InterDigital Inc (IDCC)

[rmarchma]

David re IDCC's "bonus" based on recurring revenues you said:

....."I believe the bonus is based on recurring revenue not one time patent sales or by "by liquidating assets".

I believe that a small portion of IDCC's overall bonuses are based on recurring revenues. The majority of IDCC bonuses/additional compensation is actually based on a "time-based" criteria, rather than "performance-based" criteria, such as recurring revenues. Time-based criteria basically means that if you are still employed at IDCC after a certain length of time, ie you aren't fired or you don't quit after 3 years employment with IDCC, then you get a vested RSU compensation bonus.

ALL of IDCC employees below management level, which is the vast majority of IDCC employees, receive 100% of their long-term compensation plan (LTCP) bonuses based upon a "time-based" criteria. Management and Executives LTCP bonus compensation is based on 25% time-based and 75% performance-based (before 2010, managers and executives LTCP were 50% time-based and 50% performance-based).

Currently IDCC bonuses and additional compensation are awarded under the Short-Term Incentive Plan (STIP) for Executives only, and the Long-Term Compensation Plan (LTCP) for all IDCC employees including executives also. The LTCP is a monstrosity created by Harry Campagna after the IDCC shareholders voted NO to no more stock options authorizations on June 4, 2003. Harry then decided to give generous compensation bonuses primarily in the form of cash and RSUs (Restricted Stock Units), which had been previously authorized by the shareholders, in lieu of additional stock options. To the best of my interpretation, the latest LTCP performance-based awards are based on achieving the one-year STIP goals over a three-year span, achieving a certain predefined amount of cash flow, and licensing a certain percentage of the 3G market. [Side Note: The $375m patent sales to Intel should involve revenue cash receipts, so it should certainly factor into the LTCP compensation as positive cash flow].

The one-year STIP performance goals are based on 9 criteria, only one of which is recurring/normalized revenues. 50% of the STIP compensation is based on objective measures: (recurring/normalized revenue =20%, top-tier handset licensing = 15%, new technology development =5%, IPR creation =5%, and Cash Spending held below a certain amount =5%). The remaining 50% is based on subjective evaluations: (business model protection =5%, Branding, whatever that is =10%, Corporate development, whatever that is =10%, and compensation committee discretion =25%).

The reason that IDCC executives tend to earn maximum amounts each year, is probably because 25% of the Executive performance-based compensation is based upon Compensation Committee Discretion and 25% is based upon other subjective determinations. For example, 2011 executive compensation was near max levels, because the compensation committee subjectively determined that the attempted sale of the company adversely impacted short-term performance goal attainment. I think one has to be a genius to figure out IDCC's STIP and LTCP programs, and I'm certainly no genius. Therefore, the preceeding comments were just my interpretations of some of the following IDCC compensation disclosures:


From IDCC's latest Annual 10K:

"In fourth quarter 2010, the LTCP was amended to, among other things, increase the relative proportion of performance-based compensation for both executives and managers, extend participation to all employees, and eliminate alternating annual RSU and cash cycles.

Under the terms of the current LTCP, effective beginning with the cycle that began on January 1, 2010, all employees below manager level receive 100% of their LTCP participation in the form of time-based RSUs that vest in full at the end of the respective three-year cycle. Executives and managers receive 25% of their LTCP award in the form of time-based RSUs that vest in full at the end of the respective three-year cycle and the remaining 75% in the form of performance-based awards granted under the LTIP component of the LTCP. The LTIP performance-based awards that are applicable to both executives and managers may be paid out in the form of cash or equity, or any combination thereof at the end of the respective three-year cycle. The form of the LTIP award will be determined by the Compensation Committee of our Board of Directors, in its sole discretion, at the beginning or the end of each three-year cycle. The following cycles have been initiated under the current LTCP through December 31, 2011:

Cycle 5: Time-based RSUs granted on November 1, 2010, which vest on January 1, 2013, and a long-term performance-based incentive covering the period from January 1, 2010 through December 31, 2012; and


Cycle 6: Time-based RSUs granted on January 1, 2011, which vest on January 1, 2014, and a long-term performance-based incentive covering the period from January 1, 2011 through December 31, 2013.


Payouts of performance-based awards will continue to be determined by the Compensation Committee in its sole discretion, based on the Company’s achievement of one of more performance goals, previously established and approved by the Compensation Committee, during the respective cycle period. Payouts may exceed or be less than target, depending on the level of the Company’s achievement of the performance goal(s). No payout may be made under the LTIP if the Company fails to achieve the minimum level of performance for the applicable cycle, and the payout for any particular cycle is capped at 200% of target."


From the lastest Proxy:

"Elements of Compensation

The elements of our executive compensation reflect a mix of current and long-term, cash and equity and time- and performance-based compensation. For 2011, the material elements of each executive’s compensation included:

Base salary;

Short-term incentive plan (“STIP”) award, paid in cash;

Long-term compensation program (“LTCP”) awards, which include time- and performance-based equity vehicles; and

401(k) matching contributions.


Fiscal 2011 Company Performance and Impact on Compensation

The company delivered a solid performance in 2011. Although the company’s total revenue decreased to $301.7 million, a decrease of $92.8 million, or 24%, from the prior year, the company ended 2011 with a strong cash balance of $678 million, due in part to the company’s successful senior convertible note offering in April

Page 25

2011, and maintained a regular quarterly cash dividend in 2011. The decrease in revenue was primarily driven by a decrease in patent licensing royalties, due to the absence of fixed fee royalties from a large licensee whose agreement expired at the end of 2010 and a decrease in the amount of past sales revenue recognized in 2011 compared to 2010. These decreases were partially offset by an increase in per-unit royalties as a result of strong sales by licensees with concentrations in the smartphone market. We began 2011 with the intention to aggressively pursue new and renewed patent license agreements, which, if realized, could have generated additional patent licensing royalties. However, the strategic alternatives review process initiated by the board in July 2011 adversely affected the company’s ability to enter into such agreements. Despite this challenge, we continued to deliver on other components of our strategy by contributing our patented or patentable inventions into the various wireless standards and entering into joint research and development relationships with strategic partners to advance our new technologies.

Our executive compensation decisions for 2011 reflect our pay-for-performance philosophy and take into account both the solid business results and the challenges posed by the strategic alternatives review process outlined above. The compensation committee approved a payout level of 84% of target for the achievement of corporate performance goals under the 2011 STIP, which recognized the executives’ successes with respect to intellectual property rights (“IPR”) and technology development as well as their steady management of the company through the strategic alternatives review process during the second half of 2011, but also acknowledged the failure to add or renew a patent license agreement with a top-tier handset manufacturer.

Similarly, the compensation committee approved a payout level of 31% of target for the 2009-2012 cycle under the LTCP. This payout level corresponded to a combined achievement level of 83% of the two corporate performance goals under the LTCP cycle: (i) generate a specified amount of free cash flow over the cycle period and (ii) have under license, at cycle-end, handset manufacturers representing a specified target percentage of the worldwide 3G handset market. Actual results with respect to the cash flow goal were above target, but actual results with respect to the market share goal were below target. The compensation committee believes that these compensation decisions appropriately rewarded the executives for the company’s overall performance in 2011 while recognizing the setback in the company’s goal to derive revenue from new and renewed patent license agreements with the world’s largest handset manufacturers.

Short-Term Incentive Plan

The STIP is designed to reward the achievement of corporate goals and the individual accomplishments of the executives during each fiscal year. 75% of an STIP award paid to an executive is based on the achievement of corporate goals, and the remaining 25% is based on the individual performance of the executive. The targeted STIP award for each of the company’s executives is set as a percentage of annual base salary. For 2011, the targets were 80% of salary for Mr. Merritt, 55% of salary for Messrs. McQuilkin and Shay and 45% of salary for Messrs. Lemmo and Nolan. These target percentages were set at or near the median of the peer group data and are also intended to reflect the importance of each executive’s role to the company. In addition, the target percentages also reflected an increase of five percentage points over 2010, consistent with increases for all employees, as part of the compensation committee’s determination to increase the company’s use of performance-based compensation, such as the STIP, relative to time-based compensation.

Page 29

For 2011, the goals established by the compensation committee under the STIP involved securing additional patent licensees and revenue, furthering corporate development, limiting cash spending, enhancing the company’s intellectual property portfolio, engaging new customers or strategic partners to further the development of new wireless technologies, protecting the company’s business model and improving the company’s brand. The specific goals, and the relative weights assigned to each, were as follows:"

(Note the nine specific goals and percentage weighting table will not post). I recapped the specific goals and percentage weightings earlier in my post. However if you want to read them directly, see page 30 of the latest proxy to view the nine performance goals linked as follows:

http://ir.interdigital.com/secfiling.cfm?filingID=1193125-12-174700