2018 Guide to Effective Proxies

2.17.2 Executive summary | 263 6 TH EDITION | GUIDE TO EFFECTIVE PROXIES CONCHO RESOURCES CompensationElement Performance Period Performance Measures/Vesting WhatItDoes BaseSalary – – • Providescompetitivefixedpay basedonroleandscopeof responsibilities Short-TermIncentiveAwards 1Year • Capitalproductivity(absolute productiongrowth;ratioof capitalexpenditures, excludingacquisitionsand midstreamsystemexpansion costs,toafter-taxcashflow) • Costcontrol(directlease operatingexpenseperBOE; cashgeneraland administrativeexpenseper BOE) • Shareholderreturns(absolute stockperformance) • Three-yearproductiongrowth perdebtadjustedshare • Leadershipandsafety • Alignscashbonuswith individualleadership, shareholderreturnsand companyperformancemetrics • Measuresperformance againststrategicinitiatives pursuedbytheCompany • Paidincash Long-TermIncentiveAwards 4Yearsfor Time-based Incentive Awards (2018-2021) • Time-basedrestrictedstock awardsvestratablyoverfour years • Alignspayoutdirectlywith shareholdervaluecreation andexecutiveretention • Paidinshares 3Year Performance Periodfor Performance- basedIncentive Awards (2017-2019) • Performance-basedrestricted stockunitawards • Totalshareholderreturn (TSR)versuspeergroup • AbsoluteannualizedTSR • Encouragessustainable,long- termfinancialperformance alongwithexecutiveretention • Paidinshares Asinpreviousyears,theCompensationCommittee,withtheassistanceoftheCompany’sindependentcompensation consultant,reviewedthecompensationpracticesofpeerswithintheindustryandtookactionsin2017toaligntheCompany’s compensationlevelswiththoseoftheindustryandwiththeCompany’slong-termobjectives.TheCompensationCommittee alsoconsideredtheresultsoftheadvisory“say-on-pay”voteatthemostrecentannualstockholdersmeeting,inwhichthe compensationofthenamedexecutiveofficerswasapprovedbyapproximately98%ofstockholdersvoting.TheCompany’s keyexecutivecompensationdecisionsfor2017aresummarizedbelow. KeyCompensationDecisionsfor2017 • Increasedbasesalariesforexecutiveofficersbyapproximately5%fromtheir2016basesalarylevel(therewereno basesalaryincreasesin2016from2015levels) • Revisedthe2017annualbonusplantoreflecttheCompany’scontinuedfocusonaligningexecutivecompensation withtheCompany’sperformanceandondeliveringstronggrowth,realvalueandqualityreturnsoverthelongterm: º Increasedtheformulaicportionofannualshort-termincentiveawardsfrom50%to60% º Introducedanewcapitalefficiencymetricofproductiongrowthperdebt-adjustedsharetotheformulaicportionof annualcashincentiveprogram º Modifiedthecapitalexpendituremetricundertheformulaicportionoftheannualcashincentiveprogramfroman absoluteamounttoaratioofcapitalexpenditures,excludingacquisitionsandmidstreamsystemexpansion costs,toafter-taxcashflow 2018PROXYSTATEMENT 31 Total of 03 pages in section ExecutiveCompensationProgram ThekeyfeaturesoftheCompany’sexecutivecompensationprogramfortheCompany’sChairmanandChiefExecutive Officer,PresidentandChiefFinancialOfficerandthethreemosthighlycompensatedcurrentexecutiveofficersotherthanthe twoforegoingofficers(“namedexecutiveofficers”or“NEOs”)areoutlinedinthissection: Name Title(asofDecember31,2017) TimothyA.Leach ChairmanoftheBoardandChiefExecutiveOfficer JackF.Harper PresidentandChiefFinancialOfficer E.JosephWright ExecutiveVicePresidentandChiefOperatingOfficer C.WilliamGiraud ExecutiveVicePresident J.SteveGuthrie SeniorVicePresidentofBusinessOperationsandEngineering ObjectivesandElementsoftheCompany’s2017TotalCompensation TheCompanycompensatesitsexecutivemanagementusingamixofbasesalary,annualperformancebonusandequity grants,withthefollowingobjectives: • Attracting,retainingandmotivatingkeyexecutiveofficerscriticaltolong-termsuccess; • compensatingthoseexecutiveofficersfairlyandcompetitivelyfortheirresponsibilitiesandaccomplishments; • aligningmanagement’sincentiveswiththelong-terminterestsoftheCompany’sstockholders;and • payingforperformance,bothonaCompanyandindividualbasis. TheCompany’sexecutiveofficercompensationprogramfor2017wascomprisedofthefollowingfourcomponents:base salaries,performance-basedannualcashincentiveawards,long-termequityincentivegrants(time-basedandperformance- based)andabroad-basedbenefitsprogram.TheCompensationCommitteedeterminedtheappropriatelevelforeach compensationcomponentduring2017basedontheCompany’srecruitingandretentiongoals,itsviewofinternalpayparity andconsistency,peergroupdataandoverallCompanyandindividualperformance. CEO–2017CompensationMix OtherNEOs–2017CompensationMix VariableAt-Risk Compensation 91% Base Salary 9% Annual Cash Incentive 19% Long-TermEquity Incentives 72% VariableAt-Risk Compensation 88% Base Salary 12% Annual Cash Incentive 18% Long-Term Equity Compensation 70% 2018PROXYSTATEMENT 30 COMPENSATION DISCUSSION AND ANALYSIS Table of Contents • ExecutiveSummary • CompensationBestPractices • CompensationPhilosophyandProcess • 2017CompensationDecisions • 2018CompensationProgramDesign • OtherCompensationPracticesandPolicies ExecutiveSummary TheCompany’sexecutivecompensationprogramisdesignedtorewardtheleadershipteamfordeliveringresultsagainstits long-termobjectives,whichishowtheCompanycreatesvalueforitsstockholders.Theprogram’sdesignalignstheinterests oftheCompany’sexecutiveteamandstockholdersbylinkingpaytovariousperformancemetricsovertheshortandlong- term.Awardsaremadeusingamixoffixedandvariablecomponentswithdifferenttimehorizonsandpayoutforms(cashand stock)torewardannualandsustainedperformanceoverthelong-termwhilediscouragingimprudentrisktaking.Atthe2017 annualstockholders’meeting,stockholdersapprovedthecompensationoftheCompany’snamedexecutiveofficers,withmore than98%ofvotescastinfavor. 2017PerformanceHighlights TheCompensationCommitteehasmadeperformance-basedcompensationanincreasinglyimportantelementofexecutive officercompensationinrecentyears.Accordingly,itisimportanttoreviewandunderstandtheCompany’sperformancewhen lookingattheCompany’s2017executivecompensation. Basedonthestrongresultsin2017,theCompany’sexecutiveofficersreceivedacashbonusof170%oftarget.The company’sabsoluteandrelativeshareholderreturnforthe2015-2017performanceperiodresultedinperform ncesharesfor thatperiodbeingearnedat300%oftarget. Performancehighlightsfor2017include: • Increasedproduction28%year-over-year,whichcomparestotheCompany’sproductiongrowth targetfor2017ofanincreaseof20%to24%year-over-year • Increasedprovedreserves17%,drivenbya26%increaseinproveddevelopedreserves.The Companyreplaced275%productionatlowfindinganddevelopmentcosts • Continuedfocusonoptimizingdrillingandcompletionmethods • Continuedtoadvancelarge-scale“manufacturing”developmentandincreaseoperational efficienciesthroughpaddrilling,batchcompletions,multi-zonetargetingandlong-lateral development • MaintainedsafetyperformancelevelsfortheCompany’semployeesandcontractorsthat significantlyoutperformedtheCompany’sindustrypeers • LaunchedthecorporateresponsibilitysectionoftheCompany’swebsitetoreporton environmental,socialandgovernancerelatedeffortsindetail • Demonstratedcapitaldisciplinebyexecutingadrillingprogramwithincashflowsfromoperations aswellaswithintheCompany’sguidancerange • Enhancedcashmarginbyreducingper-unitcashcosts • Reducedlong-termdebt,loweredcostofcapitalandextendedaveragematuritybysuccessfully refinancingseniornotes • ClosedthesaleofAlphaCrudeConnector,LLC,whichgeneratednetcashproceedsof approximately$800million • Acquiredapproximately12,400netacrescomplementarytotheCompany’sleaseholdinthe MidlandBasin 2018PROXYSTATEMENT 29 ETSY 2017ExecutiveCompensationHighlights Inlightofthesubstantialchangesinourmanagementteamandthechangesflowingfromour businesstransformation,ourcompensationprogramin2017reflectedourcompany’schallenging andchangingcircumstances.TheCommitteewaslargelyguidedbytheneedtorecruitandhirethe appropriateindividualsatourmostcriticalseniorleadershippositionsandtoensuretheretention andcontinuedserviceoftheremainingseniorexecutiveofficers.Infillingeachoftheexecutive positionsin2017,werecognizedtheneedtodevelopcompetitivecompensationpackagesto attractqualifiedcandidatesinadynamiclabormarket. For2018,theCommitteeexpectsamoretraditionalprocesswheretheprincipalcomponentsof compensationforourNEOsandthecorporateandindividualperformanceobjectivesare determinedconsideringthefactorsdescribedbelowunder“FactorsUsedinDeterminingExecutive Compensation.” Pay-for-PerformanceOverview Wegenerallytargetacompensationmixforourexecutiveofficersthatisweightedheavilytowards variable,or“atrisk,”compensation,includingshort-termcashincentivesandlong-termincentive compensationopportunitiesintheformofequityawards,toalignthecompensationofour executiveofficerswithourperformanceandtheinterestsofourstockholders.Weconsiderour equityawards,whichincludeoptionstopurchasesharesofourcommonstockandrestrictedstock unit(“RSU”)awardsthatmaybesettledforsharesofourcommonstocktobe“variable”pay becausetheirrealizedvaluedependsontheperformanceofourstockprice.Webelievethatthis designprovidesbalancedincentivesforourNEOstodrivefinancialperformanceandlong-term growth. ThepaymixforourCEOandourothercurrentNEOsduring2017reflectedthisalignment: Long-term Incentives BaseSalary Annual Incentive 97% 1% 2% CEO Long-term Incentives BaseSalary Annual Incentive 80% 11% 9% OTHERNAMEDEXECUTIVEOFFICERS 28 2018ProxyStatement Etsy Total of 04 pages in section 2017 Management Transition 2017wasatransformationalyearforEtsy.Wetransitionedtoanewseniorleadershipteamoverthe firsthalfoftheyear: • NewChiefExecutiveOfficer —Mr.SilvermanbecameourPresidentandChiefExecutiveOfficerin May2017.HereplacedMr.Dickerson,whoresignedhispositionasourPresidentandChief ExecutiveOfficereffectiveMay3,2017andservedinanadvisoryrolethroughMay31,2017. • NewChiefFinancialOfficer —Ms.GlaserbecameourChiefFinancialOfficerinMay2017. Ms.Mullane,ourVicePresident,CorporateController,servedasourInterimChiefFinancial OfficerbeforeMs.Glasercommencedemploymentwithus. • NewChiefTechnologyOfficer —Mr.FisherbecameourChiefTechnologyOfficerinJuly2017. • NewGeneralCounsel —Ms.SimeonebecameourGeneralCounselandSecretaryinJanuary 2017. 2017 Strategic Transformation & Performance Highlights Sincejoiningus,ournewmanagementteamhassoughttosharpenourfocusonkeyinitiativesand realignourinternalresourcestopursuethehighestgrowthopportunitiesinordertodelivervalue toourstakeholders.Wereducedourheadcounttwiceduring2017anddoubleddownonwhatwe believetobethehighest-impactinitiativesinourcoremarketplace.Thenewmanagementteam outlinedanewbusinessstrategyandbeganexecutingonourfourkeyinitiativesthatwebelieve willhelpEtsyandoursellerssucceed.Withthisgreaterfocus,weincreasedthepaceofourproduct experimentsandlaunches.Theseactionscollectivelyenabledustoachievethefollowing2017 results: • Grossmerchandisesales —GMSgrewby14.5%year-over-yearto$3.25billion,upfrom $2.84billionin2016,with33.0%ofsalesinvolvingabuyerand/orselleroutsideoftheUnited States.WeacceleratedGMSgrowthforthethirdandfourthquarterof2017andwedeliveredour first-everbilliondollarquarterofGMSinthefourthquarterof2017,followingastrongholiday season. • Revenue —Revenueroseby20.9%year-over-yeartoatotalof$441million,comparedto $365millionin2016,ledbySellerServicesrevenuegrowthof28.7%. • Netincome —Netincomewas$81.8millioncomparedwithanetlossof$29.9millionin2016. • Non-GAAPAdjustedEBITDA * —Non-GAAPAdjustedEBITDAwas$80.0million,representingan increaseof40.1%year-over-year,comparedto$57.1millionin2016.Non-GAAPAdjustedEBITDA margin(i.e.,non-GAAPAdjustedEBITDAdividedbyrevenue)was18.1%,comparedto15.7%in2016. * See“Non-GAAPFinancialMeasures”forareconciliationofAdjustedEBITDAtonetincome(loss), themostdirectlycomparablefinancialmeasurecalculatedinaccordancewithGAAP. Etsy 2018ProxyStatement 27 Executive Compensation Compensation Discussion and Analysis ThisCompensationDiscussionandAnalysissectionisintendedtoprovideourstockholderswitha clearunderstandingofourcompensationphilosophy,objectivesandpractices;ourcompensation- settingprocess;ourexecutivecompensationprogramcomponents;andthedecisionsmadewith respecttothe2017compensationofeachofourNamedExecutiveOfficers(“NEOs”).For2017,our NEOswere: • JoshSilverman,PresidentandChiefExecutiveOfficer; • RachelGlaser,ChiefFinancialOfficer; • MikeFisher,ChiefTechnologyOfficer; • LindaFindleyKozlowski,ChiefOperatingOfficer; • JillSimeone,GeneralCounselandSecretary; • ChadDickerson,formerPresidentandChiefExecutiveOfficer; • KristinaSalen,formerChiefFinancialOfficer;and • KarenMullane,formerVicePresidentandController,andInterimChiefFinancialOfficer. Executive Summary Business Overview Etsy,Inc.istheglobalmarketplaceforuniqueandcreativegoods.Weconnectcreative entrepreneurswiththoughtfulconsumerslookingforitemsmadebyrealpeople.Ourmissionisto “KeepCommerceHuman”andwe’recommittedtousingthepowerofbusinesstostrengthen communitiesandempowerpeople. AsofDecember31,2017,ourplatformconnected1.9millionactiveEtsysellersand33.4million activeEtsybuyers,innearlyeverycountryintheworld.OursellersaretheheartandsoulofEtsy, andourtechnologyplatformallowsoursellerstoturntheircreativepassionsintoecono ic opportunity.Wehaveaseller-alignedbusinessmodel:wemakemoneywhenoursellersmake money.WeofferawiderangeofSellerServicesandtoolsthatarespecificallydesignedtohelp creativeentrepreneursstart,manage,andscaletheirbusinesses. 26 2018ProxyStatement Etsy