UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

 

 

Check the appropriate box:

o Preliminary Proxy Statement

o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

þ Definitive Proxy Statement

o Definitive Additional Materials

o Soliciting Material Pursuant to § 240.14a-12

 

Sapient Corporation

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

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o Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

 

o Fee paid previously with preliminary materials.

 

 

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    (2) Form, Schedule or Registration Statement No.:

 

    (3) Filing Party:

 

    (4) Date Filed:

July 6, 2007

Alan J. Herrick            

President and Chief Executive Officer

 

Dear Stockholder,

 

We invite you to join us at the Annual Meeting of Stockholders of Sapient Corporation, a Delaware corporation. The meeting will be held on Thursday, August 16, 2007 at 9:00 a.m. local time at our headquarters located at 25 First Street, Cambridge, Massachusetts 02141.

 

This booklet describes how you may participate in our Annual Meeting, whether or not in person, and includes the Notice of Annual Meeting and Sapient’s 2007 Proxy Statement, which describe the formal agenda for the meeting.

 

In addition to the specific agenda items we will address at the meeting, we will present a general overview of our operations and ongoing strategy, and will be happy to respond to stockholder questions properly brought before the meeting.

 

For your convenience, our Proxy Statement and Annual Report on Form 10-K are available on the Investor Relations section of our web site located at http://www.sapient.com.

 

Alan J. Herrick

President and Chief Executive Officer

 

 

SAPIENT CORPORATION

25 First Street

Cambridge, Massachusetts 02141

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

The 2007 Annual Meeting of the Stockholders of Sapient Corporation (“Sapient” or the “Company”) will be held at the Company’s headquarters at 25 First Street, Cambridge, Massachusetts on Thursday, August 16, 2007, at 9:00 a.m. (local time).

 

The purpose of the Annual Meeting is to take action on the following proposals:

 

 

 

Four: To act on any additional business that may properly come before the Annual Meeting.

 

If the Annual Meeting is adjourned or postponed for any reason, any action remaining to be taken on the above matters will be resumed on the date to which the meeting is adjourned or postponed.

 

The record date for the Annual Meeting is June 18, 2007. Only stockholders of record as of the close of business on the record date are entitled to vote at the Annual Meeting and any adjournment or postponement thereof.

 

Your vote is very important and is being solicited by our Board of Directors.  Instructions on how to vote, a discussion of the above proposals, and significant information about the Company may be found in our Proxy Statement. Please carefully review the Proxy Statement and submit your vote at your earliest opportunity using any of the methods available to you as described on the accompanying proxy card and voting instructions. If you plan to attend the Annual Meeting in person, please check the appropriate box on your proxy card prior to submission.

 

By Order of the Board of Directors,

 

Kyle A. Bettigole

Assistant Secretary

 

Cambridge, Massachusetts

July 6, 2007

 

 

 

 

TABLE OF CONTENTS

 

SAPIENT CORPORATION
25 First Street
Cambridge, Massachusetts 02141

 

PROXY STATEMENT

 

For the Annual Meeting of Stockholders
To Be Held on August 16, 2007

 

Why did I receive these proxy materials?

 

You received this proxy statement, accompanying proxy card or voting instruction form, and our Annual Report on Form 10-K because the Board of Directors of Sapient Corporation is soliciting your proxy to vote at our 2007 Annual Meeting of Stockholders.

 

What proposals are being considered at the Annual Meeting?

 

The proposals listed on the Notice of Annual Stockholders Meeting are the matters that will be voted on at the Annual Meeting.

 

How many votes are needed to approve the proposals?

 

 

Who may vote at the Annual Meeting?

 

Only stockholders of record as of the close of business on June 18, 2007, the record date, will be entitled to vote at the Annual Meeting.

 

Stockholder of Record — If you own shares of our common stock and those shares are registered directly in your name with our transfer agent, American Stock Transfer & Trust Company, you are a stockholder of record, or a “record holder.” As a record holder, you may vote in person at the Annual Meeting or by proxy.

 

Beneficial Owner — If your shares are held in an account at a brokerage firm, bank or other nominee, then you are the “beneficial owner” of shares held in “street name” and these proxy materials have been or will be forwarded to you by your broker, bank or other nominee. For purposes of voting at the Annual Meeting, the broker, bank or other nominee holding your account is considered to be the record holder, but as a beneficial owner you have the right to direct your broker, bank or other nominee on how to vote the shares in your account.

 

If you are a beneficial owner, you are invited to attend the Annual Meeting but may not vote your shares in person unless you request and obtain a valid proxy issued in your name from your broker, bank or other nominee. To vote your shares in person at the Annual Meeting, you are required to present the following items to the Corporate Secretary before the voting begins: (a) picture identification; (b) an account statement, or a letter from the record holder, indicating that you owned the shares as of the record date; and (c) a proxy from the record holder issued in your name.

How do I vote my shares?

 

You are entitled to one vote for each share of our common stock that you own.

 

Whether or not you plan to attend the Annual Meeting, please carefully review the enclosed proxy statement and submit your proxy promptly by one of the methods available to you, as described below.

 

 

If you vote by telephone or the Internet, you do not need to return your proxy card or voting instruction form. Instead, please follow the instructions on your proxy card or voting instruction form for telephone and Internet voting. So long as your proxy is received prior to the vote at the Annual Meeting and not revoked, your shares will be voted as directed on your proxy. To make certain that your vote will be received in time, please cast your vote, by your choice of available means, at your earliest opportunity.

 

How will my shares be voted if I submit my proxy but don’t provide specific instructions?

 

If a properly executed proxy is submitted and no instructions are given, the proxy will be voted for the election of each of the director nominees, for the amendment to our 1998 Stock Incentive Plan, and for the ratification of the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the current fiscal year. If other matters are presented at the Annual Meeting, proxies will be voted in accordance with the discretion of the proxy holders on such other matters.

 

May I change my vote after submitting my proxy or voting instruction form?

 

 

What is a quorum requirement?

 

To be valid, the Annual Meeting must have a quorum of stockholders present. A quorum of stockholders will be deemed present if at least a majority of the total number of shares of common stock outstanding and entitled to vote as of the close of business on the record date is present or represented by proxy at the Annual Meeting. For purposes of a quorum, abstentions, votes withheld from a director nominee, and broker non-votes will be counted as present. As of the close of business on the record date, 123,679,495 shares of our common stock were outstanding and entitled to vote. Thus, for a quorum to exist, 61,839,748 shares must be present or represented by proxy at our Annual Meeting.

 

A “broker non-vote” is a proxy submitted by a broker or other nominee for a matter over which the broker or other nominee does not have discretionary voting power and for which such broker or other nominee has not received instructions from the beneficial owner or other person entitled to vote the shares represented

by the proxy. A broker or other nominee may vote shares for the election of directors and for the ratification of the independent registered public accounting firm without receiving instructions from the beneficial owners.

 

May I submit a proposal to be considered for a vote at next year’s Annual Meeting?

 

To be considered for inclusion in the proxy materials for our 2008 Annual Meeting, a stockholder proposal must be submitted in writing to the Secretary of the Company at our headquarters and received no later than February 6, 2008. If you wish to submit a proposal to be considered at an annual meeting but do not want it to be included in the proxy materials, our by-laws dictate that you must provide such written request not less than 60 nor more than 90 days prior to the meeting, or no later than April 5, 2008. In the event that notice of the date of our 2008 Annual Meeting is provided to stockholders less than 70 days beforehand, and without prior public disclosure, your request must be received no later than the close of business on the tenth day following the date on which such notice or public disclosure was made, whichever occurs first. If you fail to provide timely notice of the proposal that you would like presented at the 2008 Annual Meeting, the proxies designated by our Board of Directors will have discretionary authority to include such proposal among the matters to be voted upon at the meeting, and to vote on any such proposal, if included. You may find additional information regarding stockholder proposals in our by-laws, which may be accessed on the Investors portion of our web site at http://www.sapient.com.

 

Where can I find copies of these proxy materials?

 

For your convenience, these proxy materials are posted on the Investors portion of our web site at http://www.sapient.com. You may also find a copy of this proxy statement and our Annual Report on Form 10-K (with exhibits) (our “Annual Report”) on the web site of the Securities and Exchange Commission (“SEC”) at http://www.sec.gov. We will, upon written request and without charge, send you additional copies of our Annual Report (with or without exhibits) and this proxy statement. To request additional copies, please send your requests by mail to Sapient Corporation Investor Relations Department, 25 First Street, Cambridge, Massachusetts, 02141; or by e-mail to ir@sapient.com.

 

We are pleased to offer our stockholders the opportunity to receive stockholder communications electronically. By opting for electronic delivery of documents, you will receive stockholder communications such as our proxy statement and Annual Report as soon as they become available, and may vote on the matters to be decided at the Annual Meeting over the Internet. Choosing electronic delivery reduces the number of bulky documents in your mail, conserves natural resources, and reduces our printing and mailing costs. To obtain electronic delivery of future mailings, visit http://www.icsdelivery.com/sape and enter information for all of your Sapient Corporation stockholdings. Your enrollment will be effective until you cancel it by following the instructions as provided on the web site. If you have questions about electronic delivery, please do not hesitate to contact our Investor Relations department by mail at 25 First Street, Cambridge, Massachusetts, 02141; or by e-mail at ir@sapient.com.

 

Some companies, brokers, banks, and other nominee record holders participate in a practice commonly known as “householding,” where a single copy of the proxy statement and annual report is sent to one address for the benefit of two or more stockholders sharing that address. Householding is permitted under rules adopted by the SEC as a means of satisfying the delivery requirements for proxy statements and annual reports, potentially resulting in extra convenience for stockholders and cost savings for companies. We will promptly deliver a separate copy of either document to you if you contact our Investor Relations department at the address or web site listed above. If you are receiving multiple copies at your household and wish to receive only one, please notify your bank, broker, or other nominee record holder, or contact our Investor Relations department at the mail or e-mail address listed above.

 

The first proposal for consideration at our Annual Meeting is the election of eight directors. Upon the recommendation of our Governance and Nominating Committee, the Board of Directors has nominated James M. Benson, Hermann Buerger, Jeffrey M. Cunningham, Darius W. Gaskins, Jr., Alan J. Herrick, Gary S. McKissock, J. Stuart Moore, and Bruce D. Parker for election as directors (collectively, the “director nominees”). Other than Mr. Benson, each of the director nominees is currently a director of the Company. Information about our director nominees can be found on pages 11-12 of this proxy statement.

 

If elected, each director nominee will serve as a director until our 2008 Annual Meeting, until his successor is duly elected and qualified, or until his death, resignation or removal. Mr. Dennis Chookaszian, a current director, has notified the Company that he will not stand for re-election at the Annual Meeting. Mr. Chookaszian has served as a director of Sapient since 2003 and will retire from the Board immediately prior to the Annual Meeting.

 

Each of the director nominees has indicated his willingness to serve as a member of our Board of Directors, if elected. However, if any of the director nominees should be unwilling or unable to stand for election, the person acting under the proxy may vote the proxy “FOR” a substitute nominee designated by the Board of Directors. The Board of Directors has no reason to believe that any of the director nominees will be unable to serve if elected.

 

The eight director nominees receiving the highest number of “FOR” votes by the shares entitled to be voted will be elected. The persons named in the enclosed proxy card will vote each proxy “FOR” the election of the director nominees unless authority to vote for the election of one or more of the nominees is withheld by marking the proxy card to that effect. Broker non-votes will be voted “FOR” the election of each of the eight director nominees.

 

For more information about our Board of Directors and its Committees, including the nomination process, see “Information About Our Directors” beginning on page 11 of this proxy statement.

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT OUR STOCKHOLDERS VOTE “FOR” THE ELECTION OF EACH OF THE EIGHT DIRECTOR NOMINEES.

 

The second proposal for consideration at the Annual Meeting is the approval of an amendment to the Company’s 1998 Stock Incentive Plan (the “Amendment”). On March 24, 1998, the Company adopted the 1998 Stock Incentive Plan (the “Plan”), and the stockholders approved the Plan on May 8, 1998. Subject to approval at the Annual Meeting, the Amendment will become effective on August 16, 2007. The Plan will expire on March 24, 2008.

 

On March 29, 2007, based on the recommendations of our Compensation Committee, the Board of Directors voted to amend the Plan, subject to stockholder approval, in order to:

 

 

The material terms summarized in this proposal are qualified in their entirety by reference to the copies of the Plan and the Amendment included as Appendix A and Appendix B to this proxy statement, respectively.

 

Summary of the Plan

 

Subject to adjustment for stock splits and certain other transactions that could affect our capital stock, as of June 18, 2007 there were up to 18,000,000 shares of our common stock authorized for issuance; 3,642,873 shares of our common stock subject to outstanding awards; and 8,838,704 shares available for future grant under the Plan. On June 18, 2007, the closing price of our common stock was $7.66 per share, as reported on the Nasdaq Global Select Market.

 

The Plan allows for the grant of both incentive and nonstatutory stock options; restricted stock awards; and other stock-based awards, including awards based on certain conditions or convertible into common stock, and the grant of stock appreciate rights. Although the Plan allows for the grant of stock options and awards to consultants and advisors, we currently grant stock options and awards to our employees and directors only. As of June 18, 2007, the Company had approximately 5,382 full-time employees and eight directors.

 

Plan Administration.  The Plan is administered by our Board of Directors, which has the authority to adopt, amend, and repeal the administrative rules, guidelines and practices relating to the Plan, interpret Plan provisions, and delegate Plan administration to one or more committees of the Board, and subject to certain limitations, to one or more of our executive officers. The Board has authorized the Compensation Committee and the CEO to administer certain aspects of the Plan. Subject to applicable limitations contained in the Plan, any delegate chosen by the Board to administer the Plan may:

 

 

 

The granting of awards under the Plan is discretionary, and as such, the Company cannot determine the number or type of awards that may be granted in the future to any particular person or group.

New Plan Benefits

 

If the Amendment is approved by our stockholders it is not determinable what benefits or amounts will be received by, or allocated to (i) the Named Executive Officers (as defined under “Summary Compensation” in this proxy statement), (ii) all current executive officers as a group, (iii) all current directors who are not executive officers as a group, or (iv) all current employees who are not executive officers as a group. The following table outlines the benefits that would have been received or allocated in 2006 by the individuals or groups referenced below under the Amendment based on (i) the market value of all restricted stock units issued in 2006 under the Plan (based on a price of $7.66 per share, which was the closing price of our common stock as reported on the Nasdaq Global Select Stock Market on June 18, 2007); and (ii) the number of restricted stock units issued under the Plan for the fiscal year ended December 31, 2006.

 

1998 Stock Incentive Plan

 

 

 

 

 

 

 

In March 2007, Mr. Herrick was awarded a cash bonus opportunity under the Plan, subject to stockholder approval, that is contingent on the Company’s achievement of the targeted 2007 operating profit dollar amounts established in the Company’s 2007 Business Plan approved by the Board of Directors (the “Operating Profit Target”).

 

If the Operating Profit Target is fully achieved, Mr. Herrick’s bonus payout will be $425,000 (the “Target Bonus”) under the Proposed Agreement. Depending on the degree of the Company’s achievement against the Operating Profit Target, Mr. Herrick will be eligible to receive either less or more than 100% of the Target Bonus payable (on a “deceleration” / acceleration basis). In any event, if the Company does not achieve more than 40% of its Operating Profit Target, Mr. Herrick will receive no Target Bonus. If our stockholders do not approve the Amendment, Mr. Herrick will receive no bonus under the Plan.

 

Federal Income Tax Consequences Applicable under the Plan.  The income tax consequences that generally will arise with respect to awards granted under the Plan and with respect to the sale of common stock acquired under the Plan are as follows:

 

Incentive Stock Options.  Under the Plan, incentive stock options are as defined in Section 422 of the Internal Revenue Code and shall be subject to and construed consistently with the requirements therein. In general, a participant will not recognize taxable income upon the grant or exercise of an incentive stock option. Instead, taxable income will be recognized with respect to an incentive stock option only upon the sale of common stock acquired through the exercise of the option (“ISO Stock”). However, the exercise of an incentive stock option may subject the participant to the alternative minimum tax. The following examples apply to the income tax consequences with respect to the exercise of incentive stock options:

 

 

Nonstatutory Stock Options.  A participant will not recognize taxable income upon the grant of a nonstatutory stock option. However, a participant who exercises a nonstatutory stock option generally will recognize ordinary compensation income in an amount equal to the excess of the fair market value of the common stock acquired through the exercise of the option (“NSO Stock”) on the exercise date over the exercise price.

 

Restricted Stock.  A participant will not recognize taxable income upon the grant of a restricted stock award unless the participant makes an election under Section 83(b) of the Internal Revenue Code (a “Section 83(b) Election”). If the participant makes a Section 83(b) Election within 30 days of the date of the grant, then the participant will recognize ordinary compensation income, for the year in which the award is granted, in an amount equal to the difference between the fair market value of the common stock at the time the award is granted and the purchase price paid for the common stock. If a Section 83(b) Election is not made, then the participant will recognize ordinary compensation income, at the time that the forfeiture provisions or restrictions on transfer lapse, in an amount equal to the difference between the fair market value of the common stock at the time of such lapse and the original purchase price paid for the common stock. The participant will have a tax basis in the common stock acquired equal to the sum of the price paid and the amount of ordinary compensation income recognized.

 

 

Other Stock-Based Awards.  The tax consequences associated with any other stock-based award granted under the Plan will vary depending on the specific terms of the award. Among the relevant factors are whether or not the award has a readily ascertainable fair market value, whether or not the award is subject to forfeiture provisions or restrictions on transfer, the nature of the property to be received by the participant under the award, and the participant’s holding period and tax basis for the award or underlying common stock.

 

Tax Consequences to the Company.  The grant of an award under the Plan generally will have no tax consequences to the Company. Moreover, in general, neither the exercise of an incentive stock option nor the sale of any common stock acquired under the Plan will have any tax consequences to the Company. The Company generally will be entitled to a business expense deduction, however, with respect to any ordinary compensation income recognized by a participant under the Plan, including as a result of the exercise of a nonstatutory stock option, a disqualifying disposition, or a Section 83(b) Election. Any such deduction will be subject to the limitations of Section 162(m) of the Code.

 

If no contrary indication is made, shares represented by executed proxies will be voted “FOR” the approval of the Amendment. Broker non-votes and abstentions will not be counted as votes with respect to this proposal.

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT OUR STOCKHOLDERS VOTE “FOR” THE APPROVAL OF THE AMENDMENT OF THE SAPIENT CORPORATION 1998 STOCK INCENTIVE PLAN.

 

The third proposal for consideration at our Annual Meeting is to ratify the selection, made by the Audit Committee of our Board of Directors, of PricewaterhouseCoopers LLP (“PwC”) as our independent registered public accounting firm for the year ended December 31, 2007.

PwC has served as our independent registered public accounting firm since 1999 and is independent with respect to the Company and its subsidiaries. We have been advised by PwC that it is an independent registered public accounting firm with the Public Company Accounting Oversight Board (the “PCAOB”) and complies with the auditing, quality control, and independence standards and rules of the PCAOB and the SEC. A representative of PwC is expected to be present at the Annual Meeting to answer appropriate questions, and to make a statement if he or she so desires.

 

The professional services provided by PwC and the aggregate fees for those services rendered to Sapient during the years ended December 31, 2006 and 2005 were as follows:

 

 

 

 

Although stockholder approval of the Audit Committee’s selection of PwC is not required by law, the Board of Directors believes it is advisable to give stockholders an opportunity to ratify this selection. Even if the selection of PwC is ratified, the Audit Committee may, in its discretion, direct the appointment of a different independent registered public accounting firm at any time during the year, should the Audit Committee determine that such a change is in the best interests of the Company and its stockholders.

 

Unless contrary instructions are given, shares represented by proxies solicited by the Board of Directors will be voted “FOR” the ratification of the selection of PwC as the Company’s independent registered public accounting firm for the fiscal year ended December 31, 2007. If this proposal is not approved at the Annual Meeting, the Audit Committee will reconsider its selection of PwC, although it may elect to continue to retain PwC. Broker non-votes will be voted “FOR” the ratification of the selection of PwC as our independent registered public accounting firm.

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT OUR STOCKHOLDERS VOTE “FOR” THE RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007.

 

The report by this Committee is not “soliciting material,” is not deemed “filed” with the SEC, and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended.

 

On behalf of the Company’s Board of Directors, the Audit Committee oversees the operation of a comprehensive system of internal controls designed to ensure the integrity of Sapient’s financial statements and reports; compliance with laws, regulations and corporate policies; and the independent registered public accounting firm’s qualifications, performance and independence.

 

Consistent with this oversight responsibility, the Committee has reviewed and discussed with management the audited financial statements for the year ended December 31, 2006 and management’s assessment of internal controls over financial reporting as of December 31, 2006. PwC, the Company’s independent registered public accounting firm in 2006, issued its report on the Company’s financial statements and the design and operating effectiveness of the Company’s internal control over financial reporting, the details of which are set forth in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006.

 

Additionally, the Committee has discussed with PwC the matters required to be discussed in accordance with Statement on Auditing Standards No. 61, Communication with Audit Committees. The Committee also has received the written disclosures and the letter from PwC required by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees, and discussed PwC’s independence from the Company and its management.

 

Based on these reviews and discussions, the Committee recommended to the Board of Directors that the Company’s audited financial statements for the year ended December 31, 2006 be included in the Company’s Annual Report on Form 10-K for the fiscal year then ended.

 

The members of the Committee are not professionally engaged in the practice of accounting or auditing, however the Board of Directors has determined that the Committee’s chairperson, Hermann Buerger, is an “audit committee financial expert” within the meaning of the rules and regulations of the SEC and applicable Nasdaq listing standards. Members of the Committee rely, without independent verification, on the information provided to them and on the representations made by management and the independent registered public accounting firm. Accordingly, the Committee’s oversight does not provide an independent basis to determine that management has maintained appropriate accounting and financial reporting principles or appropriate internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. Furthermore, the Committee’s considerations and discussions referred to above do not assure that the audit of the Company’s financial statements has been carried out in accordance with generally accepted auditing standards, that the financial statements are presented in accordance with generally accepted accounting principles or that PwC is in fact “independent.”

 

Hermann Buerger, Chairperson

Jeffrey M. Cunningham

Bruce D. Parker

 

Our director nominees are listed below, with their principal occupation and business experience for at least the last five years, the names of other publicly held companies of which they serve as a director, and their age and length of service as a member of our Board of Directors, as applicable.

 

 

The listing rules established by Nasdaq require that a majority of the members of a listed company’s board of directors qualify as “independent,” as affirmatively determined by the board. This means that each independent director has no direct or indirect material relationship with a company other than as a director and/or a stockholder. Our Board of Directors consults with legal counsel to ensure that our Board’s determination with respect to the definition of “independent” is consistent with current Nasdaq listing rules.

 

Our Board of Directors reviewed all relevant transactions or relationships between each Director, or any of his family members, and Sapient, our senior management, and PwC, and has affirmatively determined that each of our directors, other than Alan J. Herrick (our President and Chief Executive Officer), J. Stuart Moore, (a current director and our former co-chief executive officer and co-founder), and Jerry A. Greenberg, (a former director and our former

co-chief executive officer and co-founder), are independent directors under the applicable guidelines noted above. The Board specifically reviewed a related party transaction involving James M. Benson, a director nominee, and a Company consultancy, and has affirmatively determined that the relationship does not interfere with Mr. Benson’s independent judgment. See “Benson Relationship to Company Consultant” on page 37 of this proxy statement for specific information with respect to this transaction.

 

Our Board of Directors has three committees: the Audit Committee, the Compensation Committee and the Governance and Nominating Committee. Each of these committees consists solely of Board members who meet the standards for independence required under current Nasdaq listing rules, SEC rules and applicable securities laws and regulations.

 

Our Board of Directors, together with its committees, meets periodically throughout the year, as needed, to direct management of the Company. In 2006, the Board of Directors held twenty (20) meetings and took action without a formal meeting by unanimous written consent five times. Each Board member attended at least 85% of the aggregate of the meetings of the Board and of the regular meetings of the committees on which he served. Mr. Cunningham is the Chairman of the Board and Mr. Gaskins is the Board’s Lead Independent Director. However, the Lead Independent Director position will be eliminated as of the date of the Annual Meeting. Our independent directors met in regularly scheduled executive sessions at which only independent directors were present.

 

We encourage, but do not require, our directors to attend our Annual Meetings. All directors attended the Company’s 2006 Annual Meeting, which was held on June 1, 2006.

 

The Audit Committee of our Board of Directors, among other things, reviews our auditing, accounting, financial reporting and internal control functions, and selects our independent registered public accounting firm. See “Report of the Audit Committee of the Board of Directors” on page 10 of this proxy statement.

 

The current members of the Audit Committee are Messrs. Buerger, Cunningham, and Parker, each of whom is an independent director within the meaning of applicable Nasdaq listing rules, SEC rules and applicable securities laws and regulations. Mr. Buerger serves as the Chairperson of the Audit Committee. The Audit Committee met 35 times in 2006, 19 of which were special meetings attended only by Messrs. Buerger and Cunningham related to the investigation of the Company’s historical stock-based compensation practices.

 

Our Board of Directors has determined that Mr. Buerger is an “audit committee financial expert” within the meaning of the rules and regulations of the SEC and applicable Nasdaq listing standards. The Audit Committee’s responsibilities are more fully described in its charter, a copy of which may be found on the Investors portion of our web site, http://www.sapient.com, under “Corporate Governance.”

 

The Audit Committee is required to review and approve the proposed retention of an independent registered public accounting firm to perform any proposed permissible non-audit services, as outlined in its charter. The Audit Committee has specified certain types of prohibited “non-audit” services that the Company is not authorized to obtain from PwC, as well as types of audit-related and “non-audit” services that are permitted and approved. The Audit Committee has not established policies and procedures separate from its charter concerning the pre-approval of audit and “non-audit” related services. However, for those services that are permitted and approved, the Audit Committee requires the Company to obtain additional approval from the Audit Committee prior to initiating such service by PwC where the fees payable by Sapient are anticipated to exceed $100,000 in the aggregate. All PwC services provided in 2006 were pre-approved by the Audit Committee.

 

On November 9, 2006, our Board of Directors approved the amended Sapient Corporation Code of Ethics and Conduct, which covers all employees, directors and independent contractors of the Company, including our Chief Executive Officer and our Chief Financial Officer. A current copy of our Code of Ethics and Conduct may be found on our web site, http://www.sapient.com. Any future amendments to the Code of Ethics and Conduct, and any waivers thereto involving our executive officers, also will be posted on our web site. A printed copy of these documents will be made available upon request.

 

The Compensation Committee of our Board of Directors is responsible for reviewing our overall compensation policies and, with the input of the Chief Executive Officer, setting the compensation of our executive officers. However, our Chief Executive Officer may not participate in or be present during any deliberations or determinations of the Committee regarding his own compensation or individual performance objectives.

 

The Committee meets at least three times annually, and with greater frequency if necessary. The Committee met six times in 2006, and is currently comprised of Messrs. Cunningham, Gaskins, and McKissock, each of whom meets the criterion for independence required under Nasdaq listing rules, SEC rules and applicable securities laws and regulations. Mr. McKissock serves as the Chairperson of the Committee. Although the Committee regularly meets in executive session, from time to time it invites various members of management, other employees and outside advisors or consultants to join the meeting to make presentations, provide financial or other background information or advice, or otherwise participate. The Committee also retains outside consultants periodically to provide advice regarding trends in compensation practices and comparative benchmarking data.

 

Under its charter, the Committee may form, and delegate authority to, subcommittees consisting of one or more members of the Committee, as appropriate; provided that decisions of such subcommittees are presented to the full Committee at its next meeting. Unless specifically determined otherwise by the Committee, Mr. McKissock, in his capacity as Chairperson of the Committee, will serve as a one-person subcommittee with the discretionary authority to act on the Committee’s behalf during the periods between Committee meetings, provided that the Chairperson’s actions on the Committee’s behalf are reported to the full Committee at its next meeting. A copy of the Committee’s charter may be found on the Investors portion of our web site, http://www.sapient.com, under “Corporate Governance.”

 

More detailed information related to our compensation philosophies and goals, as well as the Committee’s specific determinations with respect to executive compensation, may be found under “Compensation Discussion and Analysis,” beginning on page 23 of this proxy statement.

 

The Governance and Nominating Committee is, among other things, responsible for identifying and evaluating potential candidates for our Board of Directors and making recommendations regarding such candidates to our Board of Directors. The Committee also provides counsel to our Board of Directors regarding principles and practices applicable to governance of the Company, and may engage search firms or other third parties to assist in the identification or evaluation of potential director nominees. In 2006, the Committee did not pay any fees to search firms or other third parties.

 

The current members of the Governance and Nominating Committee, which met twice in 2006, are Messrs. Buerger, Chookaszian, Cunningham, Gaskins, McKissock and Parker, each of whom meets the criterion for independence required under applicable Nasdaq listing rules, SEC rules, and applicable securities laws and regulations. Mr. Gaskins serves as the Chairperson of the Governance and Nominating Committee. A copy of the Charter of the Governance and Nominating Committee is located on the Investors portion of our web site at http://www.sapient.com, under “Corporate Governance.”

 

The Governance and Nominating Committee will consider and evaluate director candidates as recommended by eligible stockholders. Candidates nominated by eligible stockholders will be considered and evaluated on the same basis as candidates recommended by other sources. In evaluating all candidates for director, the Committee strives to develop a Board and committees of the Board that are diverse in nature and composed of experienced and seasoned advisers. To achieve this goal, the Committee considers a number of factors that it deems relevant, including judgment, skill, diversity, integrity, education, experience, availability, commitment, and the interplay of the nominee’s experience with the experience of other directors.

 

Pursuant to our Policy Regarding Stockholder Candidates for Nomination as a director, a stockholder is eligible to submit such a recommendation if the stockholder, either individually or as a member of a group, has beneficially owned 1% or more of our common stock for at least a one-year period prior to the nomination date (the “Nominating Stockholder”). A Nominating Stockholder may submit only one candidate for consideration per year, and the aggregate number of candidates that the Governance and Nominating Committee will be required to consider and evaluate under this policy with respect to any Annual Meeting is limited to the number as set forth below:

 

 

If we receive more than the maximum number of candidate recommendations as set forth above, the Governance and Nominating Committee will review and evaluate for possible nomination candidates recommended by those Nominating Stockholders with the highest level of beneficial ownership of our common stock, until the Committee has evaluated the maximum number of candidates referenced above.

 

A Nominating Stockholder should submit a nomination in writing, delivered (by registered mail, signature required, where available) to our Board of Directors, in care of our General Counsel, at the address as listed on the first page of this proxy statement. To be considered for our 2008 Annual Meeting, nominations must be received no later than the 120th calendar day prior to the date we expect to release the 2008 Annual Meeting proxy statement to stockholders, or January 16, 2008.

 

Each nomination by a Nominating Stockholder must contain the following information:

 

 

Each nomination submitted by a Nominating Stockholder must contain additional information as required by our Policy Regarding Stockholder Candidates for Nomination as a Director, located on the Investors portion of our web site, http://www.sapient.com, under “Corporate Governance.”

 

Our stockholders may submit correspondence to our Board of Directors. The correspondence should be submitted in writing and delivered (by registered mail, signature required, where available) to the Board of Directors, in care of our General Counsel, at the address listed on the first page of this proxy statement. Our General Counsel will forward each submission, without editing or alteration, to the chairman of the Board (or to the independent director having the longest tenure of Board service if the Board does not have a chairman at the time of submission), no later than the next scheduled meeting of the Board. Correspondence to the Board must contain the information listed in the Company’s Policy Regarding Stockholder Communications with Directors, located on the Investor portion of our web site, http://www.sapient.com, under “Corporate Governance.”

 

The following table sets forth in summary form information concerning the compensation that we paid during the fiscal year ended December 31, 2006 to each of our non-employee directors.

 

 

 

 

 

 

As of January 1, 2007, as consideration for their service on the Board, we pay each of our non-employee directors an annual retainer of $15,000 and the following additional retainers, as applicable:

 

 

All annual retainers are paid in four equal quarterly installments, provided that the director continues to serve in such capacity. Additionally, we pay non-employee Directors the following attendance fees:

 

 

If a director participates in either a Board or committee meeting by telephone, rather than in person, or if the committee meeting is held on the same day and at the same location as a Board meeting, the director receives one-half of the applicable meeting fees. Additionally, we reimburse each non-employee director for expenses incurred in connection with his meeting attendance.

 

Pursuant to our 1998 Stock Incentive Plan, and under the revised Board compensation plan approved by our directors effective as of January 1, 2007, each of our non-employee directors is granted the following equity grants in connection with his service on the Board:

 

 

 

 

Effective as of the date of our 2007 Annual Meeting of Stockholders, the Board has approved the following adjustments to compensation paid to non-employee directors under the Board compensation plan:

 

 

All other cash compensation paid to our non-employee directors under the Board compensation plan is to remain unchanged. No adjustments were made to RSUs granted under the Board compensation plan.

 

Although he is a non-employee director, J. Stuart Moore, our former co-Chairman and co-Chief Executive Officer, receives the following in lieu of the Board compensation as described above:

 

 

 

 

Except as outlined above, our directors receive no other cash compensation for serving as directors.

 

Certain stock options that we have granted to our directors contain “change-in-control” provisions. Under the terms of the applicable stock option agreement for each of these grants, the vesting of shares under these stock option grants will be accelerated by twelve months in the event of a change in control of the Company. The following table summarizes the director stock options containing such “change-in-control” provisions:

 

 

The following table sets forth information as of June 18, 2007 regarding the beneficial ownership of shares of our common stock by: (i) each person, or group of affiliated persons, known by us to beneficially own more than five percent of our common stock, (ii) each director and director nominee, (iii) each of our executive officers named in the Summary Compensation Table included in this proxy statement, and (iv) all of our current executive officers and directors as a group. The table is based on information supplied to us by our officers, directors, 5% stockholders, and a review of Schedules 13G, as filed with the SEC.

 

The number of shares beneficially owned includes any shares that may be acquired by exercising stock options that are either immediately exercisable or will become exercisable on or before August 17, 2007 (60 days from June 18, 2007) as well as any RSUs that have not yet vested but will have vested as of that date. These shares are deemed to be outstanding and beneficially owned by the person holding those options for the purpose of computing the person’s percentage ownership, but they are not treated as outstanding for purposes of computing the percentage ownership of any other person. Applicable percentages are based on 123,679,495 shares of common stock outstanding as of June 18, 2007.

 

 

 

 

 

Our directors, executive officers and persons holding more than 10% of our common stock, are required under Section 16(a) of the Securities Exchange Act of 1934, as amended, to file initial reports of ownership and reports of changes in ownership of our common stock and other equity securities with the SEC, and to provide us with a copy of any such filings. Based on a review of the copies of such reports provided to us, and written representations that no other reports were required, we believe that our directors, officers and other persons holding more than 10% of our common stock complied with all Section 16(a) filing requirements during 2006, except as set forth below.

 

Administrative oversights caused late filings of the following required forms: (i) an Initial Statement of Beneficial Ownership of Securities (Form 3) for each of Christian Oversohl and Alan M. Wexler related to their October 19, 2006 designation as executive officers of the Company, (ii) a Statement of Changes in Beneficial Ownership (Form 4) for each of Sheeroy D. Desai, Alan J. Herrick, Jane E. Owens and Gary S. McKissock, relating to the amendment of outstanding options held by the reporting persons associated with Section 409A of the Internal Revenue Code of 1986; and (iii) Forms 4 for each of Preston B. Bradford, Sheeroy D. Desai, Alan J. Herrick and Jane E. Owens associated with the Company withholding certain shares to satisfy income tax obligations of the reporting persons associated with the release of vested RSU awards to such persons.

 

The following table summarizes, as of December 31, 2006, the number of options and awards issued under our equity compensation plans and the number of awards available for future issuance under these plans.

 

 

 

The following graph compares the cumulative five-year total stockholder return on our common stock from December 31, 2001 through December 31, 2006, with the cumulative total return on (i) the Nasdaq Composite Index and (ii) the Goldman Sachs Technology Index — Computer Services Index. The comparison assumes the investment of $100 on December 31, 2001, in our common stock and in each of the indices and, in each case, assumes reinvestment of all dividends.

 

 

 

Compensation Objectives and Strategy

 

The primary purpose of Sapient’s executive compensation programs (“Executive Programs”) is to establish a meaningful reward system within an appropriate cost structure that aligns executive compensation with the interests of our shareholders. The objectives and strategy concerning our Executive Programs are as follows.

 

 

 

 

Role of the Compensation Committee

 

The Compensation Committee (the “Committee”) of our Board of Directors approves and oversees the framework for our Executive Programs, including the elements and amounts of compensation for our executive officers. The Committee consists of three non-employee directors of Sapient, each of whom is an independent director under the Nasdaq listing requirements. The Committee’s decisions and decision-making processes concerning executive compensation are informed by consultation with Sapient’s Chief Executive Officer (the “CEO”), who provides input regarding those officers’ job performances, as well as by general market information regarding compensation trends that becomes available to the Company through its normal recruiting efforts and industry awareness or through benchmarking information provided by an outside compensation firm retained by the Company (the “Management Adviser”). Additionally, the Committee’s decisions and decision-making processes concerning executive compensation for our Chief Financial Officer (the “CFO”) have been informed by ExEquity, LLP, an independent compensation adviser retained by the Committee (the “Third-Party Adviser”). The Third-Party Adviser, as noted below, also has been advising the Committee concerning a proposed compensation package for our CEO, which we expect to finalize in the near future. The Committee’s Charter, which the full Sapient Board of Directors has approved, describes the Committee’s functions in greater detail, and is available via our website at http://www.sapient.com.

Our CEO and Vice President — People Success (who oversees the Company’s human resources functions) typically attend Committee meetings in which the Committee reviews the performance of the Company and individual executives (other than themselves) and approves executive compensation. The Committee weighs the CEO’s recommendations regarding pay issues applicable to other executives and members of senior management who compose our company-wide leadership team. Other members of management and certain other Board members may also participate in the executive compensation review and approval process on an as-requested basis. However, the Committee retains ultimate decision-making authority over the compensation decisions for these individuals, and the Committee members only (and no members of management) may approve executive compensation.

 

Sapient’s Board of Directors appointed our current CEO, Alan J. Herrick, to the CEO role in October 2006. Since his appointment, Mr. Herrick’s base pay and equity compensation have remained unchanged. However, with respect to Mr. Herrick’s 2006 cash bonus, the Committee determined, in consultation with the Third-Party Adviser, that Mr. Herrick’s payout should be prorated, with the bonus portion applicable to the 2006 period before Mr. Herrick became CEO being calculated on an unchanged basis, and the portion applicable to the remainder of 2006 when Mr. Herrick served as CEO being established at $70,000, to reflect Mr. Herrick’s assumption of increased responsibilities.

 

The Committee and Mr. Herrick are currently negotiating a proposed compensation package for Mr. Herrick for 2007. This proposed package is anticipated to be retroactive to January 1, 2007, in certain respects. In connection with these negotiations, the Committee has retained the Third-Party Adviser to provide it with benchmarking data and recommendations concerning the components and size of the proposed package. Additionally, the Committee has conducted special “executive sessions” to evaluate the package, which we expect to finalize in the near future.

 

Prior to Mr. Herrick’s appointment as CEO in October 2006, Jerry A. Greenberg and J. Stuart Moore, the Company’s co-founders, shared the CEO role (however, Mr. Greenberg served as sole CEO from June 1, 2006 until October 16, 2006). Each co-CEO’s compensation package consisted solely of a base salary of $50,000 for all years in which he served as co-CEO. The co-CEOs did not receive annual cash bonus awards or long-term incentive grants during their tenure as co-CEOs. Accordingly, Committee review of their compensation packages neither occurred nor was necessary.

 

Compensation and Benefits Structure

 

This section describes each aspect of our compensation and benefits structure:

 

 

Pay Level

 

The Committee determines executive pay levels based on several factors, including an individual’s experience and role, responsibilities and performance at Sapient, and comparative pay levels for peers within Sapient and in similar job functions in the marketplace.

 

To the extent it deems advisable, the Committee uses appropriate tools and resources to review the aggregate value delivered to each executive by each pay element (i.e., base salary, bonus and equity-based awards). To evaluate and develop the actual and proposed compensation packages for the CEO and CFO, the Committee retained the Third-Party Adviser, who made recommendations informed by benchmarking of compensation for CEOs and CFOs in several comparable peer group companies.

 

For other executive officers, the Committee’s decisions and decision-making processes concerning executive compensation are informed by consultation with the CEO, who provides input regarding those

officers’ job performance, as well as by general market information regarding compensation trends that becomes available to the Company through its normal recruiting efforts and industry awareness or through benchmarking information provided to the Company by the Management Adviser.

 

Consistent with our stated compensation philosophy to tie total compensation closely to — and make it heavily dependent upon — achievement of Company and individual performance, we emphasize “variable” compensation (i.e., bonus and equity-based awards) over “fixed” compensation (i.e., base salary). Accordingly, relative to an assessment of competitive market practices, the Committee aims to establish executive base salaries targeted not above Median, with Total Cash executive compensation targeted at Median, and total executive compensation (inclusive of equity-based incentive compensation) targeted above Median. However, pay levels and opportunities for specific individuals and/or job functions may vary from these targets, based on market demand for particular talent and other factors. As a result of our emphasis on performance-based pay, actual total compensation in a given year may vary well above or well below our targeted compensation relative to Median levels, based primarily on the Company’s attainment of its operating goals and individual performance achievement.

 

Pay Mix

 

The Committee believes strongly in the importance of assessing each pay element in relation to the other pay elements that the Executive Programs comprise. To determine optimal pay mix, the Committee reviews a variety of information provided by the Company regarding our executives, including historic equity grants, salary progression, target and actual bonus levels by year, experience levels and job responsibilities, as well as general market information.

 

Sapient’s Executive Programs consist of the following pay elements:

 

 

Base Salaries

 

As noted above, our compensation philosophy emphasizes the aspects of compensation that are performance-dependent. Accordingly, the Committee targets executive base salaries not above Median, and places greater emphasis on variable compensation in the form of bonus and equity-based awards. However, pay levels and opportunities for specific individuals and/or job functions may vary from these targets, based on market demand for particular talent and other factors.

 

Adjustments to executives’ base pay levels are determined annually based upon numerous factors, including individual performance, job responsibilities, impact on the development and achievement of our strategic initiatives, the then-current state of the labor market, compensation data available from general industry resources and our ability to attract and retain critical executives.

Annual Incentive Program

 

Our annual incentive plans are designed to reward individual performance and our achievement of our short-term operating objectives. Our executives are eligible to receive annual bonuses under our Global Performance Bonus Plan, paid in cash or equity. Consistent with our pay level strategy, we set annual incentive levels for our executives at an amount intended to generate target Total Cash compensation that is at Median. Annual incentives for our executives range from 30% to 100% of the executives’ base salaries. In 2006, our executives received annual incentive pay based on several factors, including Company and business unit operating profit, progress against our Strategic Context and an overall individual performance score. In the aggregate, and as a result of our 2006 performance, actual awards paid to our executives for 2006 were significantly less than the aggregate bonus targets that the Committee established for 2006.

 

To date, payments under our annual incentive plans have not qualified as “performance-based” compensation under Section 162(m) of the Internal Revenue Code (“Section 162(m)”). The Committee is currently in the process of qualifying certain future compensation for purposes of Section 162(m), but may continue to make payments that do not comply with this statute to the extent it deems necessary and/or advisable.

 

Messrs. Herrick and Tibbetts, who assumed the CEO and CFO roles, respectively, in October 2006, were guaranteed prorated 2006 cash bonus payouts for the period of time they served in these roles. The Committee reviewed the market appropriateness of these guaranteed payouts with the Third-Party Adviser prior to approving them.

 

Long-Term Incentive Program

 

The Committee uses long-term incentives to balance the short-term focus of our annual incentive program by tying rewards to executive performance over multi-year periods. Under three of our long-term incentive plans, approved by our shareholders at Sapient’s 1996, 1998, and 2001 Annual Meetings, the Committee may grant a variety of long-term incentive vehicles to our executives, including stock options, stock appreciation rights, RSUs and performance shares or units, settled in cash or stock. In 2006, the Committee approved RSUs only for equity-based awards to our executives and other employees, and this practice continues to date. However, consistent with its authority under our long-term incentive plans, the Committee may opt to grant other types of equity-based awards in the future.

 

The Committee believes that long-term incentives, together with annual incentives, provide significant incentives to our executives that promote high performance year-over-year and long-term retention.

 

In 2006, we granted time-based RSU awards to our executives that vest according to the following schedule: 33% at 18 months, and 67% at the third anniversary, following the grant date (the “Standard Vesting Schedule”). Any unvested portion of an executive’s RSU award is forfeited if the executive’s employment terminates prior to the vest date. The Committee may grant RSU (or other equity) awards based on a vesting schedule different from the Standard Vesting Schedule. Unless otherwise noted, RSU awards granted to our executive officers vest according to the Standard Vesting Schedule.

 

In November 2006, our CFO, Joseph S. Tibbetts, Jr., received both a time-based RSU award subject to the Standard Vesting Schedule, and a performance-based award of 400,000 RSUs. The performance-based RSUs vest in increments of 100,000 units when/if the average 30-day closing price of our stock equals or exceeds each of the following targets: $5.00; $10.00; $15.00; and $20.00. Any performance-based units that have not vested as of the fourth anniversary of the RSU grant date will be forfeited.

 

Our current executive long-term incentive granting framework involves developing RSU grant ranges for our leadership group and, within those ranges, allocating awards to our executives based on their performance during the prior year, cash compensation, amount of equity needed to achieve Median targeting, and historical equity holdings. The Committee believes this method not only ensures that each executive receives appropriate awards, but also that the awards are equitable as compared to the executive’s colleagues on our management team.

While the Company believes that both retention and long-term performance are important objectives for the long-term incentive program, the Company also believes that the “at risk” component of the long-term incentive program should be higher for our executives in more senior roles. Therefore, the ratio of RSUs to cash varies by level of participant, with our more senior executives receiving a higher percentage of their total long-term award value in the form of RSUs. In 2006, for the Named Executive Officers (as defined herein) (other than Messrs. Greenberg and Moore, who did not receive RSUs while serving as co-CEOs), 100% of their 2006 long-term incentive awards were granted in the form of RSUs.

 

While the Committee has not historically used formal benchmarking data to establish long-term incentive levels, it has relied on general market information to deliver long-term incentive awards that it perceives to be within Median ranges. Within general grant guidelines that the Committee authorizes, individual awards may be adjusted up or down to reflect the executive’s performance and his or her potential to contribute to the success of our initiatives to create shareholder value and other individualized considerations.

 

As part of our long-term incentive program, we typically grant equity awards to our executives once per year, on a pre-determined grant date that occurs shortly after the Committee approves the executive equity grants. The Committee reviews and approves the annual equity award for each executive at a scheduled meeting, usually held in July. Our internal human resources department, in conjunction with E*TRADE Financial, which provides us certain stock plan administration services, and our internal stock plan administration team, administers all executive and other employee equity awards.

 

Other Benefits and Perquisites

 

As employees of the Company, our executives are eligible to participate in all Company-sponsored benefits programs on the same basis as other full-time employees. These include the Company’s health and welfare benefits (e.g., medical/dental plans, disability plans, life insurance) and 401(k) Plan (or its equivalent for management team members located outside of the United States). Additionally, while our executives from time to time receive certain immaterial personal benefits from the Company, in 2006 the value of these perquisites for each executive did not exceed $10,000. We do not offer any supplemental executive health and welfare or retirement programs, or provide any other supplemental benefits or perquisites, to our executives.

 

Employment Contracts

 

The Company maintains employment agreements with Messrs. Tibbetts, Wexler and Oversohl, and currently is in the process of negotiating an employment contract with Mr. Herrick. These agreements contain severance arrangements and other benefits to the executives. Further, Mr. Tibbetts’ employment agreement contains provisions that provide him certain financial benefits in the case of a change in control of Sapient. Employment contracts and change in control provisions for the foregoing officers (except Mr. Herrick, whose agreement is not yet complete) are described on pages 34-37 of this proxy statement. Finally, all of our executives have agreed to covenants that protect Sapient against the executives joining a competitor, and/or soliciting Sapient clients and employees.

 

Pay-for-Performance

 

As noted, we use multiple vehicles to create a strong link between pay and performance:

 

 

The Committee maintains discretion to make adjustments (upward or downward) to an executive’s incentive compensation if Company and/or individual goals are not achieved.

 

2006 Compensation Actions

 

The Committee reviews and approves salary levels for our executive officers typically on an annual basis, in July. For 2006, our Named Executive Officers salaries increased over their 2005 salaries by an average of 8.23%. Additionally, as illustrated in our Summary Compensation Table on page 29 of this proxy statement, base salaries for our five most highly paid executives in 2006 represented between 8% and 52% of total compensation for these individuals, excluding benefits.

 

For 2006, we paid total annual incentives of $688,957 to our Named Executive Officers. In the aggregate, these actual amounts represent 58% of the executives’ target annual incentive for 2006, based on Company and individual performance relative to Company/individual goals for 2006.

 

In 2006, we granted an aggregate of 979,500 RSU awards to our Named Executive Officers.

 

Impact of Tax and Accounting on Compensation Decisions

 

When determining amounts of equity grants to executives and employees under our long-term incentive program, the Committee examines the accounting cost associated with the grants. Under Statement of Financial Accounting Standard No. 123(R) (revised 2004), grants of stock options, restricted stock, RSUs and other share-based payments result in an accounting charge for the Company. The accounting charge is equal to the fair value of the instruments being issued. For RSUs, the cost is equal to the fair value of the stock on the grant date times the number of stock units granted. For stock options (if granted with time-based vesting), the cost is equal to the fair value of the option on the grant date using a Black-Scholes option pricing model times the number of options granted. RSUs granted with market-based vesting are valued using a lattice model. With respect to both RSUs and stock options, this expense is amortized over the requisite service or vesting period.

 

Further, as noted, the Committee is currently in the process of qualifying certain future executive compensation for purposes of Section 162(m). In this regard, we are seeking shareholder approval at our 2007 Annual Meeting of Stockholders of an amendment to our 1998 Stock Incentive Plan that will enable cash and equity awards granted thereunder to qualify for the tax benefits available under Section 162(m).

 

Finally, we currently are reviewing our executives’ employment agreements to determine the tax impact/implications of severance arrangements for which the executives are eligible under the agreements.

 

The report by this Committee is not “soliciting material,” is not deemed “filed” with the SEC, and is not to be incorporated by reference into any filing of Sapient Corporation under the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended.

 

The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis report contained in this proxy statement. Based on this review and discussion, the Compensation Committee has approved the inclusion of the Compensation Discussion and Analysis report in this proxy statement and our Annual Report on Form 10-K for the fiscal year ended December 31, 2006.

 

Gary S. McKissock, Chairperson

Jeffrey M. Cunningham

Darius W. Gaskins, Jr.

 

The following table sets forth compensation for the fiscal year ended December 31, 2006 with respect to our Chief Executive Officer, Chief Financial Officer, and our three other most highly compensated executive officers who earned more than $100,000 in fiscal 2006. We refer to these officers in this proxy statement as the “Named Executive Officers.”

 

 

 

 

 

The following table provides information regarding plan-based awards granted to each of the Named Executive Officers as of December 31, 2006.

 

 

 

 

 

The following table provides information regarding all outstanding equity awards held by each of the Named Executive Officers as of December 31, 2006.