Executive Compensation Review and Design

The Company has historically conducted a review of the aggregate level of its executive compensation, as well as the mix of elements used to compensate its NEOs. The Company has based this review primarily on the experience of the members of the Compensation Committee and the Board of Directors, many of whom sit on the boards of directors of, or have previously advised, numerous companies, including companies in the life sciences industry.

Our 2013 annual meeting of stockholders was the first time the Company was required to conduct a stockholder advisory vote on the compensation of our NEOs, The Company was pleased that the holders of approximately 97% of our outstanding common stock voting on the matter voted in favor of the compensation of our NEOs, as disclosed in the proxy materials for the 2013 Annual Meeting. In addition, at the same Annual Meeting, the holders of approximately 62% of our outstanding common stock voting on the matter voted in favor of holding the stockholder advisory vote every three years. The “Say-on-Pay” advisory vote will take place at our 2016 Annual Meeting. The Company’s next “Say-on-Pay” advisory vote on the compensation of our NEOs will be held at our 2019 Annual Meeting.

In 2015, the Compensation Committee undertook a review of our compensation policies and practices and retained the compensation consulting firm of Barney & Barney LLC to provide compensation information and analysis with respect to the life science and healthcare industry and with respect to our peer companies within the industry. Barney & Barney LLC reviewed information from industry and other sources, surveys and databases, including publicly-available compensation information of other companies with which we compete, to gauge the competitiveness of our compensation programs. Barney & Barney LLC then reported its findings to the Compensation Committee, with recommendations to bring the Company’s executive compensation closer to the 50th percentile of the total compensation of our competitor companies.

The Compensation Committee plans to continue to use a compensation consultant in the future and take into account publicly-available data relating to the compensation practices and policies of other companies within and outside our industry. For 2016 and future years, the Compensation Committee intends to benchmark its executive compensation program to target the 50th percentile of the total compensation programs of our competitor companies.

Elements of Executive Compensation

The compensation program for the Company’s NEOs consists principally of three components:

 

base salary;

 

annual performance bonuses; and

 

long-term compensation in the form of equity-based awards.

Base Salary

Base salary is the only fixed-pay component in our executive compensation program. Base salaries for the NEOs are initially established through arm’s-length negotiation at the time the NEO is hired, taking into account such NEO’s qualifications, experience, prior salary, the scope of his or her responsibilities, and known

competitive market compensation paid by other companies for similar positions within the industry. Base salaries are reviewed annually and adjusted from time to time to realign salaries with market levels after taking into account individual responsibilities, performance, and experience. In making decisions regarding salary increases, the Company may also draw upon the experience of members of the Compensation Committee and the Board of Directors, many of whom sit on the boards of directors of, or have previously advised, numerous companies, including companies in the life sciences industry. The Compensation Committee has not previously applied specific formulas to determine increases. This strategy is consistent with the Company’s intent of offering base salaries that are cost-effective while remaining competitive.

In February 2015, the Compensation Committee reviewed the base salaries of our NEOs, taking into account the considerations described above. As expressed in the following table, the Compensation Committee approved salary increases for Messrs. Traber, Czirr, Shlevin and Callicutt:

 

Name 2014 Base Salary 2015 Base Salary
Peter G. Traber, M.D. $ 485,000 $ 500,000
James C. Czirr $ 240,000 $ 250,000
Harold H. Shlevin, Ph.D. $ 230,000 $ 250,000
Jack W. Callicutt $ 175,000 $ 240,000

The Compensation Committee will make further adjustments to base salaries of certain of our NEOs for 2016 to move closer to our benchmark (see Compensation Decisions Relating to Fiscal Year 2016 below).

Annual Performance Bonuses

In addition to the payment of base salaries, the Company believes that annual performance bonuses can play an important role in providing appropriate incentives to its NEOs to achieve the Company’s strategic objectives.

Employee Short-Term and Long-Term Incentive Program

In 2013, upon recommendation by the Compensation Committee and approval by the Board of Directors, the Employee Short-Term and Long-Term Incentive Program (the “Program”) was adopted for executives and employees of the Company. The Program is a performance-based program and was adopted in recognition of the importance of aligning executive and employee interests with that of our stockholders. Our Program is designed to reward the efforts of our executives and employees and to be competitive in attracting and retaining them. There are two elements of the Program: (1) a short-term incentive in the form of cash bonuses and (2) a long-term incentive in the form of stock option grants. The cash bonus incentive is targeted to be up to 20% to 40% of the NEO’s base salary as of the end of the applicable year. Half of each NEO’s annual performance bonus is based upon achievement of the Company’s documented performance objectives for the year and the other half is based upon achievement of individual performance objectives set for the year. The Chief Executive Officer may offer input to the Compensation Committee as to whether certain Company performance and individual performance objectives (other than the Chief Executive Officer’s) have been achieved. The Compensation Committee also has the discretion to adjust (upward or downward) individual annual performance bonuses by up to 25%.

For 2015, the Compensation Committee set six Company performance objectives under the Program for 2015 annual performance bonuses to be payable:

(1) Establish human proof of concept for GR-MD-02 treatment of non-alcoholic steatohepatitis with advanced fibrosis and/or cirrhosis.

 

(2) Establish human proof of concept for use of galectin inhibitors in combination with immunotherapy for cancer and moderate to severe advanced plaque psoriasis.

 

(3) Establish sustainable program for GR-MD-02 manufacturing and controls.

 

(4) Establish appropriate quality assurance and quality control oversight and strengthen regulatory support.

 

(5) Strengthen and expand pipeline and indications for galectin blocking drugs.

 

(6) Strengthen business practices, financial resources, investor communication and strategic partnerships.

The 2015 individual performance objectives for each NEO were:

 

Name Individual Performance Goals
Peter G. Traber, M.D. •    multiple individual objectives intended to measure contributions toward successful achievement of each Company performance objective.
James C. Czirr •    manage the Board of Directors; and develop and implement financing strategies with management
Harold H. Shlevin, Ph.D. •    multiple individual objectives intended to measure contributions toward successful achievement of each Company performance objective.
Jack W. Callicutt •    maintaining appropriate financial, reporting and risk management reporting and controls; and support financing and investor relations activities.

The following table represents each NEO’s annual performance bonus target opportunity for 2015 (based on base salary as of the end of 2015):

 

Name Target % Maximum %
Peter G. Traber, M.D. 50 % 75 %
James C. Czirr 35 % 60 %
Harold H. Shlevin, Ph.D. 30 % 55 %
Jack W. Callicutt 30 % 55 %

For the 2015 performance year, the Compensation Committee awarded the NEOs the following annual performance bonuses paid in January 2016 based on its determination that all Company performance objectives and individual performance objectives were achieved and certain objectives were even exceeded. However, despite excellent performance on objectives, in view of the overall poor performance of the share price, the Compensation Committee, acting in its discretion, decided to reduce bonus payments by 20% across the board.

 

Name Annual Performance Bonus Amount Awarded Amount As % of Base Salary
Peter G. Traber, M.D. $ 210,000 42.0 %
James C. Czirr $ 56,875 22.8 %
Harold H. Shlevin, Ph.D. $ 66,000 26.4 %
Jack W. Callicutt $ 69,120 28.8 %

Annual performance bonuses under the Program are not designed to meet the “performance-based compensation” exception under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). However, in the past, our NEOs’ compensation has not been high enough to make the Code Section 162(m) limit a critical issue for the Company. Deductibility under Code Section 162(m) is only one consideration in determining executive compensation.