For fiscal year 2021, on average, approximately 91% of the total compensation between our Named Executive Officers (excluding the CEO, as defined below) was compensation and approximately 6% was fixed salary. For our CEO, compensation represented 94% of total compensation, fixed salary represented 6%, and our CEO pay ratio was 54:1. We define compensation as consisting of our short-term performance-based incentive bonus and long-term equity incentives. The majority of all Named Executive Officers’ total compensation was delivered in the form of equity awards — stock options and time-based restricted stock units — with values that are generally contingent on stock price.

The performance-based bonus plan for our NEOs and executive employees provides cash awards on an annual basis depending on Zendesk’s performance. The awards are directly linked to the achievement of annual financial objectives established by the Compensation Committee shortly after the beginning of the new fiscal year. In keeping with our compensation philosophy, eligible employees in good standing (who are not otherwise subject to another variable compensation plan) are also rewarded with an annual bonus that is funded based on the same key financial objectives. The Compensation Committee is provided an opportunity to review and comment on the broad-based performance bonus plan.

Our fiscal year 2021 key financial metrics for measuring Zendesk’s success are Revenue Growth Rate, Operating Margin and, in the case of Mr. Gennaro only, Net Bookings. The Compensation Committee believes that these metrics establish appropriate short-term performance conditions that will drive our future growth and profitability as well as offer market-competitive incentive opportunities to our NEOs.

We target a significant portion of our executive compensation to be delivered through compensation components. Our Amended and Restated Executive Incentive Bonus Plan (the “Bonus Plan”) for our executives is primarily based on operating margin and revenue results, and has a high minimum threshold for any bonus payout. A significant portion of the equity package for our executives is stock options, which are granted at fair market value of the stock price at the time of grant, resulting in equity value being directly tied both to stock price and to the broader market’s evaluation of the performance of our business. Because we target a similar economic value between restricted stock units and options, our option compensation calculation results in a greater number of shares granted to each executive as compared to restricted stock units. We believe this approach strongly incentivizes long-term alignment with our stock price.

We submitted a proposal to our stockholders at the 2021 Annual Meeting of Stockholders. This proposal consisted of a advisory vote to approve the compensation of the Named Executive Officers as disclosed in the proxy statement for the 2021 Annual Meeting of Stockholders.

Approximately 91% of the votes cast were in favor of the advisory vote to approve the compensation of the Named Executive Officers at the 2021 Annual Meeting of Stockholders. The Compensation Committee believes this indicates that our stockholders strongly support the philosophy, strategy, and objectives of our executive compensation programs. After considering this result and following our annual review of our executive compensation philosophy, the Compensation Committee decided to retain our overall approach to executive compensation. The Compensation Committee intends to continue to monitor stockholder concerns, including the results of the annual advisory vote to approve the compensation of the Named Executive Officers, in making future decisions affecting the compensation of the Named Executive Officers.

We provide a base salary as a fixed source of compensation for each of our Named Executive Officers, allowing them a degree of certainty relative to the significant portion of their compensation that is compensation — performance-based incentives and equity awards with values that are generally contingent on stock price appreciation. Our Compensation Committee recognizes the importance of base salaries as an element of compensation that helps to attract and retain highly qualified executive talent.

Generally, the initial base salaries of our executive officers are established through negotiation at the time the individual executive officer is hired, taking into account his or her qualifications, experience, and comparable market data. Thereafter, our Compensation Committee generally reviews, and adjusts as deemed necessary, base salaries for each of our Named Executive Officers annually.

Consistent with prior years, our Compensation Committee reviewed the base salaries of our Named Executive Officers. The Compensation Committee determined not to increase the base salaries for our incumbent Named Executive Officers in February 2021. In making a determination as to whether increases to the base salaries for each of our Named Executive Officers were appropriate, the Compensation Committee took into account the Company’s decision not to increase officer salaries in 2021, as well as the competitive market for management within our industry and geographic area and the expanded obligations of our Named Executive Officers due to our growing operations. The base salaries of our Named Executive Officers prior to and following the compensation evaluation approved by the Compensation Committee in February 2021 were as follows:

We provide bonuses when necessary and appropriate to advance the Company’s and stockholders’ interests, including to attract top executive-level talent from other companies. bonuses are an effective means of offsetting the compensation opportunities an executive forfeits when he or she leaves a former employer to join the Company.

Ms. Glaser received a bonus in connection with her hiring as our Chief Financial Officer, equal to $500,000. Ms. Glaser’s bonus was paid upon commencement of her employment with the Company and will be earned in installments over her first two years of employment: half of Ms. Glaser’s bonus will be deemed earned as of May 2022 and the second half will be deemed earned on a pro rata monthly basis until she has completed two years of employment with the Company as of May 2023.

Ms. Constantinople also received a bonus in connection with her hiring as our Chief Marketing Officer, equal to $500,000. Ms. Constantinople’s bonus was paid upon commencement of her employment with the Company and will be earned in installments over her first two years of employment: half of Ms. Constantinople’s bonus will be deemed earned as of May 2022 and the second half will be deemed earned on a pro rata monthly basis until she has completed two years of employment with the Company as of May 2023.

In considering target objectives for the management team for fiscal year 2021, the Compensation Committee determined that establishing target objectives for the management team that encouraged efficient revenue growth, and an additional component for Mr. Gennaro that encouraged achieving new business and expanding our approach, aligned the management team’s incentives with the interests of the Company’s stockholders. Therefore, the Compensation Committee designed the target objectives for the Named Executive Officers as described below.

The Compensation Committee chose the Net Bookings Goal as a component of Mr. Gennaro’s target objective because the Compensation Committee wanted to provide an incentive that encouraged Mr. Gennaro to focus on achieving new business and expanding the reach of our approach, particularly in the enterprise and commercial segments. The Compensation Committee views the Net Bookings Goal as a more accurate measure of the growth of the overall business, while factoring in churn and contraction rates over the measurement period.

Performance-based incentives for 2021

2021 ATTAINMENT OF PERFORMANCE-BASED INCENTIVES

Information regarding the attainment of the target objective to each of our Named Executive Officers under the Bonus Plan for 2021 is as follows:

 

Form of Payment for Bonus Awards for 2021

For 2021, the Compensation Committee elected to pay the amounts to the Named Executive Officers under the Bonus Plan in cash because the Compensation Committee believed that it provided a predictable reward for the short-term incentive goals that the Compensation Committee wished to incentivize. The Compensation Committee did not adjust the bonus payments payable to any of our Named Executive Officers under the Bonus Plan for any Individual Performance Adjustment, as described above. Information regarding the payment of compensation to each of our Named Executive Officers under the Bonus Plan for 2021 is as follows:

 

 

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Generally, our executive officers are granted equity awards at the time of hire, the size and form of which are determined through negotiation with the individual executive officer, taking into account his or her qualifications, experience, comparable market data, and expected roles and responsibilities. The equity awards granted to our executive officers upon hire generally vest over four years with 25% of the award vesting during the month of the first anniversary of the date of hire, and the remaining portion of the award vesting in equal monthly installments over the subsequent 36 months.

In February 2022, the Compensation Committee introduced the grant of performance-based restricted stock units (“PSUs”) to our executive officers, including our named executive officers. The Compensation Committee granted these awards to align our named executive officers’ incentives with the long-term interests of our stockholders while addressing retention objectives. The PSUs vest subject both to our achievement of relative total stockholder return and revenue growth performance metrics over a performance period (up to a maximum of 165% of the target number of PSUs awarded) and continued service of the grantee over a four-year period, with 25% vesting on February 15, 2023, and the remainder vesting in 36 equal monthly installments thereafter.

Participation in the 2014 Employee Stock Purchase Plan (“ESPP”) is available to all Named Executive Officers on the same basis as our other employees. However, any Named Executive Officers who are 5% stockholders, or would become 5% stockholders as a result of their participation in the ESPP, are ineligible to participate in the ESPP. Under the ESPP, eligible employees are granted options to purchase shares of our common stock through payroll deductions. The ESPP provides for eighteen-month offering periods, which include three purchase periods. At the end of each purchase period, employees are able to purchase shares at 85% of the lower of the fair market value of our common stock at the beginning of an offering period or the fair market value of our common stock at the end of the purchase period. Since employees who participate in the ESPP have the opportunity to benefit from any appreciation in the value of the Company’s common stock due to the execution of the Company’s long-term objectives between the beginning of each offering period and end of each purchase period, we believe that offering the ESPP aligns the interests of our broad employee base with the Company’s long-term objectives.

Mr. Svane’s equity awards have previously been subject to double-trigger change in control acceleration provisions pursuant to his grant agreements, which in certain cases the adoption of the Acceleration Plan and the Plan Amendment. The terms of Mr. Svane’s acceleration provisions are consistent with the Acceleration Plan and the Plan Amendment. The Plan Amendment provides that all employees with a title of Vice President and above, including Mr. Svane, will be covered by the terms of the Company’s Acceleration Plan. Ms. Glaser, Ms. Constantinople, Mr. McDermott, and Mr. Gennaro are current participants in the Acceleration Plan. For quantification of, and additional information regarding, the change in control arrangements of our Named Executive Officers, please see the discussion under “Executive Compensation—Potential Payments Upon Termination or Change in Control.”

We have established a Section 401(k) retirement plan that provides eligible U.S. employees with an opportunity to save for retirement on a basis. Under this plan, employees may elect to defer their eligible compensation by up to the statutory limit and contribute to the plan. We initiated an employer matching contribution on employee contributions in 2017. For fiscal year 2021, we matched 100% of the first 2% of eligible contributions made to the plan by our employees, including our Named Executive Officers. All such matching and contributions were immediately and fully vested.

The compensation of our Named Executive Officers is determined by our Compensation Committee. Our Chief Executive Officer typically provides annual recommendations to the Compensation Committee and discusses with the Compensation Committee the compensation and performance of our executive officers, other than himself. Because our Chief Executive Officer is involved in the operation of our business, he is able to base his recommendations in part upon his review of the performance of our executive officers. Our Compensation Committee may exercise its discretion in modifying any recommended compensation adjustments or awards to executives. Our Compensation Committee reviews the performance of our Chief Executive Officer and meets in executive session without him to determine his compensation. In addition, Compensation Committee meetings typically have included, for all or a portion of each meeting, not only the committee members and our Chief Executive Officer, but also our Chief People Officer and senior members of our legal and people operations teams who may provide information, data, analysis, and updates to our Compensation Committee.

Effective February 1, 2019, we adopted the Executive Officer and Director Stock Ownership Policy, or Stock Ownership Policy, that is applicable to our directors, Chief Executive Officer, and those employees who have been designated as “officers” for purposes of Section 16 of the Exchange Act. The Stock Ownership Policy requires that directors hold equity in the Company with a value equal to at least three times the director’s annual Board cash compensation, the Chief Executive Officer own equity in the Company equal to at least three times his annual base salary and that all other covered executives own equity in the Company equal to at least one times his or her annual base salary. The Stock Ownership Policy provides for a period, which provides that an individual subject to the policy is required to be in compliance with the minimum equity ownership requirement by the first December 31st that occurs following the five-year anniversary of the date on which the director or Section 16 officer first became subject to the Stock Ownership Policy, or, if later, February 1, 2024. If the Stock Ownership Policy were hypothetically effective as of April 29, 2022, our directors, Chief Executive Officer and Chair, and employees who have been designated as “officers” for purposes of Section 16 of the Exchange Act are currently in compliance with the Stock Ownership Policy. The Stock Ownership Policy also includes certain share retention obligations that apply to officers and directors who have not met the minimum equity ownership requirements by the end of their date or who cease to hold the minimum equity ownership at any time following such date.

We have a death and leave of absence policy that provides that (1) upon the termination of an employee’s or director’s employment or other service relationship due to death, (i) any equity awards that vest solely based on continued service to the Company and that are outstanding and held by such individual immediately prior to such individual’s death, will accelerate and vest effective the individual’s date of death, in an amount up to $1,000,000 for a 16 officer and in an amount up to $3,000,000 for a Section 16 officer; (ii) any PSUs that are outstanding and held by such individual immediately prior to such individual’s death will remain outstanding and eligible to performance vest in accordance with their terms and conditions based upon achievement of the applicable performance condition and subject to the certification of the performance metric attainment in accordance with the terms and conditions of such award, and (iii) if the individual is an employee that is eligible to receive an annual target bonus, such individual will be eligible to receive a portion of their target annual bonus (if applicable), to be paid out within 60 days after the individual’s date of termination due to death.

The policy also states that upon an employee’s unpaid leave of absence, unless otherwise required by statute, contract or if Zendesk otherwise so provides in writing, the service-based vesting for any of the individual’s outstanding equity awards that vest solely or in part based on continued service will be paused.

Insider trading policy and Rule sales plans

We have an insider trading policy that prohibits our officers, directors, and all other employees from engaging in, among other things, hedging of stock ownership positions and transactions involving derivative securities relating to our common stock. Further, we have an additional policy that prohibits, among other things, officers, directors, and certain other persons from engaging in short sales, the use of our securities as collateral in a margin account, and the pledging of our securities as collateral for loans. Our insider trading policy permits our officers, directors, and employees to enter into trading plans complying with Rule under the Exchange Act.

Tax and accounting considerations

Section 162(m) of the Code (“Section 162(m)”) disallows a federal income tax deduction for public corporations of remuneration in excess of $1 million paid in any fiscal year to certain covered executive officers. As a general matter, while tax deductibility is one of several relevant factors considered by the Compensation Committee in determining compensation, we believe that the tax deduction limitation imposed by Section 162(m) should not compromise the Company’s access to compensation arrangements that will attract and retain a high level of executive talent. Accordingly, the Compensation Committee and our Board will take into consideration a multitude of factors in making executive compensation decisions and may approve executive compensation that is not tax deductible.

The Company accounts for equity-based compensation under the provisions of ASC No. 718, Compensation - Stock Compensation (“ASC 718”). ASC 718 requires the recognition of the fair value of the equity-based compensation in net income. The fair value of PSUs with market-based conditions is determined using a Monte-Carlo valuation model. The fair value of RSUs and PSUs with service and performance-based conditions is determined based on the stock price on the date of grant. The fair value of stock option awards is estimated using a Black-Scholes option valuation model. Compensation expense for awards with only service conditions is recognized over the vesting period of the award using the straight-line method. Compensation expense for performance-based equity awards is recognized over the vesting period of the award using the accelerated attribution method.

 

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Outstanding equity awards at fiscal year-end table—2021

The following table summarizes, for each of the Named Executive Officers, the outstanding equity awards held as of December 31, 2021.