The Evolution of Executive Compensation: Pre-IPO to Post-IPO Pearl Meyer & Partners

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1 The Evolution of Executive Compensation: Pre-IPO to Post-IPO

2 IPO Compensation Practices Study What we looked at Executive Pay ( and ) Base salary Bonus Target total cash Equity Severance / change in control provisions Pre- vs. Post-IPO and Industries companies with IPOs since 2011 (n=36) Excludes those with revenues >$5B companies with IPOs since 2010 (n=30) Due to fewer IPOs, included an extra year for sufficient sample size See appendix for sample details Data sources IPO registration statements (424B / S-1) Proxy statements (DEF14A) 2

3 Base Salary executives receive higher levels of base salary than do executives, both pre- and post-ipo Median Base Salary Median Base Salary $450 $450 $400 $350 $300 $250 $200 $300 $350 $379 $410 $400 $350 $300 $250 $200 $250 $278 $271 $300 $150 $150 $100 $100 $50 $50 $0 $0 Pre-IPO Post-IPO 3

4 Base Salary salary increases significantly more in the industry than in salary increases significantly more than salary in the industry % increase is about equal for and Average Base Salary $ Increase Pre- to Post- IPO Average Base Salary % Increase Pre- to Post- IPO $70 $60 $50 $60 18% 16% 14% 18. $40 $30 $34 12% 8% 10.9% % $20 $10 $25 $25 6% 4% 2% $0 4

5 Short-Term Incentive Similar to base salary, short-term incentive target increases significantly more in the industry than in short-term incentive targets increase about the same for and Notably higher target %s in for both and Median STI Target % Median STI Target % % % % % Pre-IPO Post-IPO 5

6 Target Total Cash s have higher target total cash than s As s have higher levels of base salary, this is reflective of s having notably higher target short-term incentive %s Median Target Total Cash Median Target Total Cash $700 $700 $600 $632 $615 $600 $500 $400 $300 $494 $537 $500 $400 $300 $375 $423 $405 $353 $200 $200 $100 $100 $0 $0 Pre-IPO Post-IPO 6

7 Equity Opportunity (as a % of fully diluted shares) As a % of fully diluted shares outstanding, companies tend to provide larger grants for the pre- IPO award (most recent awards granted within ~18 months of IPO) and significantly smaller awards post-ipo companies have been more conservative with their pre-ipo awards Median Grant Opportunity (% of fully diluted shares) Median Grant Opportunity (% of fully diluted shares) % 0.94% 0.8% 0.6% 0.59% 0.6% 0.4% 0.2% 0.37% % 0.2% % 0.17% 0.19% Pre-IPO Grants Post-IPO Grants 7

8 Timing of Equity Awards Almost half of all companies grant within the year leading up to IPO companies tend to grant equity at IPO or within 6 months after IPO, while companies are more likely to take a year off post-ipo 6 Prevalence of Equity Grant Timing % % 17% 17% 17% years pre-ipo <1 year pre-ipo At IPO <6 months post-ipo >6 months post-ipo 8

9 Type of Equity Award executives are much more likely to receive full-value shares (restricted stock or performance shares) than executives Prevalence of Equity Instruments Granted Prevalence of Equity Instruments Granted % 5 7% 7% 1 19% 7 67% 31% % 64% 7% 7 28% 25% 7% 1 6 Pre-IPO Post-IPO Pre-IPO Post-IPO Stock Options Restricted Stock Performance Shares Percentages may not add up to 10 due to some companies not providing equity within a year prior to or after going public 9

10 Current Value of Equity Awards (value 1 year post-ipo) executives hold significant value from their pre-ipo grants (most recent awards granted within ~18 months of IPO) executives hold more value than executives, partially due to a greater portion of equity delivered in full-value shares (restricted stock or performance shares) Value 1 Year after IPO Value 1 Year after IPO $2,500 $2,500 $2,000 $2,229 $2,000 $1,500 $1,500 $1,000 $1,000 $1,333 $500 $0 $845 $202 $87 $500 $0 $416 $543 $59 Pre-IPO Grants Post-IPO Grants 10

11 Severance & CIC Severance Basis & Multiples Absent CIC s generally receive a 1x severance multiple (absent CIC) and s receive either 0.5x or 1x Severance multiple is usually based on base salary, rather than base + bonus The industry tends to provide greater severance than 5 Severance Multiple - Absent CIC 5 Severance Multiple - Absent CIC 4 42% 37% 27% 11% 1 8% 7% <1x 1x Between 1x - 1.5x <1.5x 4 39% 17% 19% 27% <1x 1x Between 1x - 1.5x <1.5x 8 Severance Basis - Absent CIC 8 Severance Basis - Absent CIC Base 6 14% Base + Bonus % Base 57% 17% Base + Bonus Percentages may not add up to 10 due to some companies not providing or not disclosing severance benefits 11

12 Severance & CIC Severance Basis & Multiples Following CIC s generally receive a severance multiple (following CIC) of 1x or greater and s receive 1x Severance multiple is based on either base salary or base + bonus The industry tends to provide greater severance than 5 Severance Multiple - Following CIC 5 Severance Multiple - Following CIC 4 6% 7% 39% 27% 19% 8% <1x 1x Between 1x - 1.5x <1.5x 4 25% 39% % <1x 1x Between 1x - 1.5x <1.5x 27% % Severance Basis - Following CIC Base 47% 47% 28% Base + Bonus % Severance Basis - Following CIC Base 37% 31% Base + Bonus Percentages may not add up to 10 due to some companies not providing or not disclosing severance benefits 12

13 Severance & CIC Benefits Continuation Absent CIC Absent a CIC, s and s receive benefit continuation for longer, on average, in the industry than in Benefit Continuation - Absent CIC Benefit Continuation - Absent CIC 35% 35% 31% 31% 25% 25% % 14% 15% 17% 1 17% 5% 7% 6% 6% 6 months 12 months 18 months 24 months 5% 7% 6 months 12 months 18 months 24 months Percentages may not add up to 10 due to some companies not providing or not disclosing severance benefits 13

14 Severance & CIC Benefits Continuation Following CIC Following a CIC, s and s receive benefit continuation for longer, on average, in the industry than in Benefit Continuation - Following CIC Benefit Continuation - Following CIC % 3 35% 36% 25% 25% 15% 1 14% 2 15% 17% 1 5% 8% 8% 6 months 12 months 18 months 24 months 5% 6% 6 months 12 months 18 months 24 months Percentages may not add up to 10 due to some companies not providing or not disclosing severance benefits 14

15 Severance & CIC Equity Acceleration Absent CIC Absent a CIC, s and s generally do not receive accelerated equity vesting, though companies do provide some partial acceleration Equity Acceleration - Absent CIC Equity Acceleration - Absent CIC % 5 56% % - 11% 8% None 10 Partial 6 months 12 months 18 months 6% 6% None 10 Partial 6 months 12 months 18 months Percentages may not add up to 10 due to some companies not providing or not disclosing severance benefits 15

16 Severance & CIC Equity Acceleration Following CIC Following a CIC, s and s generally receive full acceleration for equity vesting More companies provide full acceleration than companies Equity Acceleration - Following CIC Equity Acceleration - Following CIC % % % None 10 Partial 12 months 6% 8% 7% None 10 Partial 12 months 6% Percentages may not add up to 10 due to some companies not providing or not disclosing severance benefits 16

17 Appendix 17

18 Pearl Meyer & Partners Team Michael Enos Steve Van Putten Dana Etra (508) (508) (508)

19 Study Sample: Companies Included Company IPO Date AcelRx Pharmaceuticals Inc 02/14/2011 Aegerion Pharmaceuticals Inc 10/22/2010 Anacor Pharmaceuticals Inc 11/24/2010 BG Medicine Inc 02/04/2011 Cempra Inc 02/03/2012 ChemoCentryx Inc 02/08/2012 Clovis Oncology Inc 11/16/2011 Complete Genomics Inc 11/11/2010 Durata Therapeutics Inc 07/19/2012 Endocyte Inc 02/04/2011 Fluidigm Corp 02/10/2011 Horizon Pharma Inc 07/28/2011 Hyperion Therapeutics Inc 07/26/2012 Intercept Pharmaceuticals Inc 10/11/2012 KYTHERA Biopharmaceuticals Inc 10/11/2012 Medgenics Inc 04/08/2011 Merrimack Pharmaceuticals Inc 03/29/2012 NewLink Genetics Corp 11/11/2011 NuPathe Inc 08/06/2010 Pacific Biosciences of California Inc 10/27/2010 Pacira Pharmaceuticals Inc 02/03/2011 Regulus Therapeutics Inc 10/04/2012 Sagent Pharmaceuticals Inc 04/20/2011 Supernus Pharmaceuticals Inc 05/01/2012 TESARO Inc 06/28/2012 Tranzyme Inc 04/04/2011 Trius Therapeutics Inc 07/29/2010 Ventrus Biosciences Inc 12/17/2010 Zogenix Inc 11/23/2010 Company IPO Date Active Network Inc 05/25/2011 Angie's List Inc 11/17/2011 Bazaarvoice Inc 02/24/2012 Brightcove Inc 02/17/2012 Carbonite Inc 8/11/2011 Cornerstone OnDemand Inc 03/17/2011 Demand Media Inc 01/26/2011 Demandware Inc 03/15/2012 E2open Inc 07/26/2012 Ellie Mae Inc 04/15/2011 Eloqua Inc 08/02/2012 Envivio Inc 04/25/2012 EPAM Systems Inc 02/08/2012 Exa Corp 06/28/2012 ExactTarget Inc 03/22/2012 FriendFinder Networks Inc 05/11/2011 Global Eagle Entertainment Inc 05/13/2011 Guidewire Inc 01/25/2012 Imperva Inc 11/09/2011 Infoblox Inc 04/20/2012 Jive Inc 12/13/2011 LinkedIn Corp 05/19/2011 Millennial Media Inc 03/29/2012 Proofpoint Inc 04/20/2012 Qualys Inc 09/28/2012 Responsys Inc 04/21/2011 ServiceNow Inc 06/29/2012 ServiceSource International Inc 03/25/2011 Splunk Inc 04/19/2012 Synacor Inc 02/10/2012 Tangoe Inc 07/27/2011 Trulia Inc 09/20/2012 Vantiv Inc 03/22/2012 Workday Inc 10/12/2012 Yelp Inc 03/02/2012 Zynga Inc 12/16/