cannot be filed in multiple forums, which can be costly to the Company and produce inconsistent results, while at the same time ensuring there is an appropriate court available in which shareholders may pursue claims.

OUR EXECUTIVE OFFICERS

Biographical summaries for our executive officers can be found in Item 1 of our 2021 10-K. Biographical information about Mr. Kotick can also be found under “Proposal 1—Election of Directors” above.

 

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POLITICAL ACTIVITIES

Activision Blizzard does not make direct political contributions to individual candidates, parties, committees, or IRS Section 527 entities or to influence the outcome of campaigns or ballot measures, nor do we directly pay for any independent expenditure or electioneering communication (as those are defined by law). Activision Blizzard also does not make payments to 501(c)(4) tax-exempt organizations that the recipient may use for political purposes, and we do not have a political action committee. If we decide, on an exception basis and with the prior approval of our Chief Executive Officer, to make a direct political contribution, we will disclose that contribution in our ESG report.

Pursuant to our Code of Conduct, our 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.

Activision Blizzard engages with government officials and policymakers at the federal, state, and local levels on legislation, regulations, and policies that affect our business and operations. We also occasionally retain outside consultants to support our engagement with government officials and policymakers. Activision Blizzard complies with all federal, state and local lobbying regulations that require entities and individuals who engage in public policy advocacy to register and disclose relevant expenditures.

We belong to several trade associations, including the Entertainment Software Association (the “ESA”) in the United States. These bodies have taken stances on legislative matters and engaged in lobbying on issues affecting the video game industry. Trade associations are independent organizations representing a variety of members; we may not share their political or policy positions. The Company’s membership and participation in these associations is reported annually to the Nominating and Corporate Governance Committee.

According to the ESA, during the ESA’s 2021 fiscal year, $53,248 of the Company’s membership dues were used for political contributions or expenditure and $635,398 of the Company’s membership dues were used for Section 162 lobbying expenses. No other dues paid by the Company to any other United States trade association or similar tax-exempt organization that received at least $25,000 in dues from us during 2021 were used for political contributions or expenditures. No portion of the Company’s membership dues were used for payments to tax-exempt organizations, such as 501(c)(4)s, that the recipient may use for political purposes.

You can find more information about how Activision Blizzard participates in public debate in the U.S. through direct and indirect advocacy by accessing the Political Activities Disclosures on our website at http://investor.activision.com/corporate-governance.cfm.

WORKPLACE AND CULTURE

Talent is the lifeblood of our business. We are fortunate to have what we believe is one of the most talented employee workforces in our industry. Growing our developer base remains one of our strategic priorities, and we increased our developer headcount in 2021, adding hundreds of talented professionals to our teams. We must attract and retain the best talent in order to deliver on our mission to connect and engage the world through epic entertainment, and we are deeply committed to ensuring that Activision Blizzard is a place where everyone feels safe, heard, included, and empowered. We have made significant investments and substantial changes with the goal of creating the most welcoming and inclusive workplace in the industry.

 

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Supporting Employees Through the COVID-19 Pandemic and Return to Office

Since the COVID-19 pandemic began in 2020, we have continually taken action to protect the health and safety of our workforce. At the onset of the pandemic, in order to help ensure that our employees and their families had access to medical advice, we created an enterprise-wide global network of physicians. We have also provided telemedicine and COVID-19 testing services to employees, and hosted vaccination and booster clinics at select sites, including at our Blizzard offices in Irvine, California. These clinics were open to all employees and any members of their households (including roommates) at no extra cost. Beginning in 2020, we increased support and resources to enable our employees to work remotely. We have also offered a variety of mental health resources to support employees, including a global benefit free of charge that pairs employees with therapy providers, and we have shared COVID-19 and remote work guidelines, including frequently asked questions, with all employees.

In 2021, we announced that, due to the differences in policies and medical care across the geographies in which we operate, we could not have a one-size-fits-all approach for returning to the office. Instead, each region, franchise, and business unit will help define the return-to-office approach that works best for them with employee safety continuing as a top priority. We implemented a process for offices to open safely, based on a set of criteria that takes into account the latest local health and safety guidance, and provides sufficient notice to our employees.

Transformational Gender-Related Goals and Other Commitments

On October 28, 2021, Mr. Kotick announced the following transformational gender-related goals and other commitments to our employees (collectively, the “Transformational Goals”):

launching a new zero-tolerance harassment policy;

increasing the percentage of women and non-binary people in our workforce by 50% over the next five years;

investing $250 million over the next 10 years to accelerate opportunities for diverse talent;

waiving arbitration of individual claims of sexual harassment, unlawful discrimination, or related retaliation claims arising after October 28, 2021; and

increasing visibility on pay equity.

Mr. Kotick asked that his total compensation be reduced to the lowest amount permitted to be paid to exempt employees under California law until the Company has made appropriate progress toward the achievement of these goals and commitments.

For more information on the Transformational Goals and the progress the Company has made toward achieving them, see “—Enhanced Transparency Regarding Pay Equity” and “—Working to Deliver on Our Commitments” below.

Addressing Recent Workplace Concerns

In recent years, the Company has faced investigations relating to our workplace, as well as significant media scrutiny. We have responded by working to address employee concerns, cooperating with investigating agencies, and taking action to strengthen our policies and improve our workplace.

In September 2021, the Company and the EEOC agreed to resolve certain claims through a consent decree that was approved by the United States District Court, Central District of California in March 2022. As part of the consent decree, we agreed to create an $18 million fund to satisfy potential claims from eligible participants through a process administered by the EEOC, with undistributed funds to be donated to charitable organizations whose missions involve advancing women in the video game and technology industries or promoting awareness around sexual harassment and gender equality issues, or to our diversity and inclusion efforts. We have engaged an administrator to oversee the claims administration process, who has already established a website and provided claimants the necessary information to file

 

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their claims. We also agreed to hire an internal EEO coordinator and to engage a third-party equal opportunity consultant to provide ongoing oversight of our compliance with the consent decree—and have already done so. The independent consultant’s findings will be reported directly to the EEOC and provided to our Board of Directors. Additionally, we will continue to enhance our policies, practices, and training to further prevent and eliminate harassment and discrimination from our workplace, and we intend to implement an expanded performance review system with a new equal opportunity component.

Enhanced Transparency Regarding Pay Equity

In response to employee requests for further transparency, the Company released a “U.S. Pay Equity Review 2020” in October 2021. That analysis showed that, after accounting for factors that impact pay like role, location, tenure, and job classification, in the U.S., women at the Company on average earned slightly more than men for comparable work in 2020 (women received approximately a dollar and one cent for every dollar received by men).

In 2021, we conducted a global median pay analysis comparing the median pay of male employees to the median pay of employees who are female or who otherwise do not identify as male. A median pay difference reflects the difference between the middle of the distribution of the earnings of all non-male employees compared to all male employees, across the entire Company, regardless of their job. It does not compare the pay of employees performing comparable work, like the pay equity review above. Globally in 2021, the median total compensation for males was 22.8% higher than the median total compensation for those who are female or who otherwise do not identify as male.

The 2021 pay equity and median pay difference analyses reflect non-temporary employees. They also reflect employees’ self-selection among the choices “female,” “male,” “other,” and “prefer not to say,” and do not account for employees who selected “prefer not to say.”

In addition, we will be making our consolidated 2021 EEO-1 report publicly available.

Working to Deliver on Our Commitments

We are continuously working to provide our employees the most welcoming and inclusive workplace in our industry. We have made significant investments and substantial changes, including:

Improved transparency to employees by providing regular updates on diversity representation and pay equity.

Invested in and launched tools and systems that allow us to better track representation of women and UEG candidates at the applicant, interview, and hiring stages of our recruiting processes, helping to reinforce our goal of having diverse candidate slates for open positions.

Expanded employee benefits, including investing in expanded mental health counselling services for employees.

Launched “Upward Feedback,” an annual process that gives employees a formal opportunity to share constructive, actionable feedback with their managers through an anonymous survey. This feedback—about each people manager’s inclusive behaviors and commitment to living our values—will be considered in the annual evaluation of each manager’s performance.

Formed a Board-level “Workplace Responsibility Committee” to oversee the Company’s progress in successfully implementing new and updated workplace policies, procedures, and commitments (see “Corporate Governance Matters—Board Committees—Ad Hoc Committee”).

 

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Combined our investigations groups into one centralized “investigations unit” within the ethics & compliance team, with expanded resources to increase our ability to conduct prompt investigations and maintain and measure consistency throughout investigations of all types and across the Company.

Redesigned the employee relations team to ensure meaningful outcomes of investigations, support employees throughout investigations, communicate the outcomes of investigations to those involved, and otherwise keep employees informed.

Expanded our “Way2Play Heroes” program, created in 2018, which consists of volunteers who help our other employees understand their reporting options, champion speaking up, and provide feedback and advice on how to strengthen our overall ethics & compliance program. Our Way2Play Heroes are also receiving additional resources and recognition (including an additional personal day each quarter).

Announced the launch of a new Company-wide zero-tolerance harassment policy.

Waived arbitration for individual claims of sexual harassment, unlawful discrimination, or related retaliation arising after October 28, 2021.

Revised our forms of equity award agreements to explicitly provide that the right the Company has to recapture certain realized gains from any employee who breaches their employment agreement with the Company applies to a good faith belief, by the Company, after investigation, that the employee has engaged in harassment based on any legally protected category or has retaliated against anyone for reporting a concern or potential misconduct in good faith.

Implemented new policies, including a global drug and alcohol policy for Company-sponsored events and zero tolerance for alcohol consumption in the workplace.

Hired a Senior Director of Equal Employment Opportunity, Equity & Compliance, with relevant experience in gender discrimination, harassment, and related retaliation, to serve as an internal EEO coordinator and assist the Company and the neutral, third-party EEO consultant with implementation of our agreement with the EEOC described above (see “—Addressing Recent Workplace Concerns”).

Hired a Chief Diversity, Equity, and Inclusion Officer.

Removed content from our games that we believe to be inappropriate.

We are committed to making additional investments and further improvements to our workplace. Where we can, in light of privacy and other limitations, we expect to share more information with our employees and shareholders as to the outcome of our efforts relating to our workplace environment.

Unionization Campaign

Our employees in the U.S. are not covered by collective bargaining agreements. At Raven Software, one of our studios, the Communications Workers of America has filed a petition to represent a unit of employees, and a Regional Director of the National Labor Relations Board (the “NLRB”) has made an initial decision accepting the petitioned-for bargaining unit, which we estimate will consist of fewer than 30 employees. We are reviewing legal options regarding a potential appeal of this decision. The NLRB will now oversee an election process: ballots will be mailed on April 29, 2022 and will be counted on May 23, 2022. We deeply respect the rights of all employees to make their own decisions about whether or not to join a union and to exercise all other National Labor Relations Act rights. Across the Company, we believe that a direct relationship between managers and team members allows us to quickly respond and deliver the strongest results and opportunities for employees.

 

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ENVIRONMENTAL, SOCIAL, AND GOVERNANCE HIGHLIGHTS

Our Board and its Nominating and Corporate Governance Committee oversee matters related to our ESG practices, performance, and disclosure and provide management with feedback and guidance on the Company’s ESG efforts. Our management has established an ESG Steering Committee, which is currently chaired by our Chief Administrative Officer and includes several other senior leaders. We also established task-specific cross-functional, enterprise-wide ESG working groups, which include members of our executive management team and employees from across our business units and corporate functions. These working groups support 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.

 

 

 

 

Our ESG efforts in 2021 focused on three key areas: championing our people; advancing more diverse and inclusive communities; and protecting the planet.

Championing Our People

We are committed to becoming the most welcoming, inclusive company in our industry so we can continue to attract and retain the very best talent.

Developing Our Diverse Talent

By embedding DE&I practices and programs in the full employee lifecycle, we work to attract, recruit, enable, retain, and develop diverse world-class talent. We also offer leadership and management development opportunities on the topics of unconscious bias and inclusive leadership, and train our recruiting workforce in diverse sourcing strategies.

Competitive Pay and Benefits

We believe in linking compensation to overall Company and business unit/franchise performance and each individual’s contribution to those results. The emphasis on overall Company performance is intended to align our employees’ financial interests with the interests of our shareholders.

 

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We are committed to providing comprehensive benefit options including benefits that allow our employees and their families to live healthier and more secure lives. We frequently upgrade our benefits portfolio by seeking out pioneer partners that can give our employees modern benefit experiences. For example, at the onset of the COVID-19 pandemic when traditional medical services came under heavy demand, we created an enterprise-wide global network of physicians to help ensure that our employees and their families had access to medical advice.

Advancing More Diverse and Inclusive Communities

Our Diverse Talent Pipeline

Our overall goal in hiring is to provide an objective and equitable process that helps us recruit the very best creative and technical talent in the world. To meet that goal, we have identified an array of resources to increase the share of women and underrepresented minorities in our workforce and to promote other forms of diversity. Beyond being an equal opportunity employer, we are committed to building and sustaining a culture of DE&I, beginning with the tone set by management and extending throughout the organization.

We have prioritized and taken meaningful action on a broad portfolio of initiatives, including expanding opportunities in the gaming and technology space for underrepresented communities through mentorship and creating sponsorship programs for our current teammates and future leaders. Since 2016, the number of women that we employ in game development leadership roles has more than doubled. As of December 31, 2021, approximately 24% of our global employee population were females and those who otherwise do not identify as male.

Our Employee Network Groups

The hard work of many employees who have joined or otherwise engaged with one of our nine employee network groups is an important force behind our Company’s DE&I progress. Our networks foster a sense of belonging and provide a space for employees to engage, educate, and show up to work as their authentic selves. These groups also influence our content to help ensure it is accessible and inclusive for everyone.

Our In-Game Communities

Video games have redefined what it means to interact socially—uniting people globally without regard to race, religion, ethnicity, sexual identity, gender, or gender identity. Since players engage with our games for over an hour per day, on average, our games can play an important, consistent, responsible, and positive role in influencing popular culture, eliminating stereotypes, celebrating differences, and encouraging communities to embrace tolerance and understanding.

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. Our games 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.

Our developers leverage the members of our employee network groups, as well as the Company’s DE&I team, to provide feedback and input on content, ranging from narratives and worlds/levels to characters and more. For example, our Black Employee Network “Representation in Gaming” team reviewed the campaign script for one of the scenes in Call of Duty: Vanguard featuring Arthur Kingsley, the franchise’s first Black leading character. The feedback the group provided on descriptive language used for the character led to a more accurate portrayal of his exemplary qualities. The network also helped with ongoing review of character skins, images, and background biographies to ensure they reflected the authenticity of the characters’ stories.

Inclusive design helps create accommodations and rich experiences that are enjoyable for our players with varying needs, abilities, and preferences. As one example, we updated World of Warcraft accessibility, including voice chat transcription, text chat narration, text-to-speech commands, speak for me (synthetic voice), quest text contrast, and specular lighting control. Similarly, we re-launched Diablo® II : Resurrected, with an array of new accessibility features that were not present in the original game, including controller configurations to allow players options to play with one hand, new options to prevent prolonged button holds and repetitive actions, and volume sliders for individual sound effects to help with sensory overload. 

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.

 

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Call of Duty Endowment

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

Since its inception in 2009, the Endowment has made more than $62 million in grants and is on track to hit its goal of getting 100,000 veterans back to work by 2024.

Despite a volatile job market in 2021, it was the Endowment’s most successful year ever; over 16,000 veterans were placed in high-quality jobs. We are proud that 19% of those veterans were women and 20% were Black, even though those who identify as women and Black compose just 10% and 12%, respectively, of the U.S. veteran community.

 

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

Giving Back to the Community

There are a number of ways Activision Blizzard empowers its employees to support their communities. For example, on our Veterans Day of Service, Activision Blizzard employees volunteer during the workday, helping charities focused on creating a positive impact for veterans across the globe. Additionally, in December 2021, the Company launched ABK Gives Back, a charitable donation matching program that matches eligible employee contributions, dollar-for-dollar, up to $1,000 (or local equivalent) annually. Activision Blizzard also supports various community programs to promote STEAM learning and foster career opportunities for underrepresented groups in STEAM fields.

PROTECTING THE PLANET

We are committed to doing our part to protect the planet for current and future generations. That is why we think about our environmental impact across our operations.

Digital share of revenue is increasing over time, enabling us to set and achieve important sustainability goals. In 2021, we derived approximately 87% of our revenues via digital channels. As a result, from 2019 to 2021, we reduced packaging waste by 60%, surpassing our original goal of a 50% reduction by 2024.

Please see our upcoming ESG report for 2021 for additional information about our environmental sustainability goals.

 

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DIRECTOR COMPENSATION

OVERVIEW OF OUR DIRECTOR COMPENSATION PROGRAM

Our non-employee directors receive a mix of cash and equity awards, with most of the compensation in the form of equity. The amount of compensation varies with each director’s role and responsibilities. Mr. Kotick, our Chief Executive Officer and the only employee director, does not receive any additional compensation for his service on our Board.

The Compensation Committee annually reviews the total compensation paid to our non-employee directors and each element of our director compensation program and makes recommendations to our Board regarding the program as needed. In doing so, our Compensation Committee considers various factors, including our directors’ responsibilities, their experience and skills, and whether the form and amount of our director compensation is competitive as compared to the peer group against which the Compensation Committee benchmarks our executive compensation. (Please see “Executive Compensation—Compensation Discussion and Analysis—How We Make Decisions About Executive Compensation—How We Use Peer Company Data and Compensation Surveys” below for information about our peer group.) The Compensation Committee engages an independent compensation consultant— Exequity—to assist in this review. Our executive officers may assist the Compensation Committee in obtaining benchmarking and other information relevant to determining director compensation, but management has no role in recommending or determining the amount or form of director compensation.

Although the structure of the director compensation program and the amounts payable thereunder are reviewed annually, the annual cash retainer and the value of the equity granted to our non-employee directors have remained unchanged for over eight years.

The director compensation program was most recently amended as of November 22, 2021, to provide for compensation for service on our newly-formed Workplace Responsibility Committee.

CASH COMPENSATION

The following table summarizes the cash elements of our non-employee director compensation program. Directors do not receive any additional payments for attending Board or committee meetings.

 

 

 

Annual Retainer

$

90,000

Add’l. for Serving as Chairperson of the Board of Directors

$

150,000

Add’l. for Serving as Lead Independent Director

$

50,000

Add’l. for Serving as Chairperson of the Audit Committee

$

40,000

Add’l. for Serving as Chairperson of the Compensation Committee

$

40,000

Add’l. for Serving as Chairperson of the Nominating and Corporate Governance Committee

$

30,000

Add’l for Serving as Chairperson of the Workplace Responsibility Committee

$

40,000

Add’l. for Serving as an Audit Committee or Workplace Responsibility Committee Member (other than as the Chairperson)

$

11,000

Add’l. for Serving as a Compensation Committee or Nominating and Corporate Governance Committee Member (other than as the Chairperson)

$

5,500

Per Day for Special Assignments in connection with Board duties

$

5,500

 

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EQUITY COMPENSATION

Our Board believes that directors more effectively represent our shareholders if they are shareholders themselves. Each non-employee director is entitled, upon election or appointment to our Board and upon each subsequent re-election, to receive RSUs representing the right to receive shares of our Common Stock. The grant date value of those RSUs is $250,000. The value of the grant to any director who is elected or appointed to our Board at any time other than at the Board meeting immediately following an annual meeting of our shareholders will be pro-rated based on the amount of time from the date of such election or appointment until the then-expected date of our next annual meeting of shareholders. The actual number of shares underlying any such grant of RSUs is determined by dividing the grant date fair value of the award by the closing price of our Common Stock on The Nasdaq Stock Market on the date of grant. Each award vests in four equal installments, on a quarterly basis during the year following the grant date, subject to continued service on our Board.

On January 18, 2022, we announced that we had entered into the Microsoft Merger Agreement. For details regarding the impact the completion of the proposed transaction with Microsoft would have on the unvested equity awards then held by our non-employee directors, please see the Definitive Proxy Statement on Schedule 14A filed with the SEC on March 21, 2022 (the “Merger Proxy Statement”).

STOCK OWNERSHIP GUIDELINES

Non-employee directors are expected, within four years following their initial election to our Board, to beneficially own shares of our Common Stock (including any RSUs representing the right to receive shares of our Common Stock) having an aggregate value at least equal to five times the amount of the annual cash retainer we then pay directors for regular service on our Board. Currently, this equates to beneficially owning shares of our Common Stock with a value of $450,000. The value of shares owned by each non-employee director is calculated as of January 2nd of each year (or, if that date is not a trading date, the next trading date), based on the higher of: (a) the closing price of our Common Stock on The Nasdaq Stock Market on that day; and (b) the closing price of our Common Stock on The Nasdaq Stock Market on the date of grant (or, if that date is not a trading date, the next trading date), for any shares we awarded the director, and the actual cost to the director for any other shares (including shares acquired upon exercise of a stock option). As of January 3, 2022, each non-employee director who, as of that date, had been a member of our Board for four or more years was in compliance with these guidelines.

INDEMNIFICATION

We maintain a directors and officers insurance policy that covers all our directors with respect to claims arising out of an alleged wrongful act by them in their capacity as directors of Activision Blizzard. Further, our Certificate of Incorporation and our Bylaws require us to indemnify our directors and officers to the fullest extent permitted by the Delaware General Corporation Law.

In addition, we have entered into indemnification agreements with certain of our non-employee directors that require us, among other things, to indemnify those directors against certain liabilities that may arise by reason of their status or service as directors, provided that they acted in good faith and in a manner they reasonably believed to be in, or not opposed to, the Company’s best interests (and, with respect to any criminal action, suit, or proceeding, provided that they had no reasonable cause to believe their conduct was unlawful). The indemnification agreements also require us to advance expenses incurred by our non-employee directors as a result of any proceeding against them as to which they could be indemnified.

 

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REIMBURSEMENT OF EXPENSES AND LIMITED BENEFITS

We reimburse our directors for expenses incurred in connection with their service on our Board. We also reimburse our directors’ spouses for travel, lodging, and related expenses they incur in attending business-related meetings or events at our request, though such occurrences are uncommon. Our Board may provide our directors with other benefits. For example, on rare occasions, if a director’s spouse joins a business trip other than at our request, that person may receive travel and lodging at our expense when the incremental cost is negligible.

DIRECTOR COMPENSATION FOR 2021

The following table summarizes information regarding the compensation of our directors for 2021, other than Mr. Kotick. The compensation Mr. Kotick received as an employee of the Company is included in the “Summary Compensation Table” below, and he does not receive any additional compensation for his Board service.

Name

Fees Earned

in Cash

($)

Stock

Awards(1)(2)

($)

Option

Awards(2)

($)

All Other

Compensation

($)

Total

($)

Reveta Bowers

97,333

249,674

347,007

Robert Corti

130,000

249,674

379,674

Hendrik Hartong III

101,000

249,674

350,674

Brian Kelly

240,000

249,674

489,674

Barry Meyer

95,500

249,674

345,174

Robert Morgado

210,000

249,674

459,674

Peter Nolan

101,000

249,674

350,674

Dawn Ostroff

102,167

249,674

 

 

351,841

Casey Wasserman

95,500

249,674

345,174

(1)

Each person who served on our Board during 2021 other than Mr. Kotick received 2,683 restricted share units in 2021. The amounts in the Stock Awards column represent the aggregate grant date fair value of those restricted share units (computed in accordance with ASC Topic 718). Assumptions and key variables used in the calculation of these grant date fair values are discussed in Note 16 of the notes to our audited consolidated financial statements included in Part II, Item 8 of our 2021 10-K.

(2)

The following table presents, as of December 31, 2021, the number of shares underlying outstanding stock options and stock awards (which consist of RSUs) held by each director who served in 2021 other than Mr. Kotick.

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Name

Number of Shares

Underlying Options as of

December 31, 2021

(#)

 

Number of Shares

Underlying Unvested

Stock Awards as of

December 31, 2021

(#)

 

 

 

Reveta Bowers

 

1,341

(a)

 

 

Robert Corti

 

1,341

 

 

 

Hendrik Hartong III

 

1,341

 

 

 

Brian Kelly

80,676

 

1,341

 

 

 

Barry Meyer

 

1,341

(b)

 

 

Robert Morgado

44,000

 

1,341

 

 

 

Peter Nolan

 

1,341

 

 

 

Dawn Ostroff

 

1,341

 

 

 

Casey Wasserman

 

1,341

(c)

 

 

(a)

These RSUs are held in the Bowers Family Trust of 2004.

(b)

These RSUs are held in trust—one-half in the Barry Meyer Separate Property Trust and one-half in the Barry and Wendy Meyer Trust.

(c)

These RSUs are held in the Casey Wasserman Living Trust.

 

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ADVISORY VOTE TO APPROVE THE COMPANY’S EXECUTIVE COMPENSATION

GENERAL

In accordance with Section 14A of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our shareholders are being provided the opportunity to cast a non-binding, advisory vote (commonly known as a “say-on-pay”) on the compensation of the executive officers named in the “Summary Compensation Table” below (i.e., the NEOs).

We are asking you to approve the following resolution at the Annual Meeting:

“Resolved, that the shareholders APPROVE, on an advisory basis, the compensation of the Company’s named executive officers as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, the compensation tables and related narrative discussion.”

Before you cast your vote, we encourage you to read the “Compensation Discussion and Analysis” section of this proxy statement, which describes our executive compensation policies and practices, including a number of important changes made to them. You should also review the Summary Compensation Table and other compensation tables and related narrative discussions, which provide detailed information on the compensation of our NEOs. Our Compensation Committee and Board believe our compensation policies and practices align with shareholder interests by emphasizing pay for performance and enabling us to attract, retain, and motivate the key executive talent necessary to achieve our financial and strategic goals.

REQUIRED VOTE AND BOARD RECOMMENDATION

This proposal will be approved if it receives the affirmative vote of the holders of a majority of the voting power of the shares present in person or by proxy and entitled to vote on the matter at the Annual Meeting. As an advisory vote, the proposal is non-binding on the Company, our Board, and our Compensation Committee. However, our Board and its Compensation Committee value the opinions expressed by our shareholders and will carefully consider the outcome of the vote when making future executive compensation decisions. Our Board ultimately has a duty to act in what it believes to be the best interests of the Company and all of its shareholders.

The Board has adopted a policy of providing for annual say-on-pay advisory votes. As such, we expect that the next say-on-pay vote will be held at our 2023 annual meeting (unless the proposed transaction with Microsoft is completed before we would otherwise be holding such meeting, in which case the meeting will not occur). The next say-on-pay frequency vote also will be held at our 2023 annual meeting (again, only if the proposed transaction with Microsoft has not already been completed by the time we would otherwise be holding our meeting).

 

 

YOUR BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF THE COMPANY’S EXECUTIVE COMPENSATION, AS DISCLOSED IN THIS PROXY STATEMENT.

 

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COMPENSATION COMMITTEE LETTER

Dear Fellow Shareholders,

In January of 2022, we announced that we had entered into a merger agreement with Microsoft Corporation. This announcement represents an exciting new phase of our Company’s journey to create epic entertainment. The Compensation Committee, along with the other members of Activision Blizzard’s Board of Directors, believes this is the right transaction with the right partner at the right time.

Following blockbuster financial performance in 2020, macroeconomic headwinds in 2021 made it a challenging year for certain aspects of our performance in relation to rigorous objectives established at the beginning of the year. While we did achieve year-over-year growth across many of our key financial metrics, we fell short of the ambitious goals we set for ourselves in early 2021. We remain committed to operational excellence and are working vigorously to ensure that the Company’s management and employees remain properly incentivized and resourced. We believe this is aligned with our goal for Activision Blizzard to become the most welcoming, inclusive company in our industry.

2021 Pay-for-Performance Alignment

For many years, we have been focused on ensuring a strong linkage between pay and performance, with incentive compensation payouts directly tied to financial performance and shareholder value creation. For fiscal year 2021, this important compensation philosophy was evident in practice. The Company did not reach all of the applicable financial targets, so some of the compensation opportunities we established for 2021 were not fully achieved. Despite missing the threshold level of the AB Adjusted OI target we established for annual bonuses by 0.7%, we did not adjust either the goals or the determination of performance for the year. As a result, none of our NEOs received an annual bonus payout for 2021, thereby maintaining the direct tie between executive pay and performance. Similarly, the NEOs’ performance-based restricted share units, which were based in whole or in part on 2021 performance, resulted in the delivery of, on average, 41% of the shares that would have been delivered at target.

Executing Against Our 2021 Commitments

As we described in our letter to you last year, we made significant changes to our Chief Executive Officer’s compensation in response to feedback we received from our shareholders. We continued our dialogue with shareholders throughout 2021, and heard that many of our investors approved of those changes, which included (a) substantial reductions to our CEO’s target compensation; (b) elimination of the “shareholder value creation incentive,” which created the potential for increased levels of vesting on certain performance-based awards if the Company achieved significant stock price appreciation; and (c) elimination of a provision that had created the potential for an additional payment in the event of a transformative transaction.

We are proud to share the outcomes of the commitments we made during 2021 in the following Compensation Discussion and Analysis, which include:

increasing the weighting of financial goals applicable to performance compensation for the CEO to 80% (versus 60% in 2020) and accelerating the transition to an 80% weighting for all other NEOs from 2022 to 2021;

including ESG objectives in incentive design, along with increased disclosure regarding attainment of these objectives; and

placing more emphasis on performance-based equity incentive awards.

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Beyond compensation, the conversations with shareholders have shifted toward ensuring that the Company and our employees have the resources, culture, and dedication from leadership needed to succeed in our collective commitment to be the model workplace in our industry.

Reflecting his personal commitment to these objectives, Mr. Kotick asked the Board to reduce his total compensation to California’s minimum exempt salary (which is approximately $62,500 for 2022) and that he not be awarded any bonuses or equity grants until the Transformational Goals have been achieved. Mr. Kotick’s pay was adjusted to $62,500 per year, effective October 28, 2021. We have honored Mr. Kotick’s request, and his pay adjustment will remain in effect until such time as the Workplace Responsibility Committee determines the Company has made appropriate progress toward the Transformational Goals.

We believe the above changes to our executive compensation program illustrate not only our continuing commitment to responding to the input of our shareholders, but also our dedication to making Activision Blizzard an exemplary workplace that not only respects and honors our employees but also continues to demand the performance our shareholders have a right to expect.

We are truly excited by the future prospects for Activision Blizzard and remain committed to ensuring we follow the best practices in both compensation and governance.

Sincerely,

Your Compensation Committee

Robert Morgado (Chair), Reveta Bowers, and Dawn Ostroff

 

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COMPENSATION DISCUSSION AND ANALYSIS

This Compensation Discussion and Analysis (“CD&A”) describes the compensation program for the named executive officers set forth in the “Summary Compensation Table” below (i.e., our “named executive officers” or “NEOs”).

Name

Position with Activision Blizzard

Robert Kotick

Chief Executive Officer

Armin Zerza

Chief Financial Officer

Dennis Durkin

Former Chief Financial Officer

Daniel Alegre

President and Chief Operating Officer

Brian Bulatao

Chief Administrative Officer

Grant Dixton

Chief Legal Officer

This CD&A includes a description of the material elements of our compensation and the rationale for our compensation decisions. In particular, we:

describe the complex business environment in which we operate and our rigorous requirements for talent;

describe the review of, and adjustments to, our executive compensation program as a direct result of conversations with our shareholders;

summarize our performance-focused compensation principles and objectives;

outline our decision-making approach related to performance-focused executive compensation;

describe the elements and rationale behind our performance-focused compensation programs and awards for 2021; and

describe the impact the proposed transaction with Microsoft would have on our executive compensation program.

For details on the Transformational Goals discussed throughout this Compensation Discussion and Analysis, please see “Corporate Governance Matters—Workplace and Culture—Transformational Gender-Related Goals and Other Commitments,” which begins on p. 42 of this proxy statement.

 

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 This CD&A includes:

Executive Summary

56

Long-Term Company Performance

56

Our Corporate Strategy

57

2021 Performance

58

2021 Pay-for-Performance Alignment

59

How the Board is Addressing Shareholder Feedback About Our Compensation Program

59

Pay Program Modifications During 2021

60

Additional Detail About the CEO’s Employment Agreement

62

Compensation Philosophy

64

How We Make Decisions About Executive Compensation

66

Factors Influencing Compensation Decisions

66

How the Competitive Business Environment Affects Our Talent Requirements

67

Why We Use Employment Agreements

67

How We Use Peer Company Data and Compensation Surveys

68

Key Participants in the Executive Compensation Decision-Making Process

69

Compensation Policies that Mitigate Risk

71

Elements of Our Executive Compensation Program for 2021

72

Base Salary

72

Corporate Annual Incentive Plan (CAIP) Bonuses

73

Other Cash Programs or Awards

78

Equity Awards

79

Change-of-Control Arrangements

84

Limited Retirement Benefits

84

Standard Health and Welfare Benefits

84

Impact of Proposed Acquisition by Microsoft

85

Additional Information

85

Equity Award Granting Policy

85

Impact of Tax and Accounting Considerations

85

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 dynamics of our constantly evolving industry to harness growth opportunities and create exceptional value for our shareholders.

The Company has created substantial value for our shareholders over the long term, outperforming both our peer group median and the S&P 500 over 10 and 20 years. Over the 10 years ended December 31, 2021, we delivered an average annual total shareholder return (“TSR”) of 19%, ahead of the peer group median of 17% and the S&P 500 at 17%. Over the 20 years ended December 31, 2021, the Company’s average annual TSR was 17%, ahead of the peer group median of 11% and the S&P 500 at 10%.

 

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Total Shareholder Returns

 

We believe this long-term sustained performance 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 Company’s earnings profile. These have been core tenets for Mr. Kotick and his leadership team for 30 years.

 

Our Corporate Strategy

Our long-term performance continues to be enabled by our evolving franchise strategy, which 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:

 

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2021 Performance

Although our performance in 2021 did not meet certain of the aggressive targets we set following an exceptionally strong year in 2020, Activision Blizzard performed well in 2021 across a number of metrics. Among other achievements, we delivered record full-year GAAP results and grew net revenues by 9%, operating profit by 19%, EPS by 22%, and operating cash flow by 7%, in each case year-over-year. Net bookings, which is an operating metric, was broadly consistent at 1% lower year-over-year.

This strong performance was driven by increased investment in our biggest franchises and opportunities, and by the commitment and focus of our talented employees despite the ongoing challenges of working remotely. Other key highlights over the year are described below.

The King business passed the $1 billion annual segment operating income milestone for the first time, with +19% year-over-year segment revenue growth. In-game net-bookings grew strongly in 2021 as players responded positively to a more frequent cadence of compelling in-game content and events for key titles, while King’s advertising business grew +60% year-over-year.

The Call of Duty franchise continued to operate at a much greater scale than that seen prior to the launch of the Call of Duty: Warzone and Call of Duty Mobile free-to-play experiences. Franchise performance was lower year-over-year against a period that benefited from the launch of Warzone and shelter-at-home tailwinds. The Call of Duty: Vanguard release did not meet our expectations, but Warzone continued to drive significant player investment through in-game content sales and Call of Duty Mobile net bookings grew strongly, with 2021 worldwide consumer spending on the mobile title exceeding $1 billion.

World of Warcraft again demonstrated the structural expansion that the franchise has enjoyed since the launch of Classic, a recreation of the game from 15 years ago. World of Warcraft delivered its strongest annual engagement and net bookings outside of a Modern expansion year in a decade, benefiting from the combination of the Modern game and Classic under a single subscription.

 

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2021 Pay-for-Performance Alignment

The performance targets for our 2021 incentive plans were aligned with our annual operating plan (i.e., our AOP), and we view these goals as ambitious, but achievable. For example, in our annual bonus plan (the CAIP), our threshold payout is set at 90% achievement of our AOP, whereas, for a number of our peer companies, the minimum level achievement required for any payout is 85% or less.

The majority of the awards to NEOs based upon the Company’s 2021 performance resulted in below target level achievement, if any, and no awards to NEOs resulted in above target achievement. As discussed in detail in this CD&A, this performance was directly reflected in our NEO compensation as follows:

We did not meet the threshold level achievement of 90% of AB Adjusted OI relative to the AOP—missing that goal by 0.7%—and therefore none of our NEOs received a CAIP award for 2021.

Performance Stock Units (i.e., PSUs)—vested, at least in part, in respect of 2021 performance based upon various measures, including AB Adjusted OI, AB Adjusted EPS, and relative TSR, resulting in payouts ranging from 0% to 94% of target, with an average of 41% of target.

Performance Stock Options—had a binary performance target based on 2021 AB Adjusted OI, which was achieved, resulting in 100% vesting.

 

HOW THE BOARD IS ADDRESSING SHAREHOLDER FEEDBACK ABOUT OUR COMPENSATION PROGRAM

The Compensation Committee considers shareholder input essential and continues to focus on integrating shareholder viewpoints into our executive compensation program. We regularly engage with our shareholders throughout the year as part of this ongoing effort. In recent years, executive compensation has been a key topic of these conversations.

Based largely on shareholder feedback, we made numerous modifications to our executive pay program design and disclosure prior to the 2021 annual meeting, including:

reducing total CEO pay;

eliminating the applicability of certain features of our CEO’s employment agreement;

placing more emphasis on performance-based equity incentive awards; and

adding an ESG component to the strategic objectives underlying our executive bonuses.

We believe these modifications appropriately addressed the majority of shareholder concerns regarding our pay practices.

A majority of the shareholders who voted at our 2021 annual meeting, representing approximately 56% of the total votes cast, voted in support of our say-on-pay proposal. We believe, based upon shareholder feedback received after the 2021 annual meeting, that some of the unfavorable say-on-pay votes were cast in relation to the pay program in effect for 2020, and did not fully reflect investor sentiments regarding the modifications we made before the meeting. This year, in response to shareholders, we have continued to strengthen our compensation program and better align NEO performance and compensation with the interests of our shareholders.

We continued our focus on shareholder engagement following the 2021 annual meeting, offering engagement to shareholders owning approximately 64% of our outstanding shares. We also identified and engaged with many of the large institutional investors that voted against our 2021 say-on-pay proposal, as well as with proxy advisors ISS and Glass Lewis. Our Board and management team held over 60 meetings, engaging with 54 institutions owning approximately 53% of our outstanding shares (based on shareholding estimates at the outset of our engagement efforts in February 2022). The Chair of our Compensation Committee, Mr. Morgado, or the CEO (and, in many cases, both) personally participated in over 20 meetings with shareholders owning approximately 40% of our outstanding shares (also based on shareholding estimates at the outset of our engagement efforts in February 2022). To ensure candid discussions, the CEO always offered to step away from these calls when CEO or broader NEO compensation was discussed. Investor feedback from all of these conversations was shared with the entire Board.

 

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Our engagement after the 2021 annual meeting gave us the opportunity to further explain the numerous modifications made to our pay program design and to solicit additional feedback. As a result of these changes (together with the further reduction in CEO pay during 2021), shareholder feedback regarding our pay program turned largely positive and shareholders shifted the focus of their comments and questions away from executive compensation to other topics.

Pay Program Modifications During 2021

The Company made substantial modifications to its pay programs in 2021, both in response to shareholder feedback and to incorporate other adjustments we and our CEO viewed as necessary to further enhance our executive compensation practices and to incentivize achievement of the Transformational Goals. These changes are summarized in the table below.

What we heard

How we responded

in advance of 2021 Annual Meeting

Additional changes

following the 2021 annual meeting

Impact of action

CEO’s COMPENSATION

 

CEO pay
exceeds that of peers

Base Salary

Reduced CEO’s 2021 salary by 50% from $1.75 million to $875,000

CEO requested that his base salary be reduced to the minimum required under California law until appropriate progress toward achievement of Transformational Goals

Initial 2021 salary below 25th percentile of peer group

Subsequent reduction to $62,500 resulted in the CEO having the lowest base salary of peer group by over $500,000

Corporate Annual Incentive Plan (CAIP)

Reduced CAIP cash bonus as a result of salary reduction

Capped maximum potential 2021 and 2022 CAIP payouts to 2X base salary (effectively capped “at target”)

 

CEO requested that he receive no bonus until appropriate progress toward achievement of Transformational Goals

 

2021 and 2022 target bonuses well below 25th percentile of peer group

No CAIP bonus paid to CEO for 2021

Long-Term Incentives (LTI)

Amended employment agreement to limit CEO’s annual LTI award grant values for 2021 and 2022 to no greater than the 50th percentile of peer CEO LTI grant values

CEO requested that he receive no LTI awards until appropriate progress toward achievement of Transformational Goals

No LTI awards to CEO in 2021

Preference for PSUs over stock options

Amended LTI program design for 2021 and 2022 contract extension period to ensure 100% of CEO LTI awards denominated in performance-vesting restricted share units (“PSUs”)

A portion of any LTI grants in any year must be in PSUs tied to the Company’s TSR relative to the applicable peer group of companies

Further strengthen performance linkage of incentives

Concern regarding additional award potential based on outcome of M&A

Eliminated potential to earn the “transformative transaction award,” with immediate effect

 

Further strengthen pay for performance

Concern regarding award structures

Eliminated the “shareholder value creation incentive” with respect to all equity grants made after April 2021, when the 2016 employment agreement was amended

 

Reduce impact of single performance metric

 

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What we heard

How we responded

in advance of 2021 Annual Meeting

Additional changes

following the 2021 annual meeting

Impact of action

OVERALL ANNUAL INCENTIVE PROGRAM DESIGN

 

Annual incentive should emphasize financial metrics

Increased financial metric weight, from 60% to 80% for the CEO beginning in 2021, and for other executives beginning in 2022

Implemented increase to 80% financial weighting for all NEOs in 2021

Enhance alignment of incentive with financial outcomes

Preference for ESG objectives in incentive design

Added an ESG component which may include diversity, inclusion, promotion and hiring of veterans, and sustainability, as part of executive strategic objectives beginning in 2021

Implemented addition of ESG component as part of NEO strategic objectives

No bonus for CEO until appropriate progress toward achievement of Transformational Goals

Directly link incentive payout with ESG performance

COMPENSATION PROGRAM DISCLOSURE

 

Enhance disclosure of goal-setting process

Enhanced disclosure of target-setting to provide context for the rigor of targets in “Corporate Annual Incentive Plan (CAIP) Bonuses” section of the proxy

 

Increase transparency of incentive structure

Enhance disclosure of strategic component of annual incentive award

Enhanced disclosure related to strategic objectives and performance for annual incentive awards, beginning for 2020—see “Corporate Annual Incentive Plan (CAIP) Bonuses” section

 

Increase transparency of incentive structure and evaluation

Provide additional disclosure regarding peer group composition

Enhanced disclosure of peer group analysis process—see “Decision- Making Approach to Executive Compensation” section

 

Provide context to explain why the peer group we selected is appropriate

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ADDITIONAL DETAIL ABOUT THE CEO’S EMPLOYMENT AGREEMENT

The Compensation Committee believes that awards to Mr. Kotick under his employment agreement directly reflect the significant value he delivered to shareholders over the past five years. However, shareholders have, over time, expressed some concerns about elements of Mr. Kotick’s employment agreement and the amount of compensation he may earn.

While the term of the 2016 Kotick Employment Agreement (as defined below) was scheduled to expire in December 2021, the Compensation Committee took steps in April 2021 to specifically address shareholder feedback in both amending the agreement and extending it through March 31, 2023. The table below provides a snapshot of the 2016 Kotick Employment Agreement and the 2021 Kotick Employment Agreement Amendment (as defined below), highlighting the significant changes made in response to shareholder feedback received over the past two years. The Kotick Employment Agreement is discussed in further detail under “—Employment Agreements—Robert Kotick,” which begins on page 101 of this proxy statement.

In October 2021, Mr. Kotick asked that his total compensation be reduced to the lowest amount permitted to be paid to exempt employees under California law until the Workplace Responsibility Committee concludes the Company has made appropriate progress toward the achievement of the Transformational Goals. If and when the Workplace Responsibility Committee determines that the Company has made such progress, the Compensation Committee may increase Mr. Kotick’s compensation to the levels provided in the Kotick Employment Agreement (as defined below). For further information on the Transformational Goals, see “Corporate Governance Matters—Workplace and Culture—Transformational Gender-Related Goals and Other Commitments,” which begins on page 42 of this proxy statement. Although Mr. Kotick has voluntarily reduced his total compensation, the Kotick Employment Agreement remains in full force and effect.

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Pay Element

2016-2021 Employment Agreement

(the 2016 Kotick Employment

Agreement)

2021-2023 Agreement Extension

(the 2021 Kotick Employment Agreement

Amendment)

Additional Changes (i.e., changes after

the 2021 Kotick Employment

Agreement Amendment)

BASE SALARY

 

$1,750,000 per year

Reduced base salary of $875,000 (<25th percentile of peer CEOs)

At request of CEO, reduced base salary of $62,500 (~ lowest amount permitted for exempt employees under California law) until appropriate progress toward achievement of Transformational Goals

ANNUAL CASH INCENTIVE

Target CAIP

Target value of 200% of salary: $3,500,000

Target value of 200% of reduced salary: $1,750,000

Maximum payout capped at $1,750,000

<25th percentile of peer CEOs

At request of CEO, no bonus until appropriate progress toward achievement of Transformational Goals

Metrics

Practice of utilizing a combination of 60% financial metrics and 40% strategic objectives

80% financial metrics and introduced 20% strategic objectives linked to ESG goals

 

LONG-TERM INCENTIVE

Target LTI

Annual LTI subject to Compensation Committee approval based on achievement of operating income, earnings per share, and absolute and relative TSR

Grant value of annual LTI awards not to exceed 50th percentile of peer CEO LTI target grant values

At request of CEO, no LTI awards until appropriate progress toward achievement of Transformational Goals

LTI Structure

Generally in the form of PSUs and stock options

100% of LTI awards denominated in PSUs

 

Additional Provisions

A “transformative transaction” clause created a possible additional payment in the event of a significant transaction that resulted in substantial and sustained shareholder value creation

Eliminated applicability of this provision

 

 

A “shareholder value creation incentive” provided for certain LTI awards to be accelerated and paid at maximum levels if the Company’s stock price doubled during the term of the agreement*

This provision does not apply to any outstanding awards and will not apply to grants made after April 28, 2021

 

*

In August 2021, the Compensation Committee certified that the performance criteria underlying the “shareholder value creation incentive” provision in Section 12 of the Kotick Employment Agreement had been achieved, as, prior to December 31, 2021, the average closing price of our Common Stock had exceeded $79.96—thereby doubling in value (based on the average closing price of our Common Stock during the period from October 1, 2016 to December 31, 2016 of $39.98)—and remained at or above that level for at least 90 consecutive trading days. See “Employment Agreements—Robert Kotick—Shareholder Value Creation Incentive” below.

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COMPENSATION PHILOSOPHY

We offer competitive total compensation to attract, retain, and motivate key executives who have the characteristics needed to operate in our industry most effectively. Annual and long-term incentive awards are linked to the Company’s financial performance and stock price, incentivizing executives to drive corporate performance. In addition, our executive officers are rewarded based on the extent to 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 the performance-based incentives we use.(1)

Name

Program

Service

Period

Performance

Linkage

Annual
incentive

Corporate Annual Incentive Plan (CAIP)

Generally, 1.2 years from beginning of performance period

80% financial:

48% AB Adjusted OI

16% AB Adjusted EPS

16% AB Adjusted FCF

20% key annual strategic priorities, described in detail below (see “—Elements of our Executive Compensation Program for 2021”)

Long-term
incentive

PSUs
(AOP)

Generally, during 3 ½ years from grant, based on three

one-year performance periods

AB Adjusted OI,
AB Adjusted EPS,
stock price

PSUs
(Three-Year Strategic Plan)

Generally, 3 ½ years after grant

Performance-Vesting
Stock Options
(AOP)

Generally, during 3 ½ years from grant, based on three

one-year performance periods

(10-year option term)

AB Adjusted OI,
stock price

 

Stock Options

Generally, during 3 years following grant

(10-year option term)

Stock price

(1)

This table is not intended to be exhaustive. For example, long-term incentives granted to certain of our NEOs were also subject to an assessment of 2021 performance with respect to TSR.

We remain focused upon performance-based compensation and our 2022 awards will be assessed against achievement of both financial and strategic goals.

Pursuant to the Microsoft Merger Agreement, we are prohibited from granting new PSU awards to employees unless we were contractually obligated to do so as of January 18, 2022. We do not believe this restriction will materially limit our ability to motivate our employees, since our outstanding PSUs and annual incentives will continue to be measured based upon actual performance for all performance periods completed prior to consummation of the proposed transaction with Microsoft. For details regarding our ability to grant equity awards under the Microsoft Merger Agreement, please see the Merger Proxy Statement.

 

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What We Do

What We Don’t Do

PAY FOR EXCEPTIONAL PERFORMANCE

 

Compensation mix designed to reward executives for actions that create sustainable shareholder value

 

 

No guaranteed salary increases or bonuses—increases based on financial performance

 

Metrics underpinning performance incentives align with our strategic and financial objectives

 

 

No repricing of stock options without shareholder approval

 

Annual and multi-year performance periods ensure focus on short- and long-term performance

 

 

No dividends paid on unearned awards

 

Significant majority of equity granted to our executives is performance-based, specifically as PSUs that vest based on performance against preset goals

 

 

 

 

Emphasis on multi-year growth metrics ensures continuous focus on driving incremental shareholder value

 

 

 

ALIGNMENT OF EXECUTIVE INTERESTS

 

Stock ownership guidelines (including CEO requirement of 50x base salary) encourage ownership mentality

 

 

No excise tax gross-up upon change in control termination

 

“Clawback” policy enables recoupment of certain performance-based compensation (both cash and equity) from an executive in the event of an earnings restatement due to that executive’s misconduct

 

 

 

COMPENSATION RISK MITIGATION

 

Formal risk management, governance, and review structures, including at least two levels of approval for incentive award payouts

 

 

No hedging of Company stock, or using margin accounts to trade Company stock

 

Formal caps on our incentive programs (both cash and equity) prevent outsized payments

 

 

No pledging of Company stock by directors, NEOs and other Section 16 officers, or the President of any of Activision Publishing, Blizzard, or King as collateral for any type of loan

 

Careful management of shareholders’ equity, with dilution in the bottom quartile of our peers over the last three years

 

 

 

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HOW WE MAKE DECISIONS ABOUT EXECUTIVE COMPENSATION

Factors Influencing Compensation Decisions

Our Compensation Committee believes that executive pay should be determined using a comprehensive approach, involving an evaluation of a wide variety of relevant factors, including:

 

The Compensation Committee does not use a predefined framework to weigh the relative importance 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 regarding 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 the fact that, although many of our compensation peers include RSUs either as part of the mix or as the sole equity vehicle, we primarily use PSUs that promote pay-for-performance and better align our programs with the interests of our shareholders.

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How the Competitive Business Environment Affects Our Talent Requirements

In setting executive pay, the Compensation Committee considers a wide variety of factors, including compensation provided to executives at companies against which we compete, or may compete, for talent. We operate in the interactive entertainment industry, which exists at the nexus of the gaming, media, entertainment, and technology sectors. Compiling a team of top executives with the necessary characteristics requires us to recruit from those and other sectors—often from companies that are larger and more mature than ours.

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

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

high priority on building and growing franchises with sustained game quality and ongoing content releases;

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

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

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

significant global experience managing complex brands and franchises;

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

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

Why We Use Employment Agreements

Our employment agreements with executives specify base salary, incentive opportunities, and the terms and conditions of the equity awards that may be granted thereunder, and include provisions regarding the consequences of termination of employment, as well as restrictive covenants, such as non-competition and non-solicitation provisions. The terms of the employment agreements with each of our executives have been ratified by the Compensation Committee, which used its judgment to determine the appropriate amount and form of compensation and other employment terms necessary to recruit, retain, and motivate the executive, based in part on specific negotiations with the executive.

Employment agreements are common in the broader, highly competitive entertainment industry from which we recruit talent. We believe that multi-year employment agreements are critical in enabling us to attract and retain our executives. Using multi-year contracts also allows us to create compensation arrangements with a mix of incentive opportunities designed to reward executives for achievement of both short- and long-term goals, which we view in totality when assessing the executive’s compensation and performance during the term. For example, under the terms of their respective employment agreements, each of our NEOs has received, or is eligible to receive, incentive awards based on financial metrics or shareholder returns over a variety of performance and service periods. For more information on the NEOs’ employment agreements with the Company, see “—Employment Agreements” below.

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How We Use Peer Company Data and Compensation Surveys

In selecting a peer group, the Compensation Committee thoughtfully considers a range of factors to ensure that the companies are, individually and in aggregate, relevant. While we use six factors to assess relevance, not all companies will meet all criteria; the Compensation Committee’s judgment is required in ultimately assessing direct relevance to Activision Blizzard.

 

 

Talent competitors, in particular companies with which we have competed or may reasonably expect to compete for senior talent

 

Industry peers who, beyond their industry classification, are also relevant in other ways

 

Adjacent industry peers who, beyond their industry classification, are relevant in other ways

Comparable business models in terms of diversified media, world-class content creation and digital innovation

 

Comparable geographic footprints, operating globally

 

Within a defined size range with respect to revenue and/or market capitalization

The peer group is reviewed periodically to ensure continued relevance from the perspectives of talent, industry, business model, and operational scale, and to address M&A activity.

For example, the Compensation Committee reviewed and approved changes to the peer group for 2021, reflecting Activision Blizzard’s continued evolution within the digital media and entertainment space, as described in the proxy statement for our 2021 annual meeting of shareholders filed with the SEC on Schedule 14A on May 3, 2021.

The 2021 peer group consisted of the following 15 companies:

 

Talent

Competitor

Industry

Peer

Adjacent

Industry Peer

Comparable

Business

Model

Within 0.4x-2.5x

revenue

(FY2020)

Within 0.25x-4x

of market cap

(Dec 31, 2020)

Adobe Inc.

 

Discovery, Inc.

eBay Inc.

Electronic Arts Inc.

 

Fox Corporation

 

 

Intuit Inc.

Liberty Media Corporation

   

Live Nation Entertainment, Inc.

 

 

Netflix, Inc.

 

 

PayPal Holdings, Inc.

 

 

 

 

salesforce.com, inc.

 

   

ServiceNow, Inc.

 

 

Sirius XM Holdings Inc.

     

ViacomCBS Inc.

     

The Walt Disney Company

     
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At the time this peer group was approved, Activision Blizzard was positioned at:

the 29th percentile on revenue;

the 54th percentile on market capitalization; and

the 85th percentile on net income growth (2018-2020).

Our closest competitors for talent are Tencent Holdings Ltd., Meta Platforms, Inc., Alphabet Inc., Amazon.com, Inc., and Apple Inc. However, these companies are not included in our peer group because they all have significantly larger market value capitalizations.

In evaluating our executive compensation program, the Compensation Committee utilizes data obtained from SEC filings made by these companies, including NEO 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 management, 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 2021, 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; instead, it assesses pay levels using a comprehensive approach.

Key Participants in the Executive Compensation Decision-Making Process

Compensation Committee

Establishes our executive compensation principles.

Reviews and approves all compensation of our executive officers.

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

Has oversight of the principles underlying the design of our incentive plans.

Reviews and approves the corporate objectives relevant to our Chief Executive Officer’s compensation, evaluates their performance in light of those objectives, and determines compensation based on that evaluation.

Selects and monitors the Company’s peer group.

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

Annually reviews the compensation payable to our Board.

Administers our equity incentive plans, including:

approving equity award guidelines;

approving all equity awards; and

monitoring our equity usage and resulting potential dilution.

Reviews and approves executive officer employment and severance agreements.

Evaluates broad industry trends and practices.

Engages, retains, and, where appropriate, terminates its engagement with its independent compensation consultant.

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

Compensation Committee’s Independent Compensation Consultant

Independence Determination

In accordance with its charter and the Nasdaq Rules, in connection with the engagement of any compensation consultant or advisor, the Compensation Committee assesses the independence of such compensation consultant or advisor using the following factors:

whether the consultant or advisor provides other services to the Company;

 

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the significance of the fees paid by the Company as a percentage of the consultant’s or advisor’s total revenues;

the consultant’s or advisor’s policies and procedures designed to prevent conflicts of interest;

any business or personal relationships between the professionals engaged to advise our Compensation Committee and any members of our Compensation Committee or our executive officers; and

ownership of any Company stock by the professionals engaged to advise the Compensation Committee.

Role of the Consultant

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

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

At the Compensation Committee’s direction, interacts with management to obtain the information the consultant deems necessary to form its recommendations to the committee.

Provides the Compensation Committee advice on whether our executive and director compensation programs are market-competitive and otherwise appropriate.

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

Reviews recommendations provided by management to the Compensation Committee to ensure they are consistent with the Company’s principles with respect to director and executive compensation and reasonable vis-à-vis the Company’s peer group.

Helps the Compensation Committee determine which companies should be included in the Company’s peer group.

Since October 2013, the Compensation Committee has retained Exequity as its independent compensation consultant. Our Compensation Committee has also retained Paul Hastings, as its legal advisor.

Executive Officers and Management

Our named executive officers and our Chief People Officer:

Advise the Compensation Committee with respect to our business strategies and operational priorities and plans.

Make recommendations to the Compensation Committee on the Company’s compensation practices, including with respect to incentive awards and the individual performance of our executives, as well as pay equity.

Monitor the Company’s peer group and trends in the market.

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

Our CEO reviews the performance of the Company’s executive officers (other than themself) and provides recommendations to the Compensation Committee with respect to compensation of those officers.

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

 

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Compensation Policies that Mitigate Risk

We have adopted 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.

Clawback Policy

Activision Blizzard has maintained a “clawback policy” for over a decade. In the event of an earnings restatement due to the misconduct of an executive officer, the Company may seek to recover performance-based compensation paid or awarded to that executive. The policy covers both short-term compensation under the CAIP and long-term incentive awards (e.g., equity 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

We believe that every executive officer should maintain a meaningful ownership stake in the Company. To that end, Activision Blizzard has long imposed stock ownership guidelines to further align the interests of our officers with those of our shareholders. The Executive Stock Ownership Guidelines can be found on our website at http://investor.activision.com/corporate-governance.cfm.

The Chief Executive Officer is required to beneficially own Company stock with a value at least equal to 50 times his then-current base salary. All other executive officers, as well as the President of each of Activision Publishing, Blizzard, and King, are required to beneficially own shares of our Common Stock with a value at least equal to their then-current annual base salary. We do not include restricted stock or restricted stock units in determining compliance with these requirements.

The individuals subject to these guidelines are expected to accumulate the required stock by the fifth anniversary of the date they became an executive officer. If any such person does not satisfy these guidelines by the end of 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 unit 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, 2022, each person who, as of that date, had been subject to the guidelines for five or more years, satisfied them.

Anti-Hedging Policy

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

Anti-Pledging Policy

We prohibit our directors, NEOs and other Section 16 officers, and the President of each of Activision Publishing, Blizzard, and King from pledging Company securities as collateral for any type of loan.

Incentive Design

See “Corporate Governance Matters—Our Board’s Role in Risk Oversight—Compensation Risk Management” for the features of our incentive compensation plans that help mitigate risk.

 

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ELEMENTS OF OUR EXECUTIVE COMPENSATION PROGRAM FOR 2021

The primary elements of our executive compensation program and their purposes are described below. Not all elements are applicable to all NEOs. We aim to incentivize our executives to drive corporate financial and operational performance by basing a significant portion of their compensation on the achievement of financial and strategic objectives.

Base Salary

In establishing the annual base salary rate for an executive officer, the Compensation Committee considers the 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 or with similar responsibilities at other companies by reference to data from our peer group and published surveys. For information about our peer group, see “—How We Make Decisions About Executive Compensation—How We Use Peer Company Data and Compensation Surveys” above.

None of our NEOs are contractually entitled to salary increases (see “—Employment Agreements” below). Executive officers generally receive salary increases only:

when they enter into a new or revised employment agreement with the Company or one of its subsidiaries; or

in connection with our annual review of executive base salaries.

The table below reflects the annual base salary rates since January 1, 2021, along with any other adjustments since that time:

Name

Salary at

beginning of 2021

($)

 

Changes

during 2021

 

Salary at end

of 2021

($)

 

Changes to

rate of salary in

2022 vs. 2021

 

Salary rate

effective

January 1, 2022

($)

 

Robert Kotick

875,000

 

-93%

(1) 

62,500

(1)

0%

 

62,500

 

Dennis Durkin

900,000

 

—%

(2) 

(2)

—%

(2)

(2)

Armin Zerza

633,500

 

26%

(3) 

800,000

 

0%

 

800,000

 

Daniel Alegre

1,350,000

 

0%

 

1,350,000

 

0%

 

1,350,000

 

Brian Bulatao

 

—%

(4)

1,000,000

 

0%

 

1,000,000

 

Grant Dixton

 

—%

(5)

750,000

 

0%

 

750,000

 

(1)

Mr. Kotick’s annual base salary remained the same through October 27, 2021, after which his salary for the remainder of the year was, at his request, reduced to $62,500.

(2)

Mr. Durkin’s employment with us ended on May 31, 2021.

(3)

Mr. Zerza’s annual base salary was increased to $800,000 as of April 1, 2021, in connection with his election as our Chief Financial Officer.

(4)

Mr. Bulatao’s employment with us began on February 1, 2021.

(5)

Mr. Dixton’s employment with us began on June 14, 2021.

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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. In response to shareholder feedback, the fundamental structure of the plan was updated for 2021, with 80% (as compared to 60% for 2020) of an executive officer’s opportunity contingent on financial objectives, and the remaining 20% (as compared to 40% for 2020) contingent on individual strategic objectives aligned with our long-term strategic priorities. This reflects a one-year acceleration of our commitment to transition our NEOs to 80% financial objectives and 20% individual strategic objectives effective for 2022, other than for the CEO, where this was to be implemented in 2021.

 

 

 

In addition, for any bonus to be earned, the Company must achieve a threshold level of AB Adjusted OI, set at 90% of the operating income target. If this threshold is not achieved, no executive officer is eligible to receive a bonus under the CAIP.

 

 

 

Regardless of performance in the above areas, if AB Adjusted OI is below 90% of target (AOP) no CAIP bonuses will be earned.

 

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Target CAIP Awards

In establishing the target payout opportunities for the executive officers under the CAIP for 2021, the Compensation Committee considered the bonus targets set forth in their employment agreements, their annualized total compensation opportunities, our desired pay mix, and the total compensation opportunities of their peers within the Company and in comparable positions or with similar responsibilities at other companies by reference to data from our peer group and published surveys. The following target opportunities were approved for 2021:

Executive

Eligible Salary

($)(1)

 

CAIP Target

(% of Salary)

 

CAIP Target

($)

 

Robert Kotick

743,750

(2) 

200

(2) 

1,487,500

(2) 

Armin Zerza

756,454

 

132

(3) 

994,789

 

Daniel Alegre

1,350,000

 

100

(4) 

1,350,000

 

Brian Bulatao

903,846

 

100

 

903,846

 

Grant Dixton

403,846

 

75

 

302,885

 

(1)

“Eligible Salary” is the amount actually paid in 2021.

(2)

Mr. Kotick did not receive a bonus during 2021. If and when the Workplace Responsibility Committee determines that the Company has made appropriate progress toward the achievement of the Transformational Goals, Mr. Kotick will be eligible to receive an annual bonus.

(3)

Mr. Zerza’s target bonus opportunity under the CAIP was increased from 75% to 150% of his base salary when he was elected as our Chief Financial Officer on April 1, 2021.

(4)

Mr. Alegre has an opportunity to receive a bonus with a target amount of 100% of his base salary. This target is increased by up to 100% of his base salary for each year in which AB Adjusted EPS is at least 10% greater than the higher of (x) the AB Adjusted EPS AOP objective for the prior year and (y) the prior year’s actual AB Adjusted EPS (the higher of the two, the “EPS Objective”). As AB Adjusted EPS for 2021 was less than 10% of the EPS Objective, Mr. Alegre’s target bonus for 2021 remained 100% of his base salary. For more information on Mr. Alegre’s bonus opportunity under the CAIP, see “—Employment Agreements—Daniel Alegre—Annual Bonus” below.

Actual CAIP Awards for 2021

AB Adjusted OI must meet 90% of the operating income target for the NEOs to be entitled to their bonuses. As we did not reach threshold AB Adjusted OI for 2021, the NEOs did not receive any payouts under the CAIP. Nevertheless, management reviewed financial and strategic objective achievements for the NEOs with the Compensation Committee. The details of their achievements follow.

 

Financial Performance Score (80%)

The financial metrics underlying the target opportunity for the NEOs under the CAIP for 2021 were AB Adjusted EPS, AB Adjusted OI, and AB Adjusted Free Cash Flow. The Compensation Committee believes 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.

CAIP goals are determined by 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 that reflects potential “stretch” scenarios. While a number of companies in our peer group require achievement at 105% to 125% of the target to earn maximum payouts, our plan requires achievement of 150% to 200% of target performance to earn maximum payouts.

 

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In 2021, our AOP targets represented significant growth in two of three financial metrics. The threshold, target and maximum performance goals shown below were deemed to be appropriate in the context of our AOP.

Financial Performance Measures(1)

(dollars in millions, except share-based

amounts)

2020 Actual

 

2021 Financial Performance Objectives

2021

Threshold

(50% Payout)

2021 Target

(100% Payout)

 

2021 Maximum

(200% Payout for OI

and EPS and 150%

Payout for FCF)

AB Adjusted OI

 $

3,392

 

  $

3,429

   $

3,810

 

   $

7,620

AB Adjusted EPS

$

3.51

 

$

3.47

$

3.85

 

$

7.70

AB Adjusted Free Cash Flow

$

2,282

 

$

2,352

$

2,613

 

$

3,920

(1)

These are non-GAAP measures. For more information, including how these measures are calculated and why our Compensation Committee believes they are appropriate for assessing our executives’ performance, see “General—Financial Measures Used in this Proxy Statement—Financial Metrics Used to Measure 2021 Compensation-Related Performance” above.

Actual performance resulted in year-over-year growth in adjusted EPS and adjusted free cash flow, as well as stable year-over-year adjusted operating income, in each case following record performance in 2020, but results were still below their targets for 2021.

Financial Performance Measures(1)

(dollars in millions, except share-based

amounts)

Weight

 

Performance Objectives and Actual Results

Target

 

Actual

Results

Actual

Achievement

Weighted

Achievement

AB Adjusted OI

48%

$

3,810

 

$

3,403

89.3%

0%(2)

AB Adjusted EPS

16%

$

3.85

 

$

3.62

94.1%

11%

AB Adjusted Free Cash Flow

16%

$

2,613

 

$

2,369

90.7%

9%

TOTAL WEIGHT/ACHIEVEMENT

80%

 

 

 

 

 

 

0%(2)

(1)

These are non-GAAP measures. Results for AB Adjusted OI and AB Adjusted EPS include $160 million and $0.16, respectively, associated with share-based compensation expense related to achievement against 2021 performance targets which was not excluded from the financial objectives used by management and our Compensation Committee to assess the performance of our NEOs. For more information, including how these measures are calculated and why our Compensation Committee believes they are an appropriate way to assess our executives’ performance, see “General—Financial Measures Used in this Proxy Statement—Financial Metrics Used to Measure 2021 Compensation-Related Performance” at the beginning of this proxy statement.

(2)

As AB Adjusted OI did not meet the 90% threshold, executive officers were not eligible to receive a bonus under the CAIP for 2021.

Individual Strategic Objectives (20%)

For each NEO, 20% 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% to 120% of an executive officer’s target opportunity.

The Compensation Committee believes that using 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. The exact objectives for 2021 varied by executive officer, reflecting areas of importance and influence by role. As demonstrated by the Compensation Committee’s assessment of each NEO’s performance below, ESG initiatives feature more prominently in our executive officers’ bonus opportunities than in prior years, with all strategic objectives underlying the CEO’s 2021 bonus opportunity directly related to ESG.

 

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Strategic Objectives for Robert Kotick

Area and Summary of Goals

 

Achievement Details

Weighting (as a

% of Strategic

Objectives)

Below

Target

Target

Above

Target

Improve diversity and veteran representation across the Company

 

Met the targeted hiring rate of women

30%

 

 

 

 

Met the targeted hiring rate of underrepresented ethnic groups

30%

 

 

 

 

Met the targeted hiring rate of veterans

15%

 

 

Make progress on key ESG initiatives beyond representation and hiring goals

 

Furthered sustainability and measurement initiatives, including the reduction in plastic packaging versus 2020

25%

 

 

Strategic Objectives for Armin Zerza

Area and Summary of Goals

 

Achievement Details

Weighting (as

a % of

Strategic

Objectives)

Below

Target

Target

Above

Target

Increase efficiency and ensure proper investment levels in core areas of our business

 

Successfully developed short-term and long-term planning around various initiatives, but did not meet all cost and growth objectives

50%

 

 

Ensure staffing and succession plans support annual and long-range growth plans with an emphasis on diversity and inclusion

 

Hired and promoted diverse candidates for senior roles in the finance organization and established a production accounting function

20%

 

 

Develop and implement appropriate organizational plans to deliver on ambitious goals

 

Instituted franchise production and resource planning with clear delivery and investment milestones

10%

 

 

Ensure good corporate governance and ensure that investors understand and value the Company’s position and strategy

 

Bolstered shareholder engagement program and enhanced discussions around ESG initiatives, but did not complete all engagement goals

20%

 

 

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Strategic Objectives for Daniel Alegre

Area and Summary of Goals

 

Achievement Details

Weighting (as

a % of

Strategic

Objectives)

Below

Target

Target

Above

Target

Increase efficiency and ensure proper investment levels in core areas of our business

 

Successfully developed short-term and long-term planning around various initiatives, but did not meet all cost and growth objectives

40%

 

 

Ensure staffing and succession plans support annual and long-range growth plans with an emphasis on diversity and inclusion

 

Hired and promoted diverse candidates for key leadership roles within the business

30%

 

 

Develop and implement appropriate organizational plans to deliver on ambitious goals

 

Instituted franchise production and resource planning with clear delivery and investment milestones, but had delayed launch dates for certain 2022 titles

30%

 

 

Strategic Objectives for Brian Bulatao

Area and Summary of Goals

 

Achievement Details

Weighting (as

a % of

Strategic

Objectives)

Below

Target

Target

Above

Target

Increase efficiency and ensure proper investment levels in core areas of our business

 

Successfully developed short-term and long-term planning around various initiatives, but did not meet all cost and growth objectives

30%

 

 

Ensure staffing and succession plans support annual and long-range growth plans with an emphasis on diversity and inclusion

 

Developed and hired for key roles with diverse candidates in the HR and IT organizations

30%

 

 

Develop and implement appropriate organizational plans to deliver on ambitious goals

 

Made substantial enhancements to our IT and performance management practices

30%

 

 

Ensure good corporate governance and enhance risk mitigation

 

Completed cybersecurity audits and additional risk mitigation actions

10%

 

 

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Strategic Objectives for Grant Dixton

Area and Summary of Goals

 

Achievement Details

Weighting (as

a % of

Strategic

Objectives)

Below

Target

Target

Above

Target

Increase efficiency and ensure proper investment levels in core areas of our business

 

Delivered values at or above expectations on settlement of key disputes, but did not meet all cost objectives

25%

 

 

Ensure staffing and succession plans support annual and long-range growth plans with an emphasis on diversity and inclusion

 

Identified areas for talent improvement, bench strength, and potential successors

15%

 

 

Develop and implement appropriate organizational plans to deliver on ambitious goals

 

Defined optimal legal structure based on business evolution and plan to implement in line with Company organizational decisions

20%

 

 

Ensure good corporate governance and protection of our intellectual property

 

Achieved favorable results and made progress in key legal matters, including intellectual property disputes

40%

 

 

Other Cash Programs or Awards

Each of Mr. Bulatao and Mr. Dixton received cash inducements and other benefits in connection with joining the Company, some or all of which were paid during 2021.

Executive

Target Value

 

Purpose and Details

Effect of Clawback

Brian Bulatao

$500,000

 

First half of cash inducement

100% if termination occurred before end of 2021

$12,050

 

Legal fees incurred in connection with
contract negotiations.

Not subject to clawback

Grant Dixton

$1,750,000

 

Cash inducement

100% if termination occurs before ~ one year
2/3 if termination occurs before ~ two years
1/3 if termination occurs before ~ three years

$151,349

 

Value of relocation benefits and reimbursement of related taxes

100% if termination occurs before the first anniversary of the effective date of his employment agreement

$6,923

 

Legal fees incurred in connection with contract negotiations.

Not subject to clawback

For more information, please see “—Employment Agreements—Brian Bulatao—Contract Inducement” and “—Employment Agreements—Grant Dixton—Contract Inducement” below.

 

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Equity Awards

Why We Grant Equity Awards

Our equity incentive awards are intended to drive long-term shareholder value creation, create alignment with our shareholders’ interests, and encourage retention of key executives. Generally, we utilize a mix of:

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

stock options, which directly align an executive’s interests to those of our shareholders, since any financial gain is directly dependent upon appreciation in the value of our Common Stock.

We believe a combination of PSUs and stock options appropriately balances the various objectives of the equity incentive program, promoting long-term value creation critical to driving TSR, directly aligning executive compensation with shareholder interests through share ownership, and encouraging our key executives to remain engaged with our organization through the vesting date of the awards.

In determining the estimated grant value of