UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

SCHEDULE 14A

(RULE 14a-101)

SCHEDULE 14A INFORMATION

 

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

Exchange Act of 1934 (Amendment No.     )

Filed by the Registrant þ

Filed by a Party other than the Registrant o

 

Check the appropriate box:

 

 

HARRIS INTERACTIVE INC.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement)

 

Payment of Filing Fee (Check the appropriate box):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

60 Corporate Woods

Rochester, New York 14623

 

 

September 15, 2008

 

Dear Stockholder:

 

You are cordially invited to attend the 2008 Annual Meeting of Stockholders of Harris Interactive Inc., which will be held on Tuesday, October 28, 2008, at 666 Fifth Avenue (at 53rd Street), Second Floor Multi-Purpose Room, New York, New York at 5:00 p.m. (local time).

 

At the Annual Meeting you will be asked to elect three directors to our Board of Directors and to ratify the selection of our independent registered public accounting firm.

 

On the following pages, you will find the formal Notice of Annual Meeting and our Proxy Statement. Included with our Proxy Statement is a copy of our Annual Report on Form 10-K for our fiscal year ended June 30, 2008. We encourage you to read the Proxy Statement as well as our Form 10-K. These documents will provide you with information about our management, operations, markets and services, as well as our audited financial statements.

 

Whether or not you plan to attend the Annual Meeting, please register your vote as soon as possible to ensure that your shares of Harris Interactive common stock will be represented at the Annual Meeting. We encourage you to take advantage of the option to vote by telephone or the Internet. If you prefer, you may complete, sign, date and return the accompanying proxy card in the enclosed postage paid envelope.

 

We hope that many of you will be able to attend the Annual Meeting in person. We look forward to seeing you there.

 

Sincerely,

 

Gregory T. Novak

President and Chief Executive Officer

 

George Bell

Chairman

 

60 Corporate Woods

Rochester, New York 14623

 

Notice of Annual Meeting of Stockholders to Be Held October 28, 2008

 

To Our Stockholders:

 

You are cordially invited to attend the 2008 Annual Meeting of Stockholders of Harris Interactive Inc. (“Harris Interactive” or the “Company”), which will be held at 666 Fifth Avenue (at 53rd Street), Second Floor Multi-Purpose Room, New York, New York at 5:00 p.m. (local time), for the following purposes:

 

1. To elect three (3) Class III directors to the Board of Directors to hold office for a three year term;

 

2. To ratify the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for fiscal 2009; and

 

3. To act upon such other business as may properly come before the meeting or any adjournment thereof.

 

A copy of Harris Interactive’s Annual Report on Form 10-K for our fiscal year ended June 30, 2008 is enclosed with this Notice of Annual Meeting and attached Proxy Statement. For ten days prior to the meeting, a complete list of the stockholders entitled to vote at the Annual Meeting will be available for examination by any stockholder of record for any purpose germane to the Annual Meeting during ordinary business hours at Harris Interactive’s offices at 60 Corporate Woods, Rochester, New York 14623. The list also will be available at the Annual Meeting.

 

By Order of the Board of Directors,

 

Ronald E. Salluzzo

Executive Vice President, Chief Financial Officer,
Treasurer and Secretary

 

September 15, 2008

Rochester, New York

 

IMPORTANT: To assure that your shares are represented at the Annual Meeting, you must complete your proxy as soon as possible. You may vote your shares by telephone at 1-800-690-6903 or via the Internet at www.proxyvote.com by following the enclosed instruction form. If you prefer, you may fill in, date, sign and promptly mail the enclosed proxy card in the accompanying postage paid envelope. If you attend the Annual Meeting, you may choose to vote in person even if you have previously sent in your proxy card.

 

Stockholders should read the entire Proxy Statement carefully prior to returning their proxies.

TABLE OF CONTENTS

 

60 Corporate Woods
Rochester, New York 14623

 

PROXY STATEMENT

September 15, 2008

 

FOR ANNUAL MEETING OF STOCKHOLDERS OF HARRIS INTERACTIVE INC.
To Be Held October 28, 2008

 

The accompanying proxy is solicited by the Board of Directors (the “Board”) of Harris Interactive Inc. (“Harris Interactive” or the “Company”) for use at the 2008 Annual Meeting of Stockholders to be held on Tuesday, October 28, 2008, at 5:00 p.m. (local time) or any adjournment thereof, for the purposes set forth in the accompanying Notice of Annual Meeting. The Annual Meeting will be held at 666 Fifth Avenue (at 53rd Street), Second Floor Multi-Purpose Room, New York, New York. The date of this Proxy Statement is September 15, 2008. The approximate date on which this Proxy Statement and the accompanying form of proxy were first sent or given to stockholders is September 22, 2008.

 

Record Date; Voting Securities

 

Only stockholders of record at the close of business on September 2, 2008 are entitled to vote their shares of Harris Interactive common stock at the meeting and any adjournment thereof. As of September 2, 2008, there were 53,783,509 shares of Harris Interactive’s common stock issued and outstanding. Each holder of shares of common stock is entitled to one vote for each share of common stock held. Stockholders may vote in person or by proxy.

 

Voting Your Proxy

 

To ensure that your vote is recorded promptly, please vote as soon as possible, even if you intend to attend the annual meeting in person. You may grant a proxy to vote your shares via the Internet, telephone, or mail as more fully described below:

 

 

If you properly submit a proxy without giving specific voting instructions, your shares will be voted in accordance with the recommendations of the Board FOR:

 

 

If any other business properly comes before the stockholders for a vote at the Annual Meeting, your shares will be voted by the proxy holders in accordance with the recommendation of the Board, or, in the absence of any such recommendation, in accordance with their best judgment. Such persons also have discretionary authority to vote to adjourn the Annual Meeting.

 

Revoking Your Proxy

 

You may revoke your proxy at any time before it is exercised by:

 

 

Quorum

 

A majority of the shares of Harris Interactive common stock entitled to vote must be present either in person or by proxy at the Annual Meeting before any business may be conducted.

 

Tabulation of Abstentions and Broker Non-Votes

 

Abstentions and broker non-votes will be included in the number of shares present for purposes of determining whether a quorum is present at the Annual Meeting. Abstentions will also be counted as shares “present” and “entitled to vote.” A broker non-vote occurs when a broker has not received voting instructions from the beneficial owner of the shares and the broker does not have the authority to vote the shares because the proposal is non-routine. Broker non-votes are not counted as shares “entitled to vote” with respect to proposals over which they do not have discretionary authority. Therefore, while broker non-votes are considered “present” for purposes of determining whether there is a quorum, they are not considered “present” for purposes of determining the majority of shares at the meeting and entitled to vote on a particular action.

 

Shares Held in Street Name

 

If your shares are held in a brokerage account or by another nominee, you are considered the “beneficial owner” of those shares. As the beneficial owner, you have the right to direct your broker or nominee how to vote your shares, and your broker or nominee is required to vote your shares in accordance with your instructions. If you do not give instructions to your broker or nominee, then your broker or nominee will be entitled to vote your shares in its discretion as to the Election of Directors and ratification of the selection of our independent registered public accounting firm.

 

As the beneficial owner of shares, you are invited to attend the Annual Meeting. Please note, however, that if you are a beneficial owner, you may not vote your shares in person at the Annual Meeting unless you obtain a “legal proxy” from your broker or nominee that holds your shares.

 

Electronic Delivery

 

We can reduce our expenses if you elect to receive your annual reports and proxy materials via the Internet. If you request, you can receive email notifications when these documents are available electronically on the Internet. You may sign up for this service at www.proxyvote.com.

 

Copies of our Annual Report on Form 10-K and our proxy materials can be accessed via the Internet at ww3.ics.adp.com/streetlink/HPOL.

Householding

 

Unless we have received contrary instructions, we send a single copy of the annual report, proxy statement and notice of annual or special meeting to any household at which two or more stockholders reside if we believe the stockholders are members of the same family. Each stockholder in the household will continue to receive a separate proxy card. This process, known as “householding,” reduces the volume of duplicate information received at your household and helps us reduce our expense. The Company will deliver promptly, upon written or oral request, a separate copy of the annual report and proxy statement to any stockholder sharing an address to which a single copy of the documents was delivered. You may request such separate copies, or request that separate copies of the annual report, proxy statement, or Notice of Internet Availability of Proxy Materials, be delivered in the future, by (i) sending written notice to: Harris Interactive Inc., Attention: Corporate Secretary, 60 Corporate Woods, Rochester, New York 14623; telephone (585) 272-8400, (ii) sending written notice to Broadridge Financial Solutions, 51 Mercedes Way, Edgewood, New York 11717, or (iii) calling (800) 542-1061. Stockholders sharing an address can request delivery of a single copy of the annual report, proxy statement, or Notice of Internet Availability of Proxy Materials if they are receiving multiple copies by notice to the same address or calling the same telephone number.

 

Solicitation of Proxies

 

Harris Interactive will bear all costs of this proxy solicitation. In addition to soliciting stockholders by mail and through its regular employees, Harris Interactive will request banks and brokers, other custodians, nominees and fiduciaries to solicit their customers who have shares of Harris Interactive common stock registered in their names and will reimburse them for their reasonable, out-of-pocket costs. Harris Interactive may use the services of its officers, directors and others to solicit proxies, personally or by telephone, facsimile or electronic mail, without additional compensation.

 

The following table sets forth information regarding the beneficial ownership of Harris Interactive common stock as of September 5, 2008 by each person or entity who is known by the Company to own beneficially more than 5% of the outstanding shares of the Company’s common stock. This table is based on information provided to us or filed with the Securities and Exchange Commission (“SEC”) by our principal stockholders.

 

 

 

The following table sets forth information regarding the beneficial ownership of Harris Interactive common stock as of September 5, 2008 by (i) each director and director-nominee, (ii) the Chief Executive Officer, Chief Financial Officer, and each other executive officer named in the Summary Compensation Table, and (iii) all directors and executive officers as a group. All shares are subject to the named person’s sole voting and investment power except where otherwise indicated. This table is based on information provided to us or filed with the SEC by our directors and executive officers.

 

 

 

 

 

The following table provides information as of June 30, 2008 with respect to shares of common stock that may be issued under the terms of the Company’s equity compensation plans, including the Company’s Long-Term Incentive Plan, adopted in 1999, as amended (the “1999 Incentive Plan”) and the Company’s 2007 Long-Term Incentive Plan, adopted in 2007 (the “2007 Incentive Plan,” and together with the 1999 Incentive Plan, the “Incentive Plans”):

 

 

 

 

 

 

Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Securities Exchange Act”), and related SEC regulations, require the Company’s directors and executive officers, and persons who own more than 10% of a registered class of the Company’s equity securities, to file reports of ownership and changes in ownership of those securities with the SEC, and to furnish the Company with copies of all Section 16(a) reports they file.

 

Based solely upon review of the copies of such reports furnished to the Company and written representations that no other reports were required, the Company believes that during the fiscal year ended June 30, 2008, all filing requirements under Section 16(a) applicable to its executive officers, directors, and greater than 10% beneficial owners were complied with, except for (i) one late filing of a Form 4 related to a grant of stock options to Bruce Anderson, the President of Harris/Decima which was filed on February 20, 2008, and (ii) late filing of Form 4s related to forfeiture of performance based restricted stock on August 31, 2008 by Gregory T. Novak, Ronald E. Salluzzo, and George H. Terhanian.

 

 

The current members of the Board and each of its standing committees are set forth in the following table. The standing committees include an Audit Committee, a Compensation Committee, a Nominating and Governance Committee, and until November 1, 2007, a Research and Development Committee.

 

 

 

 

The Board has adopted Corporate Governance Guidelines (“Guidelines”) which are posted at the “Investor Relations” — “Corporate Governance — “section of the Company’s website located at www.harrisinteractive.com. The Guidelines require that independent directors constitute a substantial majority of the Board, and that all members of the Audit, Compensation, and Nominating and Governance Committees be independent. The Guidelines provide that a director is independent when the director is free from any relationship that would interfere with his or her exercise of independent business judgment, and who is “independent” under the standards for independence of the Nasdaq Stock Exchange and applicable law.

 

The Nominating and Governance Committee, based upon its review of responses to questionnaires inquiring about transactions, relationships and arrangements of directors and family members with the Company, recommended to the Board, and the Board determined, that seven of the eight directors currently serving are independent under the Guidelines and as defined under Nasdaq Rule 4200(a)(15). Directors found to be independent are designated as such in the “Directors and Committee Membership” table above.

 

All members of the Audit, Compensation and Nominating and Governance Committees are among the directors found by the Board to be independent. In addition, the requirements for independence contained in Nasdaq Rule 4350(d) require that members of the Audit Committee meet the criteria for independence set forth in Rule 10A-3(b)(1) promulgated by the SEC. The Board has determined that all members of the Audit Committee meet these criteria. The Board also has found that all members of the Compensation Committee fall within the “outside director” standard for purposes of Rule 162(m) of the Internal Revenue Code of 1986, as amended (the “IRC”).

 

Of the nominees for election at the 2008 Annual Meeting, only Gregory T. Novak is not independent.

 

The Board held a total of fourteen meetings during the fiscal year ended June 30, 2008, and took four actions by written consent. The independent directors, identified below, met separately in executive session in accordance with Nasdaq Rule 4350(c) five times during fiscal 2008. The number of meetings held by each Committee is identified above in the table in “Directors and Committee Membership.” During the fiscal year ended June 30, 2008 each director attended at least 75% of the aggregate of: (i) the total number of meetings of the Board of Directors (held during the period for which he was a director) and (ii) the total number of meetings held by all committees of the Board of Directors on which he served (held during the periods that he served).

 

The Board of Directors has adopted a policy requiring directors to attend the Annual Meeting absent compelling circumstances preventing such attendance. Six of eight directors standing for election or continuing, and then serving, attended the 2007 Annual Meeting.

 

Membership

 

The current members of the Audit Committee are identified in the “Directors and Committee Membership” table above. The Board of Directors has determined that at least Stephen D. Harlan, the Committee Chairman, is an “audit committee financial expert” as defined in Item 407(d)(5) of Regulation S-K.

 

Scope and Authority

 

The Audit Committee of the Board of Directors (a) monitors the integrity of the accounting policies, financial reporting, and disclosure practices of the Company, (b) reviews the results of the Company’s quarterly and annual financial statements and annual audit and recommends to the Board approval of their inclusion in the Company’s quarterly and annual reports, (c) appoints and monitors the independence and performance of the Company’s independent registered public accounting firm, (d) approves the compensation of the independent registered public accounting firm and approves in advance all permitted non-audit services to be provided by the Company’s independent registered public accounting firm, (e) meets with the Company’s independent registered public accounting firm to review the Company’s critical accounting policies, internal controls, and financial management practices, (f) monitors the processes established and maintained by management in order for management to assure that an adequate system of internal accounting and financial control is functioning within the Company, (g) monitors the processes established by management in order for management to assure corporate compliance with legal and regulatory requirements, and (h) monitors the processes established and maintained by management for measuring, managing, and monitoring areas of enterprise risk designated by the Board. This Committee also receives, reviews and takes action with respect to complaints received by the Company regarding accounting, internal accounting controls, and auditing matters.

 

Audit Committee Charter

 

The Audit Committee operates under a written charter adopted by the Board. A copy of the Company’s Audit Committee Charter is available in the “Investor Relations” — “Corporate Governance — Committees” section of the Company’s website located at www.harrisinteractive.com. In April 2008, the Audit Committee conducted a review of its compliance with the Audit Committee Charter and determined that it has operated in compliance with the Charter’s provisions.

 

Audit Committee’s Role in Connection with the Financial Statements and Controls of the Company

 

Management of the Company has primary responsibility for the Company’s financial statements and internal control over financial reporting. The Company’s independent registered public accounting firm has responsibility for the integrated audit of the Company’s financial statements and internal control over financial reporting. The responsibility of the Audit Committee is to oversee financial and control matters, among its other duties as specified in the Audit Committee Charter. The Audit Committee is responsible for retention and approval of compensation of the independent registered public accounting firm, and pre-approval of the permitted non-audit services to be provided by such firm. The Audit Committee meets regularly with the independent registered public accounting firm, without the presence of management, to ensure candid and constructive discussions about the Company’s compliance with accounting standards and best practices among public companies comparable in size and scope to Harris Interactive. The Audit Committee also reviews with management and the independent registered public accounting firm material developments in accounting that may be pertinent to the Company’s financial reporting practices.

Conduct of Audit Committee Meetings

 

The Audit Committee met with representatives of PricewaterhouseCoopers, LLP (“PwC”), the Company’s independent registered public accounting firm, at all of its meetings during the fiscal year ended June 30, 2008. The Audit Committee’s agenda was established by its chairperson and the Company’s Chief Financial Officer. The meetings were designed to facilitate and encourage communication among members of the Audit Committee and management.

 

At each meeting, the Audit Committee reviewed and discussed various financial and regulatory issues, reviewed and discussed reports regarding internal audit matters, and received a summary of complaints received through the Company’s anonymous complaint procedure with respect to internal accounting controls or auditing matters. The Audit Committee reviewed policies and procedures from time to time, including among others the Company’s Internal Disclosure Controls Procedures and the Policy and Procedures With Respect to Related Party Transactions. The Audit Committee also periodically had separate executive sessions with representatives of PwC, representatives of Ernst & Young, which provides internal audit services to the Company, the Company’s Chief Financial Officer and the Company’s principal outside corporate legal counsel. Executive sessions included candid discussions of financial management, accounting, internal controls, legal and compliance issues. Additionally, the Audit Committee’s chairperson periodically held separate discussions with representatives of PwC and Ernst & Young, and the Company’s Chief Financial Officer and principal outside corporate legal counsel.

 

Audit Committee Review of Periodic Reports

 

The Audit Committee reviews each of the Company’s quarterly and annual reports, including the Management’s Discussion and Analysis of Financial Condition and Results of Operations contained therein. As part of this review, the Audit Committee discusses the reports with the Company’s management and considers the audit reports prepared by the independent registered public accounting firm about the Company’s quarterly and annual reports. The Audit Committee also considers related matters such as the quality and appropriateness, not just the acceptability, of the Company’s accounting principles, alternative methods of accounting under U.S. generally accepted accounting principles and the preferences of the independent registered public accounting firm in this regard, the Company’s critical accounting policies and the clarity and completeness of the Company’s financial and other disclosures.

 

Audit Committee’s Role in Connection with the Company’s Report on Internal Controls

 

The Audit Committee reviewed management’s report on internal control over financial reporting, required under Section 404 of the Sarbanes-Oxley Act of 2002 and related rules. As part of this review, the Audit Committee reviewed the bases for management’s conclusions in that report and the attestation report of the independent registered public accounting firm on internal control over financial reporting. Throughout fiscal 2008, the Audit Committee reviewed the results of management’s plan for documenting and testing controls, any deficiencies discovered and the resulting remediation of any such deficiencies.

 

Review and Discussions with Independent Registered Public Accounting Firm

 

In its meetings with representatives of PwC, the Audit Committee asked the independent registered public accounting firm to address and discuss their responses to several questions that the Audit Committee believed were particularly relevant to its oversight. These questions included:

 

 

 

The Audit Committee also has discussed with PwC that it is retained by the Audit Committee and that PwC must raise any concerns about the Company’s financial reporting and procedures directly with the Audit Committee. Based on these discussions, its discussions with management and its review of applicable periodic reports and financial statements, the Audit Committee believes it has a reasonable basis for its oversight judgments and for recommending that the Company’s audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2008.

 

Membership

 

The current members of the Compensation Committee are identified in the “Directors and Committee Membership” table above.

 

Scope and Authority

 

The Compensation Committee (a) reviews and recommends compensation of the Chief Executive Officer for approval by the Nominating and Governance Committee, (b) reviews and approves compensation and benefits for all other executive officers of the Company, and (c) establishes and reviews general policies relating to compensation and benefits for the Company’s employees. The Compensation Committee also recommends, for approval by the Board of Directors, compensation of non-employee directors. The Compensation Committee reviews and approves the incentive cash bonus plans of the Company. In addition, the Compensation Committee administers the 1999 Incentive Plan and the 2007 Incentive Plan.

 

Charter

 

The Compensation Committee has adopted a written charter, a copy of which is posted in the “Investor Relations” — “Corporate Governance — Committees” section of the Company’s website located at www.harrisinteractive.com.

 

Compensation Committee Interlocks and Insider Participation

 

None of the members of the Compensation Committee during fiscal 2008 (identified in the “Directors and Committee Membership” table above) is or has been an officer or employee of Harris Interactive or any of its subsidiaries. No interlocking relationship, as described in SEC Regulation S-K Item 407(e)(4), existed during the last completed fiscal year between the Company’s Board or Compensation Committee and the board of directors or compensation committee of any other company.

 

Procedures for Determination of Compensation

 

The Compensation Committee oversees the design, development and implementation of the compensation for the Company’s directors, Chief Executive Officer, and other executive officers.

 

For directors, the Company’s Executive Vice President, Human Resources gathers data regarding peer group compensation. The most recent peer group comparison was done in fiscal 2007 for a peer group consisting of Arbitron, Inc., Digitas, Forrester Research, Inc., Greenfield Online, Inc., National Research Corporation, Net Ratings, Inc., and Opinion Research Corporation. The Compensation Committee reviews the data, information from other sources such as the annual director compensation survey published by the National Association of Corporate Directors, and the scope of activity of the Board and its

respective committees. Based upon that review the Committee recommends cash and equity compensation for directors to the full Board of directors for final approval.

 

The process used for determination of compensation for the Company’s executive officers, including the CEO, is described below in “Compensation Discussion and Analysis — Role of Compensation Committee and CEO; Procedures for Determination of Compensation.”

 

Role of Compensation Consultants

 

The role of consultants in the determination of compensation is discussed below in “Compensation Discussion and Analysis — Role of Compensation Consultants.”

 

Membership

 

The current members of the Nominating and Governance Committee are identified in the “Directors and Committee Membership” table above.

 

Scope and Authority

 

The Nominating and Governance Committee (a) makes recommendations to the Board of Directors regarding the overall structure, size and composition of the Board of Directors, (b) selects director nominees for approval at the annual meeting of the Company’s stockholders, (c) makes recommendations to the Board of Directors regarding committees of the Board and membership on those committees, (d) oversees matters related to succession planning for the office of the Chief Executive Officer, (e) approves goals and objectives as well as compensation of the Chief Executive Officer, and (f) oversees matters related to the governance of the Company.

 

Charter

 

The Nominating and Governance Committee has adopted a written charter, a copy of which is posted in the “Investor Relations” — “Corporate Governance — Committees” section of the Company’s website located at www.harrisinteractive.com.

 

Director Nomination Process

 

The Nominating and Governance Committee believes that any nominee recommended by the Committee for a position on the Company’s Board of Directors must have personal character and integrity, must have sound judgment, must be willing to commit the time required for Board service, must have a commitment to representing the interests of all of the Company’s stockholders, must have experience relevant to the Company in one or more fields and must be proficient in knowledge of corporate governance. In considering candidates for the Board of Directors, the Nominating and Governance Committee requires that independent directors, as defined under Nasdaq Rule 4200(a)(15), comprise a substantial majority of the Board. The Committee also requires that at least three of such independent directors must qualify as independent under SEC Rule 10A-3(b)(1) and also satisfy the financial literacy requirements for Audit Committee membership, and that at least one such member of the Audit Committee be a “financial expert” as defined in Item 407(d)(5) of Regulation S-K promulgated by the SEC.

 

The Nominating and Governance Committee further believes that one or more, but not necessarily all, of the members of the Board of Directors should have:

 

 

 

Procedures used by the Nominating and Governance Committee in identifying and evaluating candidates for election to the Company’s Board of Directors are posted in the “Investor Relations” — “Corporate Governance — “Committees” section of the Company’s website located at www.harrisinteractive.com. The Committee believes that the continuing service of qualified incumbents promotes stability and continuity in the board room, contributing to the Board’s ability to work as a collective body, while giving the Company the benefit of the familiarity and insight into the Company’s affairs that its directors have accumulated during their tenure. Accordingly, the process of the Committee for identifying nominees reflects the Committee’s practice of re-nominating incumbent directors who continue to satisfy the Committee’s criteria for membership on the Board, whom the Committee believes continue to make important contributions to the Board and who consent to continue their service on the Board. Consistent with this policy, in considering candidates for election at annual meetings of stockholders, the Committee will first determine the incumbent directors whose terms expire at the upcoming meeting and who wish to continue their service on the Board. The Committee will evaluate the qualifications and performance of the incumbent directors who desire to continue their service. In particular, as to each such incumbent director, the Committee will:

 

 

The Committee will, absent special circumstances, propose the incumbent director for re-election if the Committee determines that the incumbent director consents to re-nomination, continues to be qualified, has satisfactorily performed his or her duties as director during the preceding term, and there exist no reasons, including considerations relating to the composition and functional needs of the Board as a whole, why in the Committee’s view the incumbent should not be re-nominated.

 

The Committee will identify and evaluate new candidates for election to the Board where there is no qualified and available incumbent, including for the purpose of filling vacancies arising by reason of the resignation, retirement, removal, death or disability of an incumbent director or a decision of the directors to expand the size of the Board. The Committee will solicit recommendations for nominees from persons whom the Committee believes are likely to be familiar with qualified candidates. These persons may include members of the Board and management of the Company. The Committee also may determine to engage a professional search firm to assist in identifying qualified candidates. As to each recommended candidate that the Committee believes merits consideration, the Committee will:

 

 

 

The Committee may, in its discretion, solicit the views of the Chief Executive Officer, other members of the Company’s senior management and other members of the Board regarding the qualifications and suitability of candidates to be nominated as directors. In addition, in its discretion, the Committee may designate one or more of its members to interview any proposed candidate. Based on all available information and relevant considerations, the Committee will select a candidate who, in the view of the Committee, is most suited for membership on the Board.

 

During fiscal 2008, the Company did not pay any fee to a third party to identify or evaluate or assist with the identification or evaluation of director nominees.

 

In making its selection, the Committee will evaluate candidates proposed by stockholders under criteria similar to the evaluation of other candidates, including among others the candidate’s agreement to comply with the Company’s Code of Ethics and the Company’s policies related to trading in the Company’s securities, director ownership of Company stock and majority vote for directors. The Committee may consider, as one of the factors in its evaluation of stockholder recommended nominees, the size and duration of the interest of the recommending stockholder or stockholder group in the equity of the Company. The Committee also may consider the extent to which the recommending stockholder intends to continue holding its interest in the Company, including, in the case of nominees recommended for election at an annual meeting of stockholders, whether the recommending stockholder intends to continue holding its interest at least through the time of such annual meeting.

 

Nominees for Election at the 2008 Annual Meeting

 

The Nominating and Governance Committee has nominated and recommended Steven L. Fingerhood, Gregory T. Novak, and James R. Riedman for election to the Board by the stockholders at the 2008 Annual Meeting.

 

Candidates Recommended by Stockholders

 

Stockholders may recommend qualified director candidates for consideration by the Nominating and Governance Committee using procedures posted in the “Investor Relations” — “Corporate Governance” section of the Company’s website located at www.harrisinteractive.com. The procedures generally require that the recommendation be submitted in writing by mail, courier, or personal delivery, addressed to: Chairman of the Nominating and Governance Committee of the Board of Directors, c/o Corporate Secretary, Harris Interactive Inc., 60 Corporate Woods, Rochester, New York 14623. The envelope should indicate that it contains a stockholder recommendation for director nomination. Submissions should be as required by the procedures and in general must include:

 

 

 

Nominating recommendations for an annual meeting of stockholders must be received by the Company at least 90 calendar days prior to the first anniversary of the date of the proxy statement for the prior annual meeting of stockholders. The Nominating and Governance Committee will review and evaluate each candidate whom it believes merits serious consideration using the Nominating and Governance Committee Procedures described above.

 

In addition to recommending candidates to the Nominating and Governance Committee, a stockholder may directly nominate a director by giving written notice in proper written form to the Corporate Secretary pursuant to the Bylaws of the Company which are posted in the “Investor Relations” — “Corporate Governance” section of the Company’s website located at www.harrisinteractive.com. To be timely, a stockholder’s notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Company not less than 90 calendar days nor more than 120 calendar days before the first anniversary of the date of the proxy statement for the prior annual meeting of stockholders. To be in proper written form, a stockholder’s notice to the Corporate Secretary must set forth as to each person whom the stockholder proposes to nominate for election as a director:

 

 

In addition, the notice must set forth as to the stockholder giving the notice:

 

 

Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected.

 

During fiscal 2008 the Board determined to discontinue the Research and Development Committee as a standing committee of the Board. The Board as a whole assumed the responsibilities formerly undertaken by that Committee. Dr. Subrata K. Sen and Messrs. Gregory T. Novak and Leonard R. Bayer previously served as members of the Committee, which met once prior to the Board’s action to discontinue the Committee.

 

The Company’s policy is to facilitate communications between stockholders and other interested parties and the Board of Directors. Stockholders wishing to communicate with the Company’s Board of Directors should follow the detailed procedures posted in the “Investor Relations” — “Corporate Governance” section of the Company’s website located at www.harrisinteractive.com. The procedures, as detailed on the website, provide for communications to be in writing and mailed to Board of Directors, Harris Interactive Inc., c/o Harris Beach PLLC, Attention: Beth Ela Wilkens, 99 Garnsey Road, Pittsford, New York 14534. The Board of Directors has adopted a separate procedure for communications regarding accounting, auditing, and financial reporting matters. Communications of this nature should be submitted following the Company’s “Complaint Procedures for Accounting and Auditing Matters” which may be found in the “Investor Relations” — “Corporate Governance” — “Report an Issue” section of the Company’s website located at www.harrisinteractive.com.

 

In September 2006, the Board adopted Governance Guidelines for the Company. A copy of such Guidelines may be found in the “Investor Relations” — “Corporate Governance” section of the Company’s website located at www.harrisinteractive.com. The Guidelines generally describe the respective roles and responsibilities of the Board of Directors and management and the expectations of individual directors. The Guidelines, among other matters,

 

 

 

In addition, the Governance Guidelines establish a majority vote standard for directors, as described below.

 

The Board of Directors has adopted the following policy providing for resignation of a director upon receipt of a greater number of “Withhold” votes than “For” votes in an election of directors.

 

In an uncontested election of directors (i.e., an election where the only nominees are those recommended by the Board of Directors), any nominee for director who receives a greater number of votes “withheld” from his or her election than votes “for” his or her election will promptly tender his or her resignation to the Chairman of the Board following certification of the stockholder vote.

 

The Nominating and Governance Committee of the Board of Directors will promptly consider the resignation submitted by a director receiving a greater number of votes “withheld” than votes “for” his or her election, and will recommend to the Board of Directors whether to accept or reject the tendered resignation. In making its recommendation, the Nominating and Governance Committee may consider any factors or other information that it considers appropriate and relevant, including without limitation, any known stated reasons why stockholders “withheld” votes for election from such director, the length of service and qualifications of the director, the director’s contributions to the Company, and this policy. The Board of Directors will act to accept or reject the tendered resignation, taking into account the Nominating and Governance Committee’s recommendation and any other information and factors it deems relevant, within 90 days after the date of certification of the election results. Promptly after making its decision, the Board of Directors will publicly disclose, by a filing with the SEC, its decision regarding the tendered resignation and the rationale behind it.

 

Any director who tenders his or her resignation pursuant to this provision will not participate in the Nominating and Governance Committee recommendation or Board consideration as to whether or not to accept the tendered resignation.

 

If one or more director’s resignations are accepted by the Board of Directors, the Nominating and Governance Committee will recommend to the Board of Directors whether to fill such vacancy or vacancies pursuant to the provisions of Article III, Section 5 of the Bylaws of the Company, or to reduce the size of the Board of Directors pursuant to the provisions of Article III, Section 1 of the Bylaws of the Company. If the Board of Directors determines to fill such vacancy or vacancies, the Nominating and Governance Committee will nominate a person or persons to fill such vacancy or vacancies for consideration by the Board of Directors.

 

If a director’s resignation is not accepted by the Board of Directors, such director will continue to serve until the expiration of his or her term, or his or her earlier resignation or removal.

 

The information contained in this Audit Committee Report shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C promulgated by the SEC or the liabilities of Section 18 of the Securities Exchange Act, except to the extent that the Company specifically requests that the information be treated as soliciting material or specifically incorporates it by reference into a document filed under the Securities Act of 1933, as amended (the “Securities Act”) or the Securities Exchange Act. The information contained in this Audit Committee Report shall not be deemed to be

incorporated by reference into any filing under the Securities Act or the Securities Exchange Act, except to the extent Harris Interactive specifically incorporates it by reference.

 

The Audit Committee has:

 

 

Based upon its review and discussion with management and the Company’s independent registered public accountants, the Audit Committee recommended to the Board that the Company’s audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2008.

 

Submitted by the Audit Committee of the Board:

 

Mr. Stephen D. Harlan (Chairman)
Mr. David Brodsky
Mr. James R. Riedman
Mr. Howard L. Shecter

 

The information contained in this Compensation Committee Report shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C promulgated by the SEC or the liabilities of Section 18 of the Securities Exchange Act, except to the extent that the Company specifically requests that the information be treated as soliciting material or specifically incorporates it by reference into a document filed under the Securities Act or the Securities Exchange Act. The information contained in this Compensation Committee Report shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Securities Exchange Act, except to the extent Harris Interactive specifically incorporates it by reference.

 

The Compensation Committee:

 

 

Submitted by the Compensation Committee of the Board:

 

Mr. James R. Riedman (Chairman)
Mr. David Brodsky
Mr. Steven L. Fingerhood
Mr. Howard L. Shecter
Mr. Antoine G. Treuille

 

Under the direction of the Compensation Committee, the Company has designed a compensation program for its NEOs (defined below in “Compensation of Directors and Executive Officers”) intended to balance the need to provide compensation competitive with that provided by the Company’s peers with accountability for performance. The program provides:

 

 

While the compensation programs are designed to deliver competitive total compensation by setting targets at approximately the median level of peer group total compensation, the Compensation Committee also believes that it is important to have flexibility to reward performance and to adjust for evolving business conditions. Generally, the Compensation Committee does not adhere to rigid formulas or react to short-term changes in business performance in determining the mix of compensation elements. It relies on the formulaic achievement of financial goals only in the instance of the Company’s Corporate and Business Unit cash bonus plans, and only in part within those plans.

 

Consistent with the Committee’s focus on encouraging collaboration at all levels of the Company, the types of compensation and benefits provided to the NEOs are similar in most respects to those provided to the Company’s other executives. The Compensation Committee avoids providing significant perquisites to NEOs, and has provided only limited severance and change in control protection.

 

Overall Competitive Compensation Package

 

The Company’s compensation programs are designed to deliver competitive total compensation by setting targets at approximately the median level of “Peer Group” total compensation. The Compensation Committee benchmarks not only total compensation but also individual elements (such as base salaries, annual incentive compensation, and equity-based incentives) against those of the Peer Group and other published survey sources. For fiscal 2008, the Peer Group initially reviewed consisted of Arbitron Inc., Autobytel Inc., Forrester Research, Inc., Gartner, Inc., Greenfield Online, Inc., ICT Group, Innotrac Corp., inVentiv Health, Inc., Keynote Systems, Inc., Mapinfo Corp., Netratings Inc., PDI, Inc., Rentrak Corp., and Source Interlink Cos. Frederic W. Cook & Co., the consultant retained by the Compensation Committee with respect to equity compensation and change in control severance arrangements, used the same peer group in January 2008 with the exclusion of Mapinfo Corp. and Netratings Inc. and the addition of Alloy, Inc. and infoUSA (infoGROUP, Inc.). The Compensation Committee also consulted other survey sources, including ECS-Watson Wyatt Data Services — 2006/2007 Survey of Top Management Compensation, and Mercer Executive Compensation Services — 2006 Executive Benchmark Database.

 

Individual factors affecting overall compensation for the Company’s NEOs include:

 

 

NEOs with business unit responsibility are also measured by achievement of targeted client satisfaction scores.

 

Mix of Types of Compensation

 

The Compensation Committee strives to achieve an appropriate mix between types of compensation in order to meet the Company’s objectives. Any apportionment goal is not applied rigidly and does not control compensation decisions. Rather, the Compensation Committee assesses an executive’s total compensation opportunities and whether the Company has provided the appropriate mix of incentives to remain competitive, take into account recent results, and motivate long-term performance. The Committee therefore balances compensation elements that provide a competitive base with those that provide pay for financial performance and those that are aligned with long-term performance of the Company’s stock.

 

The Compensation Committee applies a different mix of base salary and cash bonus compensation to different executive officer positions, and it reviews the mix each year. Cash bonuses range from 50% of base salary for the Chief Executive Officer to 19% of base salary for the Senior Vice President, Global Controller. In order to reach and exceed mean Peer Group total cash compensation, NEOs would need to earn a combination of base salary and performance-based bonus compensation. The Compensation Committee also takes into account historic levels of compensation, retentive value, and targeted performance in establishing bonuses for officers of companies acquired by Harris Interactive who become executive officers of the Company.

 

In addition, prior to January 2008, the Compensation Committee’s general targets with respect to making equity grants to employees and directors of the Company were based on the number of outstanding shares of the Company’s common stock, with targets of between 1.5% and 2% of outstanding common shares on an annual basis, but taking into consideration then existing circumstances such as the Company’s performance in making actual grants. In January 2008, based upon a recommendation of its compensation consultant, the Compensation Committee determined to also take into account shareholder value transfer (“SVT”) methodology, with comparison to Peer Group medians, in determining grants. SVT methodology targets aggregate annual grants based on grant value and cost as a percentage of company market-capitalization value, and then estimates competitive individual allocation amounts. To date, the Compensation Committee’s practice has been to target approximately 65% of grants made in any particular fiscal year for executive officers, with the aggregate of all grants in a particular fiscal year targeted to include a mix of approximately 60% non-qualified stock options and 40% shares of restricted common stock. The Compensation Committee continues to review and consider the appropriate mix of equity grants among categories of recipients and types of equity grants.

 

Base Salary — Remaining Competitive

 

Base salary is part of each executive’s compensation package because the Compensation Committee believes that the Company must guarantee a fixed portion of cash compensation in order to remain competitive in recruiting and retaining executives. Competitive pay practices are the primary determinant of the range within which individual salaries are set.

 

Base salaries are established using Peer Group median compensation as a reference point, and taking into account the level of responsibility and role of the individual NEO. Adjustments are made on a subjective basis taking into account Peer Group references and the executive’s performance. The Compensation Committee reviews base salaries annually, and in the interim if an NEO’s position or responsibilities change. Salaries are not automatically increased if the Committee believes that a raise is not warranted by either individual or Company performance, or that other forms of compensation are more appropriate to further stated objectives.

 

For example, Gregory T. Novak’s base salary has changed in connection with changes in his responsibilities in the Company. His salary was increased in fiscal 2005 to $425,000 when he was named Acting Chief Executive Officer and in fiscal 2006 to $475,000 upon his appointment as Chief Executive Officer. In addition to increases related to changes in responsibility, Mr. Novak’s salary was increased from

$475,000 to $500,000 at the end of fiscal 2006 in order to keep his base salary competitive with the Peer Group. By contrast, salaries of NEOs who did not have a change in responsibilities during the same historic periods were reviewed based upon individual and overall Company performance and Peer Group reports.

 

During fiscal 2008, the responsibilities of Messrs. Novak, Salluzzo, and Vaden and Dr. Terhanian did not change. The Compensation Committee considered Peer Group median compensation as well as overall Company performance, and in the case of Mr. Vaden took into account his base salary increase in April 2007. It determined that base salaries remained reasonably competitive with the Peer Group, and that neither Company overall financial performance nor individual performance justified any base salary increases for the four referenced NEOs. Dr. Terhanian’s base salary, as reflected in his amended and restated Employment Agreement effective September 1, 2007, was increased from $275,000 to $299,000; however the increase reflects exchange rate adjustments that had already occurred, rather than a real increase in base salary realized by him. His salary is paid in US Dollars, but because he works and resides in the United Kingdom, his employment arrangements have provided for adjustments in the US Dollar amount of his salary based upon changes in the exchange rate between the US Dollar and the British Pound intended to keep the salary benefit to him approximately exchange rate neutral.

 

Between July 1, 2007 and March 31, 2008 Leonard R. Bayer’s responsibilities did not change. For fiscal 2008, the Compensation Committee determined that his base salary remained competitive with the Peer Group, and that neither Company overall financial performance nor individual performance justified any base salary increase for fiscal 2008. Mr. Bayer retired from the Company effective March 31, 2008.

 

Bruce A. Anderson joined the Company as President, Harris/Decima on August 16, 2007 as part of the Company’s acquisition of Decima Research, Inc. (“Decima”), a company primarily doing business in Canada. All of Mr. Anderson’s compensation arrangements were negotiated as part of, and became effective upon closing of, the acquisition and were approved by the Compensation Committee. Under his Employment Agreement with the Company, Mr. Anderson’s base salary was set at 315,000 CAD, intended together with cash bonus arrangements described below to provide him with aggregate compensation approximately equivalent to the aggregate compensation, including perquisites, previously provided by Decima.

 

For fiscal 2009, the Compensation Committee reviewed base salaries of the NEOs and determined that neither Company overall financial performance nor individual performance justified a base salary increase for any of them.

 

Cash Bonus Plan — Linking Compensation to Performance

 

The Company’s cash bonus plans are designed to directly link executive officer’s, including NEO’s, pay to Company, and in some cases specific business unit, performance. Actual payouts under the plans are determined through targeted levels of achievement of specified metrics. The metrics are intended to be those most closely linked to Company performance objectives over which the Compensation Committee believes the plan participants have the most direct control.

 

NEO participation in the Company’s cash bonus plans in fiscal 2008 and 2009 follows:

 

Under the Corporate Bonus Plan, a fixed dollar pool is established for each fiscal year, with actual payouts increasing or decreasing based upon achievement of pre-set metrics. Each participant in the Corporate Bonus Plan is allocated a specified percentage of the pool.

 

A pool of $945,000 was established for fiscal 2008. For NEOs, the applicable metric in fiscal 2008 was “Adjusted EBITDA” (EBITDA adjusted to remove the effect of non-cash stock-based compensation expense). In order for a participant in the Corporate Bonus Plan to achieve his or her full personal target bonus, Adjusted EBITDA in fiscal 2008 would have to have been 4% greater than budget. Based upon better or worse performance, bonus payouts could increase or decrease. Absent any discretionary allocation, 64% of the targeted bonus pool would have been payable if performance was equal to budget. No bonus would have been payable if performance was less than 90% of budget in fiscal 2008, and in fact no bonus was paid to the NEO participants in the Corporate Bonus Plan for fiscal 2008.

 

A pool of $990,000 has been established for fiscal 2009. For NEOs, the applicable metric in fiscal 2009 continues to be Adjusted EBITDA. In order for a participant in the Corporate Bonus Plan to achieve his or her full personal target bonus, Adjusted EBITDA in fiscal 2009 will have to be 128% greater than budget. Based upon better or worse performance, bonus payouts could increase or decrease. Absent any discretionary allocation, 66% of the targeted bonus pool will be payable if performance is equal to budget; and no bonus will be payable if performance is less than 96% of budget in fiscal 2009.

 

The Compensation Committee reserves the right to modify the payouts that would otherwise be applicable under the Corporate Bonus Plan for any reason, such as to include or exclude items in the pre-tax profit or Adjusted EBITDA calculation that were unexpected and that the Committee believes would cause the calculation, strictly applied, to be unfair to any NEO or to the Company. In fiscal 2008, the Committee did not exercise its discretion to modify payouts.

 

Under the Business Unit Bonus Plan, individual metrics are established for each participant. The following percentages of the bonus for each NEO paid out of the Business Unit Bonus Plan for each of fiscal 2008 and fiscal 2009 are based upon the following individual metrics:

 

 

 

 

 

In addition to his targeted bonus in connection with his participation in the Business Unit Bonus Plan, Mr. Anderson has individual retention and performance bonus arrangements that were negotiated as part of the Company’s acquisition of Decima in August, 2007 and approved by the Compensation Committee at that time. The bonus arrangements are intended to provide incentives for Mr. Anderson to remain with the Company post-acquisition, as well as to reward Mr. Anderson for achievement of targeted performance for Canadian operations. Mr. Anderson’s individual bonus arrangements provide for the following payments based upon the following factors:

 

 

 

 

For fiscal 2008, Mr. Anderson received 60,000 CAD with respect to his individual retention bonus but did not earn an individual performance bonus.

 

In fiscal 2008, up to an additional $850,000 under the Corporate Bonus Plan and Business Unit Bonus Plan was available to be awarded to participants in either of those plans in the discretion of the Chief Executive Officer, subject in the case of executive officers to approval by the Compensation Committee. No NEO received a payment of any such discretionary amount for fiscal 2008. For 2009, up to 10% of the total bonuses available under the Corporate Bonus Plan and Business Unit Bonus Plan will be available to be awarded to the participants in either of those plans in the discretion of the Chief Executive Officer, subject in the case of executive officers to approval by the Compensation Committee.

 

For fiscal 2009, the Corporate and Business Unit Bonus Plans have a one-time retention modifier. Each bonus-eligible individual who has a satisfactory performance record, and who remains actively employed on the date bonuses are paid in August, 2009, will receive 25% of target bonus whether or not the threshold metrics of the applicable Bonus Plan are achieved. The Company will receive a credit for the amount paid as part of such retention bonus against bonus otherwise earned by each bonus plan participant. The Compensation Committee believes that the retention modifier will assist the Company in retaining employees in the face of increased recruiting pressure by competitors.

 

The Compensation Committee establishes target bonus amounts on a subjective basis after a review of recommendations made by management, Peer Group medians for similarly situated officers, the number of participants in the Company’s bonus plans, the aggregate of target bonuses under those plans as a percentage of overall Company expense, the relative roles and responsibilities of the various officers

covered by the bonus plans, the relative ability of the respective officers to impact overall Company performance, and the mix of other salary and equity incentive compensation for each covered individual. Targets are intended to reflect a meaningful percentage of total compensation. Target bonuses for each of the NEOs as compared to payouts for fiscal 2008 were as follows:

 

 

Based upon Company and individual performance compared with the respective applicable bonus plan metrics for each respective NEO, only Dr. Terhanian received a performance bonus in fiscal 2008. His bonus was based upon achievement of the metric related to operating income in Europe compared to budgeted operating income for the region, as well as evaluation of his performance against his individual management objectives. Mr. Anderson received his retention bonus but not a performance bonus under his Employment Agreement.

 

Equity Incentive Compensation — Aligning Compensation with Stockholder Value

 

The Compensation Committee seeks to align the interests of the Company’s NEOs with those of its stockholders by providing a significant portion of total compensation in the form of equity grants, generally through the Company’s 1999 and 2007 Incentive Plans. The Committee also uses equity awards as incentives for NEOs to continue employment with the Company over the longer term, and therefore such awards generally include four-year vesting schedules.

 

Historically, the Company’s equity grants were only in the form of stock options, under which executives recognize value commensurate with increases in long-term stockholder value. Since fiscal 2006 the Compensation Committee also has made restricted stock grants, and in the case of Canadian employees, grants of restricted stock units with terms similar to those applicable to restricted stock grants. Restricted stock provides immediate value to the NEO, but places him or her at risk for actual losses in the event that stockholder value decreases. Both stock options and restricted stock link compensation to long-term performance. Both also have a retentive effect because they vest over a period of time. Beginning in fiscal 2008, certain restricted stock awards granted to NEOs also were more closely linked to individual performance as well as stockholder value because vesting requires not only continued service but also achievement of specific performance targets identified by the Compensation Committee at the time of the grant.

 

The equity incentives provided to each individual are based upon industry competitive practices and comparison to the Company’s Peer Group (described above), advice from the Compensation Committee’s compensation consultant, and judgments made by the Compensation Committee as to the individual’s relative position, responsibilities, and historical and expected contributions to the Company. The Committee also takes into account the individual’s existing stock ownership, previous stock-based grants, and whether previous grants have in-the-money value for retentive purposes. Primary weight is given to relative rank and responsibilities, with reference to Peer Group medians for particular positions. Initial grants designed to recruit an executive officer to join the Company have been based on negotiations with the officer and reference to the Company’s historical option grants to existing executive officers.

 

Prior to January 2008, the Compensation Committee’s general targets with respect to making equity grants to employees and directors of the Company were based on the number of outstanding shares of the Company’s common stock, with targets of between 1.5% and 2% of outstanding common shares on an annual basis, but taking into consideration at the time of making any actual grants then existing circumstances such as the Company’s performance. In January 2008, based upon a recommendation of its

compensation consultant, the Compensation Committee determined to also take into account SVT methodology, with comparisons to Peer Group medians, in determining grants. Approximately 65% of grants have generally been targeted for executive officers, who the Committee believes have the greatest ability to impact overall performance of the Company, with the aggregate of all grants in a particular fiscal year targeted to include a mix of approximately 60% non-qualified stock options and 40% shares of restricted common stock.

 

Beginning in fiscal 2006, the Compensation Committee targeted an approximate mix of 60% stock options and 40% restricted stock as providing an effective balance between providing retentive value to the Company’s NEOs and further incentivizing the NEOs to deliver long-term value to the Company’s stockholders. Stock options provide incentives for the delivery of long-term value to stockholders because the options only have value to the NEOs to the extent that the price of the Company’s stock on the date of exercise exceeds the exercise price on the grant date. Their retentive value is limited because they have value only if the stock price increases over the term of the award. Restricted stock has more retentive value than stock options because it offers immediate value to executives which can be lost if the executive does not remain with the Company until the restrictions lapse. In addition, restricted stock closely aligns the interests of NEOs with stockholders because NEOs suffer the same loss of value as other stockholders if the Company’s stock price declines. Thus, restricted stock serves not only to reward and retain executives, but also to place them at risk for decreases in stockholder value.

 

Under the Company’s Incentive Plans, stock options are granted at fair market value and generally vest over a four-year period. 25% become exercisable on the one-year anniversary of the grant date, with the remainder vesting ratably over the remaining 36 months.

 

The Compensation Committee awards restricted stock at the market price on the date of grant, typically with a four-year forfeiture schedule. Historically, forfeitures lapsed on the same schedule as the Committee uses for stock option vesting. Starting with grants made during fiscal 2008, forfeitures of 25% of restricted stock awards lapse on each of the first four anniversaries following the award date.

 

Beginning in fiscal 2008, the Compensation Committee determined to make certain performance-based restricted stock awards to certain NEOs, based upon the Committee’s belief that performance-based awards provide additional linkage between executive compensation and longer term growth of the Company. These awards may fully vest in less than four years and generally will include performance-based vesting requirements in addition to the continued service requirement.

 

Under the terms of the 1999 Incentive Plan, 2007 Incentive Plan, and agreements related to awards granted outside of the Incentive Plans to new hires, all of the equity awards granted by the Company vest immediately upon a change in control of the Company. The Compensation Committee believes that the four-year vesting schedule contributes to the Company’s ability to retain executives and motivate long-term performance under normal circumstances. However, during a transition period in the event the Board decides to pursue a change in control transaction, accelerated vesting upon a change in control provides an incentive to employees to remain with the Company and recognizes that the linkage between performance and stockholder value will not be the same after the change in control. The Compensation Committee will continue to review, with respect to future equity grants, whether vesting will be automatic upon a change in control transaction, or will occur only upon termination of the grant recipient under specified circumstances following a transaction.

 

In fiscal 2008, the Compensation Committee considered the factors described above and reviewed both the incentive and retentive value of equity grants previously made to the NEOs and other employees. Among others, the Compensation Committee considered an analysis prepared by its compensation consultant which included a Peer Group median comparison for competitive value of annual grants and carried-holdings by executives in comparable positions, as well as a competitive analysis of the terms of the Company’s grants related to change in control transactions.

 

In August 2007, the Compensation Committee granted both stock options and performance-based shares of restricted stock to Messrs. Novak, Salluzzo and Bayer, and Dr. Terhanian. After consideration of

grants that Mr. Vaden received in fiscal 2007, the Compensation Committee determined not to make any additional award to Mr. Vaden. The restricted stock awarded to the NEOs in August 2007 provided for forfeiture unless the Company achieved threshold 20.3% year-over-year revenue growth, adjusted for acquisitions, in fiscal 2008 with minimum Adjusted EBITDA of 9.5%. For performance above the minimum thresholds, the shares would vest proportionately with better results based upon a 60% Adjusted EBITDA-40% revenue growth weighted average. The August 2007 performance-based restricted stock awards all were forfeited for failure to meet the performance standards.

 

In February 2008, the Compensation Committee, with the assistance of its compensation consultant, continued its review of both the incentive and retentive value of equity grants previously made to the NEOs. The Committee made an award of restricted stock to Messrs. Novak and Salluzzo, 25% of which would vest over four years, and 75% of which was performance-based. The performance-based restricted stock will be forfeited if the executive leaves the Company prior to vesting, and will vest immediately and only upon achievement by the Company of Basic Net Income Per Share from Continuing Operations (EPS), as reflected in its Consolidated Statements of Operations filed with the SEC in its Quarterly Reports on Form 10-Q and Annual Report on Form 10-K, of at least an aggregate of $.32 per share for at least one consecutive four-fiscal-quarter period (a currently reported period plus the trailing three fiscal quarters) that ends on or before December 31, 2012.

 

As part of negotiation of the acquisition of Decima, the Compensation Committee agreed to make equity grants to Mr. Anderson, which included a grant of both stock options and restricted stock units, both of which vest over the Company’s standard four-year period with accelerated vesting upon a change in control of the Company.

 

Other Compensation

 

Deferred Compensation Plans

 

The Company does not offer any deferred compensation plans to its executives other than the 401(k) Plan available to all employees, described below.

 

401(k) Plan

 

The Company maintains a 401(k) Plan for its employees, including executive officers, to encourage employees to save some percentage of their cash compensation, through voluntary deferrals, for their eventual retirement. The 401(k) Plan permits employees to make such deferrals in a tax efficient manner. The Company may, in its discretion, match employee deferrals. For fiscal 2008, the Company made matching contributions equal to 50% of the first 8% of compensation deferred by employees with a cap of $4,000 (subject to IRS limits and non-discrimination testing). Contributions for the first three fiscal quarters were matched with Company stock. Commencing in the fourth fiscal quarter contributions were and will in the future be matched with cash.

 

Perquisites and Other Benefits

 

Incidental to their employment by, and the nature of their duties to, the Company, the NEOs receive some compensation in the forms of perquisites and personal benefits. For fiscal 2008, of the NEOs, only Dr. Terhanian received total perquisites that exceeded $10,000. The most common forms of perquisites provided by Harris Interactive to its NEOs are additional life insurance and reimbursement of attorney’s fees in connection with negotiation of employment agreements, the cost of which is disclosed in the footnotes to the Summary Compensation Table below. The Committee believes that providing additional protection for the families of the Company’s NEOs alleviates personal concerns and focuses their attention on the business of the Company. Dr. Terhanian receives certain perquisites related to his Company-requested temporary relocation to Europe, including an apartment allowance, two round-trip coach class airfares to the United States for personal visits, and assistance with tax filings. The aggregate amount of such perquisites received by Dr. Terhanian during fiscal 2008 is included in the Summary Compensation Table below.

Post-Termination Compensation

 

The Company has entered into employment agreements with certain of its executives, including each of the NEOs. These agreements provide for certain severance payments, described below under “Potential Payments Upon Termination or Change in Control”, if the executive’s employment terminates without cause or for good reason, including such a termination in the first year following a change in control. The agreements also provide for severance if an NEO’s employment agreement is not renewed by the Company at the end of each annual term. In addition, if there is a change in control, all equity based compensation automatically vests.

 

The Compensation Committee believes that these arrangements are important as a recruitment and retention device, as most of the companies with which Harris Interactive competes for executive talent have similar agreements in place for their executives. In addition, to the extent that these arrangements apply to a change in control, they help alleviate any concern NEOs might have regarding their own continued employment following any change in control, and also help incentivize the NEOs to remain with the Company to assist in any change in control transaction the Board determines is appropriate to pursue.

 

The Company links severance benefits to agreements by the NEOs not to disclose the Company’s confidential information, not to engage in certain competitive activities, and not to solicit the Company’s employees, customers, and acquisition prospects. An executive will forfeit the right to receive post-termination compensation if restrictive covenants in the employment agreements are breached. The Compensation Committee believes that these provisions provide important protection for the Company’s proprietary information and business.

 

The Company’s agreement with Leonard R. Bayer, formerly the Company’s Executive Vice President, Chief Scientist, and Chief Technology Officer, provided for compensation to Mr. Bayer if he entered into a post-termination 27-month consulting arrangement. In fiscal 2008, the Compensation Committee approved modifications to Mr. Bayer’s employment agreement which eliminated the requirement that he provide consulting services as a condition of post-termination payments, but conditioned such payments on his agreement not to compete with the Company for a period of two years after his retirement, an extension of the one-year period previously provided in his employment agreement.

 

The Compensation Committee also considers the cost and tax and accounting implications of post-termination payment arrangements. Among other factors, the Committee balances protection of its executives upon a change in control with protection for the Company by making severance payments available only if the executive is actually terminated without cause or leaves for good reason after the change in control (a so-called “double-trigger” precondition). The Committee also provides the excess parachute payment protection, described in “Tax and Accounting Considerations” below, to a limited number of employees including Messrs. Novak, Salluzzo and Vaden and Dr. Terhanian. In the case of Mr. Vaden and Dr. Terhanian, it further limits any such reimbursement for only the initial excise tax imposed and the initial tax on such reimbursement, if any.

 

The Compensation Committee has primary responsibility for assisting the Board in developing and evaluating potential candidates for executive positions, including the CEO, and for overseeing the development of executive succession plans. The Compensation Committee oversees the design, development and implementation of the compensation for the CEO and the other NEOs.

 

For the CEO, the Nominating and Governance Committee of the Board approves goals and objectives. The Board Chairman and the Compensation Committee conduct a thorough performance evaluation of the CEO in light of the established goals and objectives, including among others interviews with persons with whom the CEO has regular interaction. The Compensation Committee then recommends all forms of CEO compensation, taking into account the goals and objectives of the Company’s overall compensation program, to the Nominating and Governance Committee, which has final approval authority over his

compensation package as well as the target goals and objectives against which his performance will be measured.

 

For other executive officers, the CEO and the Compensation Committee together assess performance and determine individual compensation, based on initial recommendations from the CEO and the Executive Vice President, Human Resources. The executive officers do not play a role in determining their own compensation, other than discussing individual performance objectives with the CEO and Executive Vice President, Human Resources. In all instances, the Compensation Committee exercises its discretion in modifying any recommended adjustments or awards to executives.

 

From time to time, the CEO and the Executive Vice President, Human Resources recommend equity awards to be made under the 2007 Incentive Plan. The Compensation Committee, which has exclusive authority to make such awards to the CEO and other executive officers, considers such recommendations together with information provided by compensation consultants and other factors, in determining whether to make such awards.

 

Neither the Company nor the Compensation Committee has an on-going contractual arrangement with any compensation consultant who has a role in determining or recommending the amount or form of executive officer or director compensation. The Compensation Committee does retain compensation consultants to assist it with specific issues from time to time.

 

In fiscal 2008, the Compensation Committee retained Frederic W. Cook & Co., Inc. to provide information, analysis, and recommendations to the Committee, specifically regarding long-term incentive compensation and post-termination and change in control compensation. The consultant was chosen and retained directly by, and reported directly to, the Compensation Committee. Management assisted the compensation consultant by providing background information. As discussed above, the Compensation Committee considered the recommendations of the consultant together with other factors in reaching decisions as to compensation in fiscal 2008.

 

The Compensation Committee has established a policy regarding the dates for making grants of options, restricted stock, and restricted stock units under the 2007 Incentive Plan. Except in the case of awards made in connection with acquisitions or other extraordinary circumstances, awards are made only on the 15th calendar day of the month in which quarterly results are publicly announced or, if results are not announced by that time, seven days following their public release. These dates were established so that grants would be effective at a time when the Company expects the most current information regarding its performance to be available to the public market. However, because the award dates are pre-determined, some awards may be made at a time when the Company is in possession of material non-public information. The exercise price of each stock option awarded and to be awarded under the 1999 Incentive Plan and 2007 Incentive Plan was and will be the closing price of the Company’s stock on the date of grant.

 

The Compensation Committee administers the 1999 Incentive Plan and the 2007 Incentive Plan, taking into account recommendations from management. The Committee selects those individuals to whom equity-based awards should be granted and determines the amount and terms of those awards. The Compensation Committee has delegated authority under the 2007 Incentive Plan to the Chief Executive Officer and the Executive Vice President, Human Resources to grant stock options to: (i) employees who are not executive officers, limited to a maximum of 45,000 options per grant to senior vice presidents, 15,000 per grant to vice presidents, and 10,000 per grant to other employees, and (ii) new hires who will not be executive officers, limited to a maximum of 45,000 options per grant to senior vice presidents, 10,000 per grant to vice presidents, and 5,000 per grant to other employees. The Committee also has delegated authority under the 2007 Incentive Plan to the Chief Executive Officer, acting as a Board Committee of one, to grant restricted stock to employees who are not executive officers, but to date the

CEO has not exercised such authority and the Committee currently intends to continue to make such grants itself where practical.

 

During fiscal 2007, the Compensation Committee adopted guidelines for stock ownership for certain executive officers. The guidelines will require each of Messrs. Novak, Salluzzo and Vaden to own Company stock with a value equal to one- times base salary by July 1, 2013. Any person appointed in the future to serve as Chief Executive Officer, Chief Financial Officer or Chief Operating Officer must meet the same requirement within five years after the date of appointment to the covered position. Shares held in the Company’s 401(k) Plan, 1999 Employee Stock Purchase Plan, and 2007 Employee Stock Purchase Plan, as well as vested and unvested non-performance-based restricted stock, count toward the requirement, but unexercised stock options and unvested performance-based restricted stock do not.

 

The Company’s policies prohibit all insiders, including NEOs, from hedging the risk associated with stock ownership without express consent of the Board of Directors.

 

Section 162(m) of the IRC generally denies publicly-held corporations a federal income tax deduction for compensation exceeding $1,000,000 paid to the Chief Executive Officer or any of the four other highest paid executive officers, excluding performance-based compensation. Through June 30, 2008, this provision has not limited the Company’s ability to deduct executive compensation. The Compensation Committee will continue to monitor the potential impact of Section 162(m) on the Company’s ability to deduct executive compensation, and in particular will review the effect of recent Internal Revenue Service rulings related to performance-based compensation in change in control situations. The 1999 Incentive Plan and the 2007 Incentive Plan have been designed, and are intended to be administered, in a manner that will enable the Company to deduct compensation attributable to options and certain other awards thereunder, without regard to the deduction limitation established by Section 162(m).

 

Section 409A of the IRC generally changes the tax rules that affect most forms of deferred compensation that were not earned and vested prior to 2005, and imposes an additional tax on certain forms of deferred compensation. The Committee takes Section 409A into account in determining the form and timing of compensation paid to the Company’s executives, and Section 409A is generally not applicable to the compensation provided by the Company.

 

Sections 280G and 4999 of the IRC limit the Company’s ability to take a tax deduction for certain “excess parachute payments” (as defined in Sections 280G and 4999) and impose excise taxes on each executive that receives “excess parachute payments” in connection with his or her severance from the Company in connection with a change in control. The Compensation Committee considers the adverse tax liabilities imposed by Sections 280G and 4999, as well as other competitive factors, in structuring certain post-termination compensation payable to the Company’s NEOs. The Committee balances the potential adverse tax consequences to the Company and the executive, and in the case of Dr. Terhanian and Mr. Vaden, limits the extent of reimbursement for excise taxes on excess parachute payments.

 

The Company expenses stock option and restricted stock grants under Statement of Financial Accounting Standards (“SFAS”) No. 123R, Share-Based Payment, and has done so since adopting SFAS No. 123(R) on July 1, 2005. More information regarding the application of SFAS No. 123(R) by the Company may be found in Note 13 to the Company’s audited financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2008.

 

Information in this section is provided for our Chief Executive Officer, Chief Financial Officer, the three other executive officers most highly compensated in fiscal 2008 serving as executive officers at the end of fiscal 2008, and one individual, Mr. Bayer, who would have been one of the three most highly compensated officers had he been serving at the end of the fiscal year, determined using the methodology for determining “total compensation” provided by the SEC (collectively, our “NEOs”). The following table sets forth the name, age and position of the Company’s NEOs. Mr. Bayer retired effective March 31, 2008. Each of the other NEOs has been appointed by and is serving at the pleasure of our Board.

 

 

The business experience of each of the NEOs, as well as information regarding the other executive officers and certain key employees of the Company, is set forth in the Company’s Annual Report on Form 10-K filed with the SEC for the fiscal year ended June 30, 2008.

 

The following table and accompanying footnotes provide information regarding compensation of our NEOs for fiscal years 2007 and 2008:

 

 

 

 

 

 

 

 

 

Each of the NEOs is a party to an employment agreement with the Company that covers, among other items, the non-equity based compensation described above. The material terms of such employment agreements are discussed below in “Employment Agreements” and in “Potential Payments Upon Termination or Change in Control.” For further discussion regarding the determination of base salary and incentive compensation within the context of total compensation, see “Compensation Discussion and Analysis — Mix of Types of Compensation” above.

 

The following table and accompanying footnotes provide information regarding grants of stock options and restricted stock to our NEOs in fiscal 2008:

 

Grants of Plan Based Awards in Fiscal 2008(1)

 

 

 

 

Stock awards reflected in columns (a), (b) and (c) of the table above represent awards of performance-based restricted stock. In each case:

 

 

The performance-based restricted stock awards granted on August 31, 2007 to Messrs. Novak and Salluzzo and Dr. Terhanian had the following vesting terms. If, as determined on August 31, 2008, the Company’s EBITDA with stock compensation expense added back (“Adjusted EBITDA”) as a percentage of revenue, and the Company’s revenue, for fiscal 2008 were at least 9.5% and $254,800,000 respectively (the “2007 Award Target Threshold”), 75.8% of the restricted stock award would vest. If the 2007 Award Target Threshold was not met, all of the restricted stock award would be forfeited. If Adjusted EBITDA and/or revenue was higher than the 2007 Award Target Threshold, up to a maximum of 100% of the restricted stock award would vest based upon a sliding scale weighted 60% to Adjusted EBITDA as a percentage of revenue and 40% to revenue. The lowest revenue growth at which full vesting would occur would be approximately 21.0% which would require Adjusted EBITDA to be approximately 13.0%, and the lowest Adjusted EBITDA at which full vesting would occur would be approximately 11.7% which would

require revenue growth to be approximately 25.1%. Based upon the Company’s actual fiscal 2008 results, all performance-based restricted stock granted on August 31, 2007 was forfeited.

 

The performance-based restricted stock awards granted on February 15, 2008 to Messrs. Novak and Salluzzo will vest if the Company’s Basic Net Income Per Share from Continuing Operations (“EPS”), as reflected in its Consolidated Statements of Operations filed with the Securities and Exchange Commission in its Quarterly Reports on Form 10-Q and Annual Report on Form 10-K, equals at least an aggregate of $.32 per share (“EPS Target Threshold”) for at least one consecutive four-fiscal-quarter period (a currently reported period plus the trailing three fiscal quarters) that ends on or before December 31, 2012. If the EPS Target Threshold is met on or before December 31, 2012, 100% of the restricted stock award will vest. If the EPS Target Threshold is not met by that date, or if the executive’s employment terminates for any reason prior to vesting, all of the restricted stock award will be forfeited. Vesting is accelerated upon a change in control of the Company. The EPS Target Threshold was not yet met as of June 30, 2008.

 

Stock awards reflected in column (d) of the table above represent awards of time-based restricted stock. Stock options reflected in column (e) of the table above were issued at fair market value on the date of the grant and have a ten year term. In the case of both time-based restricted stock (column (d)) and options (column (e)):

 

 

The following table provides information regarding unexercised stock options and unvested restricted stock awards held by our NEOs as of June 30, 2008.

 

Outstanding Equity Awards at 2008 Fiscal Year End

 

 

 

 

The following table provides information with regard to the amounts paid or received by the NEOs during fiscal 2008 as a result of the exercise of stock options or the vesting of restricted stock awards.

 

Fiscal 2008 Option Exercises and Stock Vested

 

 

 

 

The Agreements and Responsibilities of NEOs

 

Gregory T. Novak serves as President and Chief Executive Officer of the Company pursuant to an Employment Agreement dated April 30, 2007, amended February 8, 2008 (the “Novak Agreement”). Ronald E. Salluzzo serves as Executive Vice President, Chief Financial Officer, Treasurer and Secretary of the Company pursuant to an Employment Agreement dated April 30, 2007, amended February 8, 2008 (the “Salluzzo Agreement”). Leonard R. Bayer served as Executive Vice President, Chief Scientist, and Chief Technology Officer of the Company pursuant to an Employment Agreement dated April 30, 2007, amended February 26, 2008 (the “Bayer Agreement”) until his retirement on March 31, 2008. David B. Vaden serves as

President, North America and Global Operations of the Company pursuant to an Employment Agreement dated April 30, 2007, amended April 30, 2008 (the “Vaden Agreement”). George H. Terhanian, PhD, serves as President, Harris Interactive Europe and Global Internet Research pursuant to an Employment Agreement effective September 1, 2007, amended April 30, 2008 (the “Terhanian Agreement”) which replaced a letter agreement dated September 6, 2002 and an Agreement provided by the Company in 2003 related to change in control. Bruce A. Anderson serves as President, Harris/Decima pursuant to an Employment Agreement dated August 16, 2007 (the “Anderson Agreement”). The Novak Agreement, Salluzzo Agreement, Bayer Agreement, Vaden Agreement, Terhanian Agreement are collectively referred to as the “US Employment Agreements” and together with the Anderson Agreement are collectively referred to as the “Employment Agreements”.

 

Each of the US Employment Agreements provides that the executive will continue to be employed in the position described above; provided, however, his responsibilities and title may be changed to a position no less senior and executive in nature within the Company. In the case of a change in control, his title, reporting line, responsibilities, and duties may be changed in line with the change in the part played by the Company in the controlling person (for example, executive duties may be at a divisional, subsidiary, or group level, if the Company becomes a division, subsidiary, or group within the controlling person). The Anderson Agreement provides that his duties may be changed from time to time; provided, however, they shall (i) include overall coordination and direction of Decima, including involvement in development of strategy, and (ii) be no less senior and executive in nature than those of the president of a significant operating group within the Company.

 

The Bayer Agreement did not require Mr. Bayer to devote full time efforts to the performance of his duties, but did require him to devote approximately sixty percent of the time and efforts as he devoted to such duties prior to 2005.

 

Each of Mr. Novak’s and Mr. Bayer’s agreements requires the Nominating and Governance Committee to nominate and recommend him for election as a director at each annual meeting of stockholders coinciding with the expiration of his term as a director, but failure of the stockholders to elect the executive does not constitute a breach of the agreement. The agreements also require Mr. Novak and Mr. Bayer, as applicable, to resign from the Board on the date on which his employment terminates for any reason. Mr. Bayer resigned from the Board effective upon his retirement from the Company on March 31, 2008.

 

Term and Termination of the Agreements

 

Each of the US Employment Agreements terminates on (i) June 30, 2008 (subject to renewal as described below) or (ii) the executive’s death, unless the executive’s employment is earlier terminated by either party in accordance with the terms of the employment agreement. Each of the US Employment Agreements provides that on June 30, 2008 and each June 30 thereafter, the executive’s employment will be automatically extended for additional successive one year terms, unless either the executive or the Company gives the other at least three months written notice of non-renewal, none of which has been given to date.

 

The Anderson Agreement may be terminated by either Decima or Mr. Anderson with or without cause upon notice to the other.

 

The Bayer Employment Agreement terminated effective with Mr. Bayer’s retirement on March 31, 2008. The Company’s obligations related to his retirement are described in “Other Obligations” below.

 

The Company and each executive may terminate the other respective US Employment Agreements at any time. Under the US Employment Agreements, termination by the Company may be with or without “Cause,” and termination by the executive may be with or without “Good Reason. “Cause” includes:

 

 

 

“Good Reason” includes:

 

 

The effect of termination of the executive under various circumstances, including with Cause, without Cause, with Good Reason, without Good Reason, on death or disability, and in the case of a change in control, is detailed below under “Potential Payments Upon Termination or Change in Control.”

 

Base Salary and Bonus

 

Each of the Employment Agreements provides for base salary and an annual target bonus. The amounts as of the date of each such Agreement, which remain unchanged, are shown below and are subject to annual review by the Compensation Committee, but not reduction below the amounts shown:

 

 

 

 

The Compensation Committee establishes the annual performance requirements for earning bonuses based upon factors described above in “Compensation Discussion and Analysis — Implementing the Compensation Committee’s Objectives — Cash Bonus Plan — Linking Compensation to Performance”.