UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES

EXCHANGE ACT OF 1934

 

Filed by the Registrant þ

 

Filed by a Party other than the Registrant o

 

Check the appropriate box:

 

o  Preliminary Proxy Statement

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

þ  Definitive Proxy Statement

o  Definitive Additional Materials

o  Soliciting Material Pursuant to §240.14a-12

 

NeuStar, Inc.

(Name of Registrant as Specified in Its Charter)

 

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

 

Payment of Filing Fee (Check the appropriate box):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fellow Stockholders:

 

We are pleased to invite you to attend the 2010 Annual Meeting of Stockholders of Neustar, Inc. to be held on Wednesday, June 23, 2010 at 5:00 p.m. local time, at the Hyatt Regency Reston, located at 1800 Presidents Street, Reston, Virginia 20190.

 

Details regarding admission to the Meeting and the business to be conducted are more fully described in the accompanying Notice of Annual Meeting of Stockholders and proxy statement.

 

Your vote is important. Whether or not you plan to attend the Meeting, we hope you will vote as soon as possible. You may vote over the Internet, by telephone or by mailing a proxy or voting instruction card. Voting over the Internet, by phone or by written proxy will ensure your representation at the Meeting regardless of whether you attend in person. Please review the instructions on the proxy or voting instruction card regarding each of these voting options.

 

Thank you for your ongoing support of and continued interest in Neustar.

 

Sincerely,

 

 

Jeffrey E. Ganek
Chairman of the Board and
Chief Executive Officer

 

NEUSTAR, INC.
46000 CENTER OAK PLAZA
STERLING, VIRGINIA 20166

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

June 23, 2010

 

 

By order of the Board of Directors,

 

 

Martin K. Lowen

Senior Vice President, General Counsel and Secretary

 

Important Notice Regarding the Availability of Proxy Materials
for the Annual Meeting of Stockholders to Be Held on June 23, 2010.

 

This 2010 Proxy Statement and 2009 Annual Report are available
at http://www.amstock.com/ProxyServices/ViewMaterial.asp?CoNumber=25439.

 

TABLE OF CONTENTS

 

NEUSTAR, INC.
46000 CENTER OAK PLAZA
STERLING, VIRGINIA 20166

 

PROXY STATEMENT

 

Why did I receive these proxy materials?

 

We are sending you this proxy statement as part of a solicitation by the Board of Directors of NeuStar, Inc. for use at our 2010 Annual Meeting of Stockholders and at any adjournment or postponement that may take place. Unless the context otherwise requires, the terms “us,” “we,” “our,” “Neustar,” and the “Company” include NeuStar, Inc. and its consolidated subsidiaries.

 

You are invited to attend our Annual Meeting of Stockholders on Wednesday, June 23, 2010, beginning at 5:00 p.m. local time (the “Meeting”). The Meeting will be held at the Hyatt Regency Reston, located at 1800 Presidents Street, Reston, Virginia 20190.

 

This Notice of Annual Meeting of Stockholders, proxy statement, form of proxy and voting instructions and our 2009 Annual Report are first being mailed starting on or around May 7, 2010.

 

Do I need a ticket to attend the Meeting?

 

You will need an admission ticket or proof of ownership to enter the Meeting. An admission ticket is attached to your proxy card if you hold shares directly in your name as a stockholder of record. If you plan to attend the Meeting, please vote your proxy but keep the admission ticket and bring it with you to the Meeting.

 

If your shares are held beneficially in the name of a bank, broker or other nominee and you plan to attend the Meeting, you must present proof of your ownership of Neustar stock, such as a bank or brokerage account statement, to be admitted to the Meeting. If you would rather have an admission ticket, you can obtain one in advance by mailing a written request, along with proof of your ownership of Neustar stock, to:

 

Neustar, Inc.
Attn: Corporate Secretary
46000 Center Oak Plaza
Sterling, Virginia 20166

 

All stockholders also must present a form of personal identification in order to be admitted to the Meeting.

 

No cameras, recording equipment, electronic devices, large bags, briefcases or packages will be permitted in the Meeting.

 

Who is entitled to vote at the Meeting?

 

Holders of Neustar common stock at the close of business on April 26, 2010 (the “Record Date”) are entitled to receive this Notice and to vote their shares at the Meeting. As of the Record Date, there were 74,972,838 shares of Class A common stock outstanding and entitled to vote and 3,082 shares of Class B common stock outstanding and entitled to vote. All holders of common stock shall vote together as a single class, and each holder of common stock is entitled to one vote per share of Class A common stock and one vote per share of Class B common stock on each matter properly brought before the Meeting.

 

What is the difference between holding shares as a stockholder of record and as a beneficial owner?

 

If your shares are registered directly in your name with Neustar’s transfer agent, American Stock Transfer & Trust Company, you are considered, with respect to those shares, the “stockholder of record.” The Notice of Annual Meeting of Stockholders, proxy statement and proxy card and our 2009 Annual Report have been sent directly to you by Neustar.

If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the “beneficial owner” of shares held in street name. The Notice of Annual Meeting of Stockholders, proxy statement and proxy card and our 2009 Annual Report have been forwarded to you by your broker, bank or other nominee who is considered, with respect to those shares, the stockholder of record. As the beneficial owner, you have the right to direct your broker, bank or other nominee on how to vote your shares by using the voting instruction card included in the mailing or by following their instructions for voting by telephone or on the Internet (if available).

 

How do I vote?

 

You may vote using any of the following methods:

 

By Mail

 

To vote by mail, please complete, sign and date the proxy card or voting instruction card and return it in the prepaid envelope. If you are a stockholder of record and you return your signed proxy card but do not indicate your voting preferences, the persons named in the proxy card will vote the shares represented by that proxy as recommended by the Board of Directors.

 

If you are a stockholder of record and the prepaid envelope is missing, please mail your completed proxy card to Neustar, Inc., 46000 Center Oak Plaza, Sterling, Virginia 20166, Attn: Corporate Secretary.

 

By Telephone or on the Internet

 

The telephone and Internet voting procedures established by Neustar for stockholders of record are designed to authenticate your identity, allow you to give your voting instructions and confirm that those instructions have been properly recorded.

 

You can vote by calling the toll-free telephone number on your proxy card. Please have your proxy card in hand when you call. Easy-to-follow voice prompts allow you to vote your shares and confirm that your instructions have been properly recorded. If you are located outside the U.S., see your proxy card for additional instructions.

 

The website for Internet voting is www.voteproxy.com. Please have your proxy card in hand when you go online. As with telephone voting, you can confirm that your instructions have been properly recorded. If you vote on the Internet, you also can request electronic delivery of future proxy materials.

 

Telephone and Internet voting facilities for stockholders of record will be available 24 hours a day, and will close at 11:59 p.m. Eastern Daylight Time on June 22, 2010.

 

The availability of telephone and Internet voting for beneficial owners will depend on the voting processes of your broker, bank or other nominee. Therefore, we recommend that you follow the voting instructions in the materials you receive.

 

If you vote by telephone or on the Internet, you do not need to return your proxy card or voting instruction card.

 

In Person at the Meeting

 

All stockholders may vote in person at the Meeting. You may also be represented by another person at the Meeting by executing a legal proxy designating that person. If you are a beneficial owner of shares, you must obtain a legal proxy from your broker, bank or other nominee and present it to the inspectors of election with your ballot to be able to vote at the Meeting.

 

What can I do if I change my mind after I vote my shares?

 

If you are a stockholder of record, you can revoke your proxy before it is exercised by:

 

 

If you are a beneficial owner of shares, you may submit new voting instructions by contacting your bank, broker or other nominee. You may also vote in person at the Meeting if you obtain a legal proxy as described in the answer to the previous question.

 

All shares that have been properly voted and not revoked will be cast as votes at the Meeting.

 

What shares can I vote?

 

You can vote all shares that you owned on April 26, 2010, the record date. These shares include (1) shares held directly in your name as the stockholder of record; and (2) shares held for you as the beneficial owner through a broker, bank or other nominee.

 

What is “householding” and how does it affect me?

 

We have adopted a procedure, approved by the Securities and Exchange Commission, called “householding.” Under this procedure, stockholders of record who have the same address and last name and do not participate in electronic delivery of proxy materials will receive only one copy of our Notice of Annual Meeting of Stockholders and proxy statement, unless one or more of these stockholders notifies us that they wish to continue receiving individual copies. This procedure will reduce our printing costs and postage fees and conserve natural resources.

 

Stockholders who participate in householding will continue to receive separate proxy cards.

 

If you are eligible for householding, but you and other stockholders of record with whom you share an address currently receive multiple copies of the Notice of Annual Meeting of Stockholders and proxy statement, or if you hold stock in more than one account, and in either case you wish to receive only a single copy of each of these documents for your household, please contact our transfer agent, American Stock Transfer & Trust Company (in writing: 59 Maiden Lane (Plaza Level), New York, NY 10038; from within the United States by telephone: (866) 668-6550; from outside the United States by telephone: (718) 921-8500).

 

If you participate in householding and wish to receive a separate copy of this Notice of Annual Meeting of Stockholders and proxy statement, or if you do not wish to participate in householding and prefer to receive separate copies of these documents in the future, please contact American Stock Transfer & Trust Company as indicated above. Additional copies of this Notice of Annual Meeting of Stockholders and proxy statement will be sent promptly after receipt of your request.

 

Beneficial owners can request information about householding from their banks, brokers or other nominees.

 

Is there a list of stockholders entitled to vote at the Meeting?

 

The names of stockholders of record entitled to vote at the Meeting will be available at the Meeting and for ten days prior to the Meeting for any purpose germane to the Meeting, between the hours of 8:45 a.m. and 4:30 p.m., at our principal executive offices at 46000 Center Oak Plaza, Sterling, Virginia 20166, by contacting the Corporate Secretary of the Company.

 

How can I vote on each of the matters?

 

In the election of directors (Item 1), you may vote “for” all of the nominees, or your vote may be “withheld” with respect to one or more of the nominees. For the ratification of Ernst & Young LLP as our independent registered public accounting firm (Item 2), you may vote “for” or “against,” or you may indicate that you wish to “abstain” from voting on this matter.

 

What are the voting requirements for each of the proposals?

 

The presence of the holders of a majority of the outstanding shares of Class A common stock and Class B common stock entitled to vote at the Meeting, present in person or represented by proxy, is necessary to constitute a quorum. Abstentions and “broker non-votes” are counted as present and entitled to vote for purposes of determining a quorum. A “broker non-vote” occurs when a bank, broker or other nominee holding shares for a beneficial owner

does not vote on a particular proposal because that holder does not have discretionary voting power for that particular item and has not received instructions from the beneficial owner.

 

The election of directors (Item 1) is “non-discretionary,” and brokers who hold shares for the accounts of their clients and who have not received instructions from their clients do not have discretion to vote on this item. If you are a beneficial owner, your bank, broker or other nominee is permitted to vote your shares on the ratification of Ernst & Young LLP as our independent registered public accounting firm (Item 2) even if the bank or broker does not receive voting instructions from you.

 

A plurality of the votes cast is required for the election of directors. Shares present at the Meeting that are not voted for a particular nominee, shares present in person or represented by proxy where the stockholder properly withholds authority to vote for such nominee, and broker non-votes, if any, will not be counted towards such nominee’s achievement of a plurality. Stockholders may not cumulate their votes in favor of any one nominee. As discussed under “Director Resignation Policy” below, our Board of Directors has adopted a policy providing that in any uncontested election of directors, any director nominee who receives a greater number of votes “withheld” from his or her election than votes “for” such election shall tender his or her resignation to the Board within 30 days of certification of the stockholder vote.

 

Under our bylaws, the affirmative vote of the majority of the votes cast affirmatively or negatively is required to ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm (Item 2). Abstentions and broker non-votes, if any, are not counted as votes “for” or “against” this item.

 

If you sign your proxy card or voting instruction card with no further instructions, your shares will be voted in accordance with the recommendations of the Board (“for” all director nominees named in the proxy statement and “for” the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2010).

 

Could other matters be decided at the Meeting?

 

At the date of this proxy statement, we did not know of any matters to be raised at the Meeting other than those referred to in this proxy statement.

 

If other matters are properly presented at the Meeting for consideration, the proxy holders named on the proxy card will have the discretion to vote on those matters for you.

 

Can I access the Notice of Annual Meeting of Stockholders and proxy statement on the Internet?

 

The Notice of Annual Meeting of Stockholders and proxy statement are available at http://www.amstock.com/ProxyServices/ViewMaterial.asp?CoNumber=25439. Instead of receiving future copies of our proxy statement by mail, most stockholders can elect to receive an e-mail that will provide electronic links to them. Opting to receive your proxy materials online will save us the cost of producing and mailing documents to your home or business, and also will give you an electronic link to the proxy voting site.

 

Stockholders of Record:  If you vote on the Internet at www.voteproxy.com, simply follow the prompts for enrolling in the electronic proxy delivery service. You also may enroll in the electronic proxy delivery service at any time in the future by going directly to www.amstock.com and following the enrollment instructions.

 

Beneficial Owners:  If you hold your shares in a brokerage account, you also may have the opportunity to receive copies of these documents electronically. Please check the information provided in the proxy materials mailed to you by your bank or other nominee regarding the availability of this service.

 

Who will pay for the cost of this proxy solicitation?

 

We will pay the cost of soliciting proxies. Proxies may be solicited on our behalf by directors, officers or employees, acting without special compensation, in person or by telephone, electronic transmission or facsimile transmission.

Who will count the vote?

 

Representatives of our transfer agent, American Stock Transfer & Trust Company, will tabulate the votes and act as inspectors of election.

 

How may I obtain Neustar’s Form 10-K and other financial information?

 

A copy of our 2009 Annual Report, which includes our 2009 Form 10-K, has been sent with our Notice of Annual Meeting and Proxy Statement.

 

Stockholders may request another free copy of our 2009 Annual Report, which includes our 2009 Form 10-K, from:

 

Neustar, Inc.
Attn: Corporate Secretary
46000 Center Oak Plaza
Sterling, VA 20166

 

Alternatively, current and prospective investors can access the 2009 Annual Report, which includes our 2009 Form 10-K, and other financial information on our website at www.neustar.biz under the caption “Investor Relations” or on the Securities and Exchange Commission’s website at www.sec.gov.

 

We also will furnish any exhibit to the 2009 Form 10-K if specifically requested upon payment of charges that approximate our cost of reproduction.

 

The Board of Directors has adopted a set of corporate governance principles as a framework for the governance of the Company. The Nominating and Corporate Governance Committee regularly reviews the principles and recommends changes to the Board of Directors as appropriate. Our Principles of Corporate Governance (the “Principles”) are available on our website at www.neustar.biz under the captions “Investor Relations — Principles.” A free printed copy is available to any stockholder who requests it from us at the address on page 5.

 

Among other matters, the Principles contain the following items concerning the Board of Directors:

 

 

 

Jeffrey Ganek currently serves as both our Chairman and CEO, a structure that has served the Company well for many years. Mr. Ganek’s combined role promotes unified leadership and direction for the Company, and it allows for a single, clear focus for management to execute the Company’s strategic initiatives and business plans. It also results in a single leader being directly accountable to the Board, and through the Board to stockholders.

 

The Board believes that strong, independent Board oversight is a critical aspect of effective corporate governance. For this reason, the Board (other than Mr. Ganek) is composed entirely of independent directors, who meet regularly in executive session without management present. In addition, the Board has established the position of lead independent director, with the following roles and responsibilities:

 

 

The Board believes that a single leader serving as Chairman and CEO, together with an experienced and engaged lead independent director, is the most appropriate structure for the Board at this time. However, the Board regularly reviews Board and Company leadership as part of the succession planning process and retains authority to

separate the roles of Chairman and CEO in the future, based on the needs and circumstances of the Company at the time.

 

Our Principles of Corporate Governance include the following provisions concerning director independence:

 

 

 

 

The Board undertook its annual review of director independence in February 2010. Based on the standards set forth in our Principles of Corporate Governance and outlined above, the Board affirmatively determined that current directors Gareth C. C. Chang, James G. Cullen, Joel P. Friedman, Ross K. Ireland, Paul A. Lacouture, Kenneth A. Pickar, Michael J. Rowny, and Hellene S. Runtagh are independent. The Board determined that Jeffrey E. Ganek is not independent as a result of his employment with the Company. In evaluating Mr. Lacouture’s independence, the Board considered that Mr. Lacouture’s son-in-law is a non-executive employee of a customer of the Company, and that Mr. Lacouture has continuing financial ties stemming from his own former employment with that customer. The Board determined that these relationships were not material and did not preclude independence under the standards outlined above.

 

All members of the Audit, Compensation, and Nominating and Corporate Governance Committees must be independent directors as defined by our Principles of Corporate Governance. Members of the Audit Committee must also satisfy additional, heightened independence requirements under Securities and Exchange Commission and New York Stock Exchange rules, which provide that Audit Committee members may not accept directly or indirectly any consulting, advisory or other compensatory fee from the Company (other than Board and committee fees, pensions or other forms of deferred compensation) and may not be affiliated persons of the Company.

 

The Board has a policy providing that in any uncontested election of directors, any director nominee who receives a greater number of votes “withheld” from his or her election than votes “for” such election shall tender his or her resignation to the Board within 30 days of certification of the stockholder vote.

 

In deciding whether to accept the resignation, the Board will consider all factors deemed relevant, including the stated reasons why stockholders who cast “withhold” votes did so, any actions taken to address those stated reasons, the qualifications of the director, and whether the director’s resignation from the Board would be in the best interests of the Company and its stockholders. Only the independent directors, excluding the nominee in question, will decide the nominee’s status.

 

The Board will reach its decision within 90 days of certification of the stockholder vote and will promptly disclose its final decision, together with a full explanation of the process and the reasons for rejecting the tendered resignation, if applicable, in a Form 8-K furnished to the Securities and Exchange Commission. If the Board accepts a director’s resignation under the policy, the Nominating and Corporate Governance Committee will recommend to the Board whether to fill such vacancy or reduce the size of the Board.

 

Our Board of Directors currently has nine seats, divided into three classes: Class I (three seats), Class II (three seats) and Class III (three seats).

 

The Board of Directors met 11 times during 2009. During 2009, each of our directors attended 75% or more of the aggregate of (a) the total number of meetings of the Board of Directors held while a director and (b) the total number of meetings held by all committees on which the director served (during the period in which the director served on such committees). Our Board has adopted a policy that our directors are expected and strongly encouraged to attend each Annual Meeting of Stockholders absent compelling circumstances. All of our directors then on the Board attended our 2009 Annual Meeting of Stockholders.

 

The table below provides the current membership information for the Board of Directors and each standing committee of the Board.

 

 

 

 

The Audit Committee

 

Under the terms of its Charter, the Audit Committee meets at least four times per fiscal year, including periodic meetings in executive session with each of our management, our principal internal auditor, our independent registered public accounting firm (independent auditors), and our General Counsel, and reports regularly to the full Board of Directors with respect to its activities. The Audit Committee represents and assists the Board of Directors

in overseeing the accounting and financial reporting processes of the Company and the audits of our financial statements and internal control over financial reporting, including the integrity of the financial statements; our compliance with legal and regulatory authority requirements; the independent auditors’ qualifications and independence; the performance of our internal audit function and independent auditors; and the preparation of a report of the Audit Committee to be included in our annual proxy statement. The Audit Committee is responsible for:

 

 

 

The Audit Committee has the authority to retain, at Neustar’s expense, such outside counsel, experts, and other advisors as it determines appropriate to assist it in the full performance of its functions.

 

The Audit Committee met 12 times during 2009.

 

The members of the Audit Committee as of the date of this proxy statement are Messrs. Cullen (Chair), Lacouture and Rowny and Ms. Runtagh.

 

The Board of Directors has determined that each of the members of the Audit Committee is independent, as defined by the Company’s director independence standards and the rules of the New York Stock Exchange and the Securities and Exchange Commission, that each such member also meets the heightened standards for Audit Committee independence described under the heading “Director Independence” above, and that each of Messrs. Cullen and Rowny is an “audit committee financial expert” as defined by the Securities and Exchange Commission.

 

The report of the Audit Committee is included on page 52. A copy of the Audit Committee Charter is available on our website at www.neustar.biz, under the captions “Investor Relations — Committee Composition.” A free printed copy is available to any stockholder who requests it from us at the address on page 5.

 

The Nominating and Corporate Governance Committee

 

Under the terms of its Charter, the Nominating and Corporate Governance Committee is responsible for identifying individuals qualified to become Board members, recommending to the Board director candidates for election at the annual meeting of stockholders, developing and recommending to the Board a set of corporate governance principles and undertaking a leadership role in shaping corporate governance. Specifically, the Committee is responsible for:

 

 

 

The Nominating and Corporate Governance Committee has the authority to retain, at the Company’s expense, such outside counsel, experts, and other advisors as it determines appropriate to assist it in the full performance of its functions. The Committee has sole authority to retain and terminate any search firm to be used to identify director candidates, including sole authority to approve the search firm’s fees and other retention terms.

 

The Nominating and Corporate Governance Committee met six times during 2009.

 

The members of the Nominating and Corporate Governance Committee as of the date of this proxy statement are Ms. Runtagh (Chair) and Messrs. Cullen and Rowny.

 

The Board of Directors has determined that each of the members of the Nominating and Corporate Governance Committee is independent, as defined by the Company’s director independence standards and the rules of the New York Stock Exchange.

 

A copy of the Nominating and Corporate Governance Committee Charter is available on our website at www.neustar.biz, under the captions “Investor Relations — Committee Composition.” A free printed copy is available to any stockholder who requests it from us at the address on page 5.

 

The Nominating and Corporate Governance Committee is responsible for recommending candidates for election to the Board and believes that director candidates should have certain minimum qualifications, including the highest level of integrity, maturity of judgment based on a record of senior-level experience, commitment to serving the interests of our stockholders, and a reputation and background that demonstrate that Neustar has a Board with experience that is appropriate and consistent with our long-term vision. Candidates must also have a commitment to devote the time necessary to be active on the Board and the desire and ability to work collegially and as a team with the Board and senior management. Pursuant to our Principles of Corporate Governance, the Committee considers the number of other boards on which the candidate serves. Additionally, as part of the neutrality requirements to which we are subject under Federal Communications Commission rules and orders and certain of our contracts, directors cannot be employees or directors of a telecommunications service provider (“TSP”) or own more than 5% of the voting stock of a TSP.

 

The Committee believes that the Board, as a whole, should include members who collectively bring the following strengths and backgrounds to the Board:

 

 

While the Nominating and Corporate Governance Committee has not adopted a formal policy with regard to diversity, the Committee seeks to achieve a diversity of strengths and backgrounds on the Board, particularly in the areas described above. The Committee further aims to have gender and racial diversity on the Board. The Committee believes that the inclusion of diversity as one of many factors considered in selecting director nominees is consistent with our goal of maintaining a Board that best serves the needs of the Company and the interests of our stockholders.

 

The Nominating and Corporate Governance Committee uses a variety of methods to identify and evaluate nominees for director. Candidates may come to the attention of the Committee through current and former Board members, management, professional search firms (to whom we pay a fee), stockholders or other persons. The Committee evaluates candidates for the Board on the basis of the standards and qualifications set forth above. Additional information about the skills and qualifications of our current directors is set forth on pages 46-49.

 

The Nominating and Corporate Governance Committee has in the past retained, and may in the future retain, a third-party search firm to assist the Committee in identifying and evaluating potential nominees for the Board. The Committee will also consider candidates for director recommended by our stockholders. Any stockholder recommendations proposed for consideration by the Committee should include the candidate’s name and qualifications for Board membership and should be addressed to the Nominating and Corporate Governance Committee, care of our Corporate Secretary, at Neustar, Inc., 46000 Center Oak Plaza, Sterling, VA 20166. Properly submitted candidates who meet the criteria outlined above will be evaluated by the Committee in the same manner as candidates recommended by other sources.

 

In addition, our bylaws permit stockholders to nominate individuals for election at annual stockholder meetings and to solicit proxies in favor of such nominees. The process for nominating directors in accordance with our bylaws is discussed below under the heading “Requirements, Including Deadlines, for Submission of Proxy Proposals, Nomination of Directors and Other Business of Stockholders.”

 

The Compensation Committee

 

Under the terms of its Charter, the Compensation Committee is to assist the Board of Directors in discharging its responsibilities relating to compensation of our executive officers and to produce the annual report on executive compensation to be included in our proxy statement. The Compensation Committee is specifically responsible for:

 

 

 

The Compensation Committee has the authority to retain, at Neustar’s expense, such outside counsel, experts and other advisors as it determines appropriate to assist it in the full performance of its functions.

 

The Compensation Committee met 14 times in 2009.

 

The members of the Compensation Committee as of the date of this proxy statement are Messrs. Friedman (Chair), Chang and Ireland and Dr. Pickar.

 

The Board of Directors has determined that each of the members of the Compensation Committee is independent, as defined by the Company’s director independence standards and the rules of the New York Stock Exchange.

 

Additional information regarding the processes and procedures of the Compensation Committee, the scope of the Committee’s authority, and the role of executive officers and compensation consultants in determining or recommending compensation is set forth below under the heading “Compensation Discussion & Analysis.”

 

A copy of the Compensation Committee Charter is available on our website at www.neustar.biz, under the captions “Investor Relations — Committee Composition.” A free printed copy is available to any stockholder who requests it from us at the address on page 5.

 

The Neutrality Committee

 

Under Federal Communications Commission rules and orders and certain of our contracts, we are required to comply with neutrality regulations and policies. We are examined periodically on our compliance with these requirements by independent third parties. The Neutrality Committee is responsible for receiving reports from the Company’s Neutrality Officer with respect to his or her neutrality functions; reviewing the quarterly attestation reports of the accountants who perform the neutrality procedures; reviewing and approving, as necessary, specific corrective actions based on the findings of the accountants; and reviewing and approving any changes or amendments to the Company’s neutrality compliance procedures.

 

The members of the Neutrality Committee as of the date of this proxy statement are Dr. Pickar (Chair) and Messrs. Ganek and Ireland. The Neutrality Committee met four times during 2009.

 

Executive Sessions

 

Neustar’s independent directors meet in executive session without management present at least quarterly. The lead director, currently James G. Cullen, chairs these executive sessions.

 

Enterprise Risk Management, or ERM, is a company-wide initiative that involves identifying, assessing and managing risks that could affect our ability to meet business objectives or execute our corporate strategy. As part of our ERM process, the Board receives regular reports from management on a broad range of potential risks (including operational, financial, legal and regulatory, human capital, and strategic and reputational risks) and the steps management is taking to manage those risks.

 

While the full Board has general oversight responsibility for ERM, the Board has allocated and delegated certain responsibilities to its committees. Consistent with New York Stock Exchange rules, the Audit Committee reviews and discusses with management and our independent auditors the Company’s major risk exposures and the steps management has taken to monitor and control such exposure. The Audit Committee also discusses guidelines

and policies governing the ERM process. In addition, the Compensation Committee and the Nominating and Corporate Governance Committee receive reports from management and assist the Board in evaluating risks within their purview, as set forth in their charters. When a committee receives a report on material risk, the chair of the relevant committee reports on the discussion at the next full Board meeting. This enables the Board and its committees to coordinate the risk oversight role, particularly with respect to risk interrelationships.

 

The Board’s allocation of risk oversight responsibility, and our overall ERM process, may change from time to time based on the evolving needs of the Company.

 

Stockholders and other interested parties may communicate with the Board of Directors by writing c/o the Corporate Secretary, Neustar, Inc., 46000 Center Oak Plaza, Sterling, Virginia 20166. Communications intended for a specific director or directors, including the lead director or the independent directors as a group, should be addressed to the attention of the relevant individual(s) c/o the Corporate Secretary at the same address. Our Corporate Secretary will review all correspondence intended for the Board and will regularly forward to the Board a summary of such correspondence and copies of correspondence that, in the opinion of the Corporate Secretary, is of significant importance to the functions of the Board or otherwise requires the Board’s attention. Directors may at any time review a log of all correspondence received by the Corporate Secretary that is intended for the Board and request copies of any such correspondence.

 

In addition, the Audit Committee of our Board has established a procedure for parties to submit concerns regarding what they believe to be questionable accounting, internal accounting controls, and auditing matters. Concerns may be reported through our Compliance Hotline at (888) 396-9033, by email to the Audit Committee at CorporateCode@neustar.biz, or through a confidential web form, available at www.neustar.biz under the captions “Investor Relations — Contact the Board.” To the extent permitted by applicable law, concerns may be submitted anonymously and confidentially.

 

Our Board of Directors has adopted a Corporate Code of Business Conduct applicable to all of our directors, officers, employees and contractors providing services to or on behalf of the Company.

 

The Code embodies general principles such as compliance with laws, acting with honesty and integrity, avoidance of conflicts of interest, maintenance of accurate and timely financial and business records, use of the Company’s assets, working with customers, suppliers and governments, and protecting the Company’s information and information regarding other companies. All directors, officers, employees and contractors are obligated to report violations and suspected violations of the Code in accordance with the reporting procedures described in the Code.

 

Our Corporate Code of Business Conduct is available on our website at www.neustar.biz under the captions “Investor Relations — Code of Conduct.” A free printed copy is available to any stockholder who requests it from the address on page 5.

 

The current members of our Compensation Committee, who also served as members of the Committee in 2009, are Messrs. Chang, Friedman and Ireland and Dr. Pickar. No member of the Compensation Committee has been an officer or employee of Neustar or any of our subsidiaries at any time. None of our executive officers serves as a member of the board of directors or compensation committee of any other company that has one or more executive officers serving as a member of our Board or our Compensation Committee.

 

Overview

 

Executive Compensation Programs

 

Our executive compensation programs are designed to create value for our stockholders by supporting the achievement of our business and financial objectives. To this end, we have formulated our programs for executives (including our named executive officers, as defined below) to reward superior financial and operating performance, to align executives’ interests with those of our stockholders, and to encourage talented individuals to join and remain with the Company and contribute to our growth and success.

 

Our executive compensation programs are intended to be both competitive and fair. In determining the types and amount of compensation for each executive, we focus on the executive’s performance and potential, level of responsibility, and current compensation and stock ownership levels, as well as our retention needs and competitive practice. The material elements of our executive compensation programs consist of base salary, annual cash incentive compensation, and equity awards.

 

2009 Named Executive Officers

 

Our named executive officers for 2009 are our Chief Executive Officer, Jeffrey Ganek; our Chief Financial Officer, Paul Lalljie; our former Chief Financial Officer, Jeffrey Babka; our President and Chief Operating Officer, Lisa Hook; our Chief Strategy Officer, John Dziak; and our Chief Technology Officer, Eric Burger. Except where noted below, our analysis of named executive officer compensation for 2009 excludes Mr. Babka, who stepped down as our Chief Financial Officer in January 2009.

 

2009 Performance and Compensation

 

Despite uncertain and challenging economic conditions, the Company achieved solid profitability and cash generation in 2009 against essentially flat revenue growth over 2008. In January 2009, the Company amended its contracts to provide number portability administration services in the United States. Although this amendment contemplated a revenue decline of approximately $29 million in 2009, it allowed for growth through innovation, especially in the world of Internet Protocol, and gave us enhanced visibility and reliability for a substantial portion of our revenue through mid-2015. Given our contract changes and the economic conditions, our focus in 2009 was on improving sales efficiency, managing expenses, and aligning costs with revenue to deliver strong profits and cash generation.

 

(The Company’s financial results for 2009 are discussed in more detail in the Management’s Discussion & Analysis section of our Annual Report on Form 10-K for 2009, as filed with the SEC.)

 

Overall, we believe the compensation paid to our named executive officers for 2009 was fair and consistent with our pay-for-performance philosophy. Through strong execution, including service and sales expansion and cost management efforts, the Company exceeded its revenue and profitability goals for 2009, and our executives received commensurate awards under our annual cash incentive plan. On the other hand, our executives received no payout on the performance share units granted to them for the 2007-2009 performance period, as our cumulative financial results were lower than expected when goals were set in 2007, due to revenue shortfalls in certain parts of our business and our amended number portability contracts. Additionally, many of our executives’ stock options remained underwater in 2009, meaning the option exercise price was greater than the market price. As a result, actual compensation for our executives over the longer term lagged behind reported target (grant date) values.

 

For 2010 and beyond, our focus will remain on pay-for-performance, and we intend to continue linking a significant portion of executive pay to achievement of longer-term financial objectives.

Compensation Objectives

 

Performance

 

The primary objective of our compensation programs is to motivate and reward superior performance. Elements of executive compensation that depend upon performance include:

 

 

We have attempted, and will seek in the future, to remain flexible as to the form of equity compensation that we use. Our equity awards have included stock options, restricted stock and performance share units.

 

Alignment of Interests

 

We seek to align the interests of our executives with those of our stockholders. Elements of compensation that align executive and stockholder interests include:

 

 

As discussed below, we have also adopted management stock ownership guidelines and equity award clawbacks to align executives’ interests more closely with those of our stockholders.

 

Retention

 

Our executive compensation programs are designed to help us attract and retain key management talent. Elements of compensation that encourage our executives to maintain a long-term commitment to Neustar include:

 

 

Implementing Compensation Objectives

 

Determining Compensation

 

In making compensation decisions, we review the performance of the Company and each executive. We also consider the executive’s level of responsibility, the importance of the executive’s role in achieving our corporate objectives, and the executive’s long-term potential, while taking into account his or her current compensation, realized and unrealized equity gains and stock ownership levels, and our stock selling guidelines for executives. Finally, we weigh competitive practice, relevant business and organizational changes, retention needs and internal pay equity. Specific factors that affect compensation decisions for our named executive officers include:

 

 

In order to attract and retain the best management talent, we believe we must provide a total compensation package that is competitive relative to our peers. For this purpose, we consider compensation surveys conducted by Radford, a nationally recognized consulting firm, with a focus on surveys of companies in the technology/communications business service sector that have revenues comparable to ours.

 

In addition to the survey data described above, we consider the practices of specific companies that we have identified as our peers. These public companies are selected annually by the Compensation Committee on the basis of industry (technology), similar business models and comparable financials (including revenues, profitability, market capitalization and growth profiles). For 2009, these companies were:

 

 

In developing this list, the Compensation Committee focused on companies meeting at least two of the following four financial criteria: revenues ranging from $250 million to $1 billion; five-year projected revenue growth (compounded annual growth rate, or CAGR) of at least 20%; earnings before interest, taxes, depreciation and amortization (“EBITDA”) margin of at least 40%; and market capitalization ranging from $1 billion to $5 billion. The peer group for 2009 consisted of eight companies that were used for benchmarking purposes in 2008 and six additional companies that met the above criteria. At the time the Compensation Committee evaluated the 2009 peer group, Neustar’s revenue approximated the 25^th percentile of the peer group, EBITDA margin and market capitalization approximated the median of the peer group, and five-year revenue growth was between the median and 75th percentile of the peer group.

 

After reviewing the survey and peer group data described above, we determine the approximate range within which to target total direct compensation for our executives. Within any range, we incorporate flexibility to respond to and adjust for the evolving business environment and our specific hiring and retention needs. For 2009, excluding Mr. Lalljie’s Interim CFO compensation arrangement and the special new-hire equity awards described under “Compensation of the Named Executive Officers” below, we set overall target total direct compensation for our executives to fall between the median and 75^th percentile of competitive practice, in recognition of the high degree of difficulty associated with meeting our financial and strategic objectives, our aggressive revenue and earnings targets, and our higher than peer group reliance on performance-based compensation. As described below, individual levels may vary from the targeted competitive position based on factors such as individual performance, executive responsibilities relative to benchmark position responsibilities, skill set and experience, and tenure in a particular position.

 

Our compensation programs are designed to strike a balance between cash and equity and between annual and long-term incentives that the Compensation Committee considers appropriate. Our mix of compensation elements is designed to reward near-term results (in the form of annual cash incentive compensation) and motivate long-term performance (in the form of equity awards that vest over multi-year periods and which are based, in the case of performance share units, on the achievement of Company financial objectives). For 2009, approximately one-half to three-fourths of total target compensation for our named executive officers was composed of long-term equity compensation, with the balance being primarily base salary and annual cash incentive compensation.

 

Role of Compensation Committee and Management

 

The Compensation Committee has primary responsibility for overseeing the design and implementation of our executive compensation programs. The Compensation Committee, with input from the other independent directors, evaluates the performance of the CEO. The Compensation Committee then recommends CEO compensation to the independent directors for approval. The CEO and the Compensation Committee together review the performance of our other executive officers and determine their compensation based on recommendations from the CEO and the

Senior Vice President, Human Resources. The CEO, CFO and Senior Vice President, Human Resources also provide information and recommendations to the Compensation Committee regarding Company financial targets under our annual incentive plan and our performance share unit awards, and the cost and dilutive implications of the executive compensation program. The other named executive officers do not play a role in their own individual compensation determinations, other than discussing individual performance objectives with the CEO.

 

As part of its responsibility for overseeing our compensation programs, the Compensation Committee assists management and the Board of Directors in evaluating risks arising from our compensation policies and practices. The Committee believes that our compensation programs are designed with an appropriate balance of risk and reward in relation to the Company’s overall business strategy and do not incent executives to take unnecessary or excessive risks. Among the program attributes that discourage inappropriate risk-taking are:

 

 

Risk oversight is discussed in more detail on page 14.

 

Role of Compensation Consultants

 

The Compensation Committee has retained Frederic W. Cook & Co., Inc. to review market trends and advise the Committee regarding executive compensation. Representatives from Cook are responsible for preparing and reviewing Committee materials, attending Committee meetings, assisting the Committee with program design, and generally providing advice and counsel to the Committee and the Senior Vice President, Human Resources as compensation issues arise. The Committee also looks to Cook for assistance in assessing the competitiveness of our executive compensation programs. In 2009, Cook provided additional guidance to the Committee regarding the design of our 2009 Stock Incentive Plan.

 

Cook reports directly to the Committee, although the Committee has instructed Cook to work with management to compile information and gain an understanding of the Company and any issues for consideration by the Committee. Cook did not receive professional fees from Neustar in 2009 other than in connection with advising the Committee on executive compensation matters and the 2009 Stock Incentive Plan, as described above.

 

Equity Grant Process and Clawbacks

 

All equity grants to our employees, including our named executive officers, are approved by the Compensation Committee. The Committee grants equity awards on an annual basis to employees at an appropriate level of seniority within the Company whose performance and potential contributions warrant such consideration. New hires at this level of seniority are generally granted equity awards upon or shortly after hire. On occasion, special retention and recognition grants are made to individuals deemed critical to retain, difficult to replace or high-potential employees.

 

The exercise price of each stock option awarded to our employees is the closing price of our common stock on the date of grant. If the Committee meets after the release of our quarterly or annual earnings information, the grant date is set as the date of the meeting. If the Committee meets prior to the release of earnings information, the Committee designates a grant date that is several days after the release of earnings information, in order to allow for dissemination of earnings information to the public.

All grants to executives under our 2009 Stock Incentive Plan, and all grants to executives in 2007, 2008 and 2009 under our prior stock incentive plan, include provisions under which the Company can “claw back” shares (or the value thereof) in the event that an executive engages in activity detrimental to the Company. Detrimental activity is defined to include dishonesty, fraud and willful misconduct as well as violation of certain non-compete, non-solicit, confidentiality and other obligations set forth in grant agreements.

 

Stock Ownership Guidelines

 

The Compensation Committee adopted stock ownership guidelines for executives effective January 1, 2008. The guidelines are designed to increase executives’ equity stakes in the Company and to align executives’ interests more closely with those of our stockholders. The guidelines provide that, within five years, the CEO should attain an investment position in Neustar stock equal to at least four times his base salary, the President and COO should attain an investment position equal to at least three times her base salary, and all other executive officers should attain an investment position equal to at least two times their base salary. The number of shares needed to be owned is calculated annually based on the executive’s salary and an average of the prior year’s quarter-end closing stock prices.

 

Shares counted toward meeting the guidelines include shares owned outright by the executive or his or her spouse, including shares acquired upon the exercise of stock options and shares delivered upon vesting of restricted stock; performance shares earned by the executive; deferred stock units; shares held in trust that are included in the executive’s ownership reports filed with the SEC; and shares held in the executive’s retirement accounts. Unexercised stock options and unvested restricted stock or performance share units do not count toward meeting the guidelines.

 

Under the guidelines, each executive is expected to retain a percentage of the shares received from the Company’s equity compensation program (for example, upon the exercise of options, vesting of restricted stock, or receipt of shares under performance-based awards) until his or her expected ownership level is achieved. For the CEO, this retention ratio is 100%; for the President and COO, the retention ratio is 75%; and for all other executive officers, the retention ratio is 50%. The retention ratios only apply to equity awards granted on or after January 1, 2007.

 

As of January 1, 2010, Mr. Ganek met his expected ownership level under the guidelines. Our other executive officers are expected to meet their ownership levels by the later of January 1, 2013 or five years after becoming covered by the guidelines, and are making progress toward meeting the guidelines.

 

Management Stock Selling Guidelines

 

Each year, our Nominating and Corporate Governance Committee and Board of Directors adopt a policy governing sales of Neustar stock by our executives. Like the stock ownership guidelines, the stock selling guidelines are intended to align the interests of executives with those of our stockholders by requiring the executives to retain a meaningful percentage of their equity holdings in the Company. The Compensation Committee considers the impact of the stock selling guidelines, together with realized and unrealized equity gains, when evaluating retention needs and executive compensation generally.

 

Elements Used to Achieve Compensation Objectives

 

Base Salary

 

Base salaries are intended to be commensurate with each executive’s position and level of responsibility. Decisions regarding salary levels also take into account the executive’s current salary, the amounts paid to his or her peers within and outside the Company, and our obligations under existing employment agreements.

 

Base salaries are evaluated annually or as necessary in response to organizational or business changes. Although salaries are considered annually, they are not automatically increased if the Compensation Committee (or the independent directors, in the case of the CEO) believes that they are at appropriate levels or that other elements of compensation deserve greater weight in light of our stated objectives. This is consistent with our goal of offering competitive compensation that is tied to the achievement of our performance objectives.

Base salaries paid to the named executive officers in 2009 are discussed below and shown in the Summary Compensation Table on page 27. In 2009, we set base salaries for the named executive officers (other than Ms. Hook and Mr. Dziak) to fall between the median and 75^th percentile of competitive practice. This competitive positioning is consistent with our targeted competitive positioning of median to 75^th percentile and reflects consideration of existing salary levels and executive responsibilities, skill set and experience. Ms. Hook’s and Mr. Dziak’s base salaries for 2009 were set above the 75^th percentile, reflecting consideration of their skill sets, experience and compensation levels with previous employers.

 

Cash Incentive Compensation

 

Annual cash incentive awards provide an inducement for achieving short-term or annual performance goals that we consider to be important contributors to stockholder value. At the beginning of each year, the Compensation Committee (with the input of the other independent directors) establishes the performance goals and targets applicable under the relevant incentive plan for awards that our executives are eligible to earn for the year. The Committee does this through a two-step process that is designed to meet the requirements for “performance-based compensation” under Section 162(m) of the Internal Revenue Code.

 

First, the Committee establishes a maximum award (or cap) for each executive under our tax-compliant Performance Achievement Reward (PAR) Plan. In 2009, the caps were based on a percentage of Company EBITDA. Second, the Committee considers the business and financial objectives upon which it intends to measure performance and calculate actual payouts to executives, subject to the caps. For 2009, these objectives included corporate, departmental and individual goals (described under “Compensation of the Named Executive Officers — Cash Incentive Compensation” below).

 

After the end of the fiscal year, the Compensation Committee reviews our full-year results against the performance goals previously established for the year. The Committee then determines individual payouts, again in two steps. First, the Committee calculates the maximum amount that could be paid to each executive under the PAR Plan formula. Second, the Committee (and the independent directors, in the case of the CEO) determines the extent to which corporate, departmental and individual performance goals for the year were met and approves an appropriate payout for each executive. Payouts are generally made in February or early March following the performance year.

 

The cash incentive compensation paid to the named executive officers for 2009 is discussed below and shown in the Summary Compensation Table on page 27.

 

Equity Compensation

 

Our equity compensation programs are designed to reward contributions to our financial and operational success, motivate future performance, align the interests of our executives with those of our stockholders, and retain key executives through the term of the awards. When making annual equity grant decisions, we consider competitive market data as well as market practice regarding the types of equity to grant. When making special retention and promotion grants, we also consider the value of existing grants and vesting profiles.

 

Our equity awards have included stock options, performance share units and restricted stock. In 2009, stock options and performance share units were awarded as part of our annual equity compensation program. Restricted stock was used for new hires and to address specific retention and recognition needs. As discussed above, we have attempted, and will seek in the future, to remain flexible as to the form of equity compensation that we use so that we can properly motivate our executives to enhance stockholder value and achieve specific Company objectives.

 

When determining the appropriate mix of equity grants, we weigh the dilutive impact and cost of these grants (determined in accordance with Statement of Financial Accounting Standards, or SFAS, No. 123(R)) with their potential benefits. We believe that providing more than one type of award helps to balance our compensation objectives. For example, stock options have value only to the extent that the price of Neustar stock on the date of exercise exceeds the price on the grant date, and thus are an effective compensation element only if the stock price increases over the term of the award. In this sense, stock options are a motivational tool and are supportive of our growth strategy. Performance share units, which we began using in 2007, are fully at risk and depend upon key

performance measures that drive value for our stockholders, thus aligning the interests of our executives and stockholders. The receipt of shares underlying performance share units is determined entirely by the Company’s achievement of predetermined financial objectives. For 2009, as discussed below, these objectives related to cumulative Company revenue and EBITDA. The Compensation Committee elected to use cumulative revenue and EBITDA for the performance share units because we believe these measures focus our executives on profitable growth that is expected to enhance stockholder value over the longer term. (For a description of how EBITDA is calculated from our audited financial statements, please see page 24.) Finally, restricted stock offers executives the opportunity to receive shares of Neustar stock on the date the restriction lapses. In this regard, restricted stock serves both to reward and retain executives.

 

In managing the overall cost of our equity compensation program, we set an annual budget with respect to total expense and the potential dilutive impact to stockholders. Budgets have been set at levels that we believe are reasonable relative to peer companies, taking into account our compensation objectives, and affordable at various performance levels.

 

The stock options, performance share units and restricted stock awards granted to the named executive officers in 2009 are discussed below and shown in the 2009 Grants of Plan-Based Awards table on page 29.

 

Deferred Compensation

 

In 2008, the Board of Directors approved the Neustar, Inc. Deferred Compensation Plan, which permits employees at the vice president level and above, including the named executive officers, to defer certain elements of compensation in order to delay taxation on such amounts. We believe that this is a standard benefit arrangement commonly offered at companies of our size. Specifically, the Plan permits deferral of up to 75% of base salary and up to 90% of annual cash incentive awards and bonuses. We may elect to provide matching contributions to the extent that deferrals under the Plan have the effect of reducing a participant’s 401(k) compensation (and thus the matching contribution offered to all employees under our 401(k) plan), although we have not done so to date. Amounts deferred or matched under the Plan are credited with investment earnings based on investment options selected by the participants.

 

As shown in the 2009 Nonqualified Deferred Compensation table on page 34, one of our named executive officers elected to participate in the Plan for 2009.

 

Other Compensation

 

In general, our executives receive health and welfare benefits under the same programs and subject to the same eligibility requirements that apply to all Company employees. Likewise, executives participate in our 401(k) plan on the same terms and conditions as apply to other Company employees. We do not provide defined benefit (pension) or supplemental retirement plans for our executives.

 

On occasion, we provide our executives with other benefits that we believe are reasonable, competitive and consistent with our compensation objectives. These benefits, which constitute only a small portion of each named executive officer’s total compensation, are discussed below and shown in the All Other Compensation column of the Summary Compensation Table on page 27.

 

Severance and Change-in-Control Arrangements

 

As discussed under “Potential Payments upon Termination or Change in Control” below, we maintain severance and equity award arrangements that provide benefits to key management employees, including our named executive officers, if they experience specified termination or change-in-control events.

 

We believe that reasonable severance and change-in-control protections for our named executive officers are necessary in order for us to attract and retain qualified executives. We have defined the events that would trigger payments in a manner that we believe is reasonable and consistent with current market practices. For example, the definition of “good reason” in our severance and change-in-control arrangements is intended to be limited to true circumstances of constructive discharge and includes notice and opportunity-to-cure provisions, so that severance rights are not triggered inadvertently. In addition, the rights in our change-in-control arrangements are “double

trigger” — meaning that in order for change-in-control benefits to be payable, there must occur both a change in control and an affirmative action by us or our successor to terminate (or constructively terminate) an executive’s employment. Our change-in-control arrangements also do not provide for excise tax gross-ups. Finally, any payments under our severance plan are conditioned on the executive’s execution of a release of claims and agreement to abide by specific non-compete, non-solicit, confidentiality and other obligations set forth in the plan.

 

We periodically review the necessity and design of our executive severance and change-in-control arrangements. As our needs, the regulatory framework and market practices evolve, we will consider whether changes to our policies are appropriate.

 

Individual Arrangements

 

On occasion, we enter into individual arrangements with our executives. These arrangements are designed to further our compensation objectives and meet specific hiring and retention needs.

 

We entered into two such agreements with Mr. Lalljie in 2009. The first agreement, in January 2009, related to Mr. Lalljie’s appointment as our Interim CFO. Under that agreement, we established that Mr. Lalljie’s base salary would be $300,000 and that he would receive a guaranteed bonus for the period during which he served as Interim CFO and for three months thereafter. In addition, as discussed below, the Compensation Committee approved a special equity award for Mr. Lalljie in connection with his entry into this agreement. In the event that Mr. Lalljie’s employment had been terminated without cause or by him with good reason prior to the date the equity award vested, Mr. Lalljie would have received an additional payment of $400,000.

 

The second agreement with Mr. Lalljie, in December 2009, superseded and replaced the January 2009 agreement. Under the December 2009 agreement, we established that Mr. Lalljie’s base salary would be $325,000, retroactive to the date he was appointed as our permanent CFO. We further agreed that Mr. Lalljie would be eligible to receive a cash incentive award for 2009 based on performance goals previously established by the Compensation Committee, with any such award to be reduced by the guaranteed bonus payments made to Mr. Lalljie under the January 2009 agreement. Finally, as discussed below, the Compensation Committee approved two equity awards for Mr. Lalljie in connection with his entry into this agreement. In return, Mr. Lalljie agreed to forego his eligibility for the $400,000 payment described above.

 

Compensation of the Named Executive Officers

 

In determining total compensation for our named executive officers for 2009, we evaluated the financial and operational performance of the Company and considered each executive’s contributions to that performance. For a discussion of the Company’s 2009 performance, see “Overview — 2009 Performance and Compensation” above.

 

Base Salary

 

The Compensation Committee (and the independent directors, in the case of the CEO) approved 2009 base salaries for the continuing named executive officers in February 2009 (other than Dr. Burger, who joined the Company in June 2009). The Compensation Committee determined not to raise base salaries for the named executive officers at that time, although the Committee subsequently raised Mr. Lalljie’s salary in connection with his appointment as our permanent CFO. The following table sets forth the 2009 base salaries for the named executive officers:

 

 

 

 

Cash Incentive Compensation

 

In March 2009, the Compensation Committee set performance goals and targets under our annual cash incentive plan for 2009. Consistent with the process described above, the Committee first determined that the maximum award for Mr. Ganek (for tax purposes) would be 1% of the Company’s 2009 EBITDA, not to exceed $2,000,000, and the maximum award for each of the other named executive officers would be 0.75% of 2009 EBITDA, not to exceed $2,000,000 per executive.

 

The Compensation Committee then considered the business and financial objectives upon which it would measure performance and calculate actual payouts for 2009. For the named executive officers, the Committee determined to base a significant portion of awards on the Company’s achievement of established goals relating to 2009 revenue and EBITDA. The remaining portion, if any, would be based on individual achievement. The Committee elected to use Company revenue and EBITDA as performance measures for 2009 because we believe these measures focus our executives on profitable growth that is expected to lead to enhanced stockholder value.

 

Finally, the Compensation Committee (and the independent directors, in the case of the CEO) agreed to use the following targets, presented as a percentage of base salary, for executive awards in 2009:

 

 

 

 

In early 2010, the Compensation Committee reviewed the Company’s 2009 financial results. Based on 2009 EBITDA of $205.6 million (calculated from our audited financial statements as follows), the Committee determined that the maximum amount that could be paid to Mr. Ganek was $2,000,000, and the maximum payout for each of the other named executive officers was $1,541,985.

 

 

(In computing maximum payouts for tax purposes, the following events would have been disregarded had they occurred: corporate transactions; changes in accounting methods; and charges for discontinued operations, extraordinary items, and other unusual or non-recurring items, each as defined by Generally Accepted Accounting Principles and identified in our financial statements, notes to the financial statements, Management’s Discussion and Analysis, or other SEC filings. None of these events occurred in 2009.)

 

The Compensation Committee then evaluated the extent to which business and financial objectives for the year were met. Based on strong financial performance in 2009 (revenue of $480.4 million and EBITDA of $205.6 million, versus target revenue of $479.7 million and target EBITDA of $190.6 million), the Committee set the Company portion of awards at 156% of target.

 

Finally, the Compensation Committee reviewed the performance of each named executive officer to determine individual payouts. Among the factors considered by the Committee were leadership and development; contributions to the Company’s financial and operating performance; dedication to customer priorities;

development of corporate strategy; and commitment to the Company’s long-term success. Following its review, the Committee (and the independent directors, in the case of the CEO) determined to pay the following amounts for 2009, reflecting strong performance across the Company and the executive team:

 

 

 

 

Equity Compensation

 

In 2009, the Compensation Committee granted a combination of stock options, performance share units and restricted stock to our named executive officers. This combination reflected a balancing of several of our compensation objectives, including motivating performance, aligning the interests of our executives and stockholders, and attracting and retaining key executives.

 

For Mr. Ganek and Ms. Hook, roughly half of the 2009 equity compensation award value was delivered in stock options, and half of the value was delivered in performance share units. We believe this weighting provides an appropriate focus for the CEO and President/COO on both stockholder value creation and long-term operating performance. Mr. Ganek’s and Ms. Hook’s 2009 stock options vest over four years, and their performance share units vest on January 1, 2012 based upon the achievement of cumulative revenue and EBITDA goals set by the Compensation Committee at the time of grant. These performance share unit goals reflect our internal, confidential business plan (the disclosure of which we believe would result in competitive harm to us) and require a high level of financial performance.

 

Mr. Lalljie received two sets of equity awards in 2009. First, Mr. Lalljie was granted restricted stock in connection with his appointment as our Interim CFO. Mr. Lalljie’s restricted stock vests in full on January 1, 2012. Second, Mr. Lalljie was granted stock options and performance share units in connection with his appointment as our permanent CFO. The terms of Mr. Lalljie’s stock options and performance share units are consistent with those described above for Mr. Ganek and Ms. Hook.

 

Finally, Mr. Dziak and Dr. Burger received special new-hire equity awards, composed of stock options and restricted stock, in connection with their hiring in 2009. Mr. Dziak’s and Dr. Burger’s 2009 stock options and restricted stock vest over four years.

 

All of the awards described above are reflected in the 2009 Grants of Plan-Based Awards table on page 29.

 

Other Compensation

 

Other benefits provided to the named executive officers for 2009 include one or more of the following: Company contributions to 401(k) plan accounts, which are available to all of our employees; relocation expenses (including reimbursement of associated taxes); and temporary living expenses. These benefits constituted only a small portion of each executive’s total compensation for 2009.

 

Tax Deductibility of Compensation

 

Section 162(m) of the Internal Revenue Code of 1986, as amended, imposes a limit of $1 million on the amount that a public company may deduct for compensation paid to the company’s CEO and to each of the company’s other named executive officers (excluding the CFO). This limitation does not apply to compensation that meets the

requirements under Section 162(m) for “qualifying performance-based” compensation (i.e., compensation paid only if performance meets pre-established, objective goals based on criteria approved by stockholders).

 

Although we consider the impact of Section 162(m) when developing and implementing our executive compensation programs, we believe that it is important to preserve flexibility in adopting and administering programs to promote varying corporate goals. Accordingly, we have not adopted a policy requiring all compensation to be deductible, and amounts paid under any of our compensation programs may be determined not to so qualify.

 

The Compensation Committee has reviewed the Compensation Discussion & Analysis set forth above and has discussed that Analysis with management. Based on its review and discussion with management, the Committee recommended to the Board of Directors that the Compensation Discussion & Analysis be included in the Company’s 2010 proxy statement and incorporated by reference in the Company’s Annual Report on Form 10-K for 2009. This report is provided by the following independent directors, who compose the Committee:

 

Joel P. Friedman (Chair)

Gareth Chang

Ross K. Ireland

Dr. Kenneth A. Pickar

EXECUTIVE COMPENSATION TABLES AND DISCUSSION

 

Summary Compensation Table

 

The following table sets forth all compensation paid by us, for the period shown, to our principal executive officer, our principal financial officer, our former principal financial officer, and our three most highly compensated executive officers other than our principal executive officer and principal financial officer who were serving as executive officers at the end of 2009. We refer to these individuals as the “named executive officers” elsewhere in this proxy statement.

 

 

 

 

 

All Other Compensation

 

The following table describes the components of All Other Compensation in the Summary Compensation Table for each named executive officer for 2009.

 

 

 

 

2009 Grants of Plan-Based Awards

 

The following table provides information regarding each plan-based award granted to a named executive officer in the last fiscal year. All non-equity incentive plan awards were granted pursuant to the Neustar, Inc. Performance Achievement Reward Plan. All equity awards granted prior to June 24, 2009 were granted pursuant to the Neustar, Inc. 2005 Stock Incentive Plan. All equity awards granted on or after June 24, 2009 were granted pursuant to the Neustar, Inc. 2009 Stock Incentive Plan. Mr. Babka did not receive any plan-based awards in 2009.

 

 

 

 

 

Notes to Summary Compensation Table and 2009 Grants of Plan-Based Awards Table

 

As discussed under “Compensation Discussion & Analysis” above, the Compensation Committee considers numerous factors, including individual and Company performance, position and level of responsibility, market data, and the recommendations of our CEO, in determining each executive’s salary, non-equity incentive award, equity awards and other compensation. The Compensation Committee also takes into account individual agreements, as described under “Compensation Discussion & Analysis — Individual Arrangements” above.

 

In 2009, with the exception of Mr. Babka (who stepped down as our CFO in January 2009), the base salaries of the named executive officers constituted less than one-fourth of their total compensation (as reported in the Summary Compensation Table), with the remaining three-fourths or more of total compensation composed principally of performance-based cash and equity awards.

 

The non-equity incentive awards in the Summary Compensation Table were approved by our Compensation Committee (and in the case of Mr. Ganek, by the independent directors) in February 2010 pursuant to the Neustar, Inc. Performance Achievement Reward Plan. The Compensation Committee established the performance goals and

maximum payouts applicable to these awards in March 2009. Our Performance Achievement Reward Plan goals and payments are discussed in more detail under “Compensation Discussion & Analysis — Elements Used to Achieve Compensation Objectives” and “Compensation Discussion & Analysis — Compensation of the Named Executive Officers” above.

 

The stock option, restricted stock and performance share unit awards in the 2009 Grants of Plan-Based Awards table were granted by the Compensation Committee under the Neustar, Inc. 2005 Stock Incentive Plan (for grants prior to June 24, 2009) and the Neustar, Inc. 2009 Stock Incentive Plan (for grants on and after June 24, 2009). Additional details regarding equity grants made in 2009 are set forth below.

 

Stock options.  Stock options granted in 2009 have a seven-year maximum term. Twenty-five percent of the options granted to Mr. Ganek and Ms. Hook on February 23, 2009 vested on February 23, 2010, and the remaining options vest in 36 monthly installments thereafter. Twenty-five percent of the options granted to Mr. Dziak on May 8, 2009 vested on March 2, 2010 (the anniversary of his hire date), and the remaining options vest in 36 monthly installments thereafter. Twenty-five percent of the options granted to Dr. Burger on August 3, 2009 vest on June 1, 2010 (the anniversary of his hire date), and the remaining options vest in 36 monthly installments thereafter. Twenty-five percent of the options granted to Mr. Lalljie on December 9, 2009 vest on June 25, 2010 (the anniversary of his appointment as CFO), and the remaining options vest in 36 monthly installments thereafter.

 

Performance share units.  All of the performance share units granted to the named executive officers in 2009 vest on January 1, 2012 based on, and subject to, the achievement of cumulative revenue and EBITDA goals set by the Compensation Committee in February 2009. Holders of performance share units may receive dividend equivalents, subject to the same restrictions and risk of forfeiture as the underlying performance share units. We did not pay any dividend equivalents in 2009.

 

Restricted shares.  The restricted shares granted to Mr. Lalljie on January 12, 2009 vest on January 1, 2012. Twenty-five percent of the restricted shares granted to Mr. Dziak on May 8, 2009 vested on March 2, 2010, and the remaining shares vest in equal annual installments thereafter. The restricted shares granted to Dr. Burger on August 3, 2009 vest 25% on each of June 1, 2010, 2011, 2012 and 2013. Holders of restricted shares may receive dividends, subject (in the case of stock dividends) to the same restrictions as the underlying restricted shares. We did not pay any dividends in 2009.

Outstanding Equity Awards at December 31, 2009

 

The following table provides information regarding unexercised options, unvested stock and equity incentive plan awards outstanding as of December 31, 2009 for each named executive officer.

 

 

 

 

 

2009 Option Exercises and Stock Vested

 

The following table provides information regarding option exercises and stock vested during the last fiscal year for each named executive officer.

 

 

2009 Nonqualified Deferred Compensation

 

The Neustar, Inc. Deferred Compensation Plan permits employees at the vice president level and above, including the named executive officers, to defer certain elements of compensation in order to delay taxation on such amounts. The following table provides information about Mr. Ganek’s participation in this plan. None of our other named executive officers participated in this plan in 2009.

 

 

 

 

The Neustar, Inc. Deferred Compensation Plan permits deferral of up to 75% of base salary and up to 90% of annual cash incentive awards and bonuses. We may elect to provide matching contributions to the extent that deferrals under the plan have the effect of reducing a participant’s 401(k) compensation (and thus the matching contribution offered to all employees under our 401(k) plan), although we have not done so to date.

 

Amounts deferred or matched under the plan are credited with investment earnings based on the performance of investment options selected by the participants. Available investment options represent a range of asset classes, including cash, bond, value, index and growth funds. Participants may change their investment elections at any time. In general, deferrals and earnings are distributed to participants either at a specific date prior to retirement or termination of employment or at retirement or termination, as designated by the participant. Participants also may designate the form (lump sum or installments) of their distributions.

Potential Payments upon Termination or Change in Control

 

2007 Key Employee Severance Pay Plan

 

The Neustar, Inc. 2007 Key Employee Severance Pay Plan provides severance benefits for key management employees, including the named executive officers, if they are involuntarily terminated from employment without cause, if they terminate their employment for good reason, or if there is a closure, discontinuance of operations, sale of assets or other corporate event, provided they are not offered comparable employment with our successor or an affiliate. Under the plan, “cause” generally means the employee’s insubordination, dishonesty, fraud, moral turpitude, willful misconduct, or willful failure or refusal to attempt to perform his or her duties or responsibilities. “Good reason” generally means any of the following events occurring solely within two years after a change in control or other qualifying corporate transaction and the Company’s or a successor company’s failure to cure such event within 30 days of receiving notice from the employee: (i) a reduction in base salary, except pursuant to a policy generally applicable to senior management resulting in a reduction of 10% or less; (ii) the successor company’s failure to provide employee benefits that are substantially comparable to those provided prior to the change in control; (iii) the successor company requiring the employee to be based at an office location that is more than 50 miles further from the employee’s office location prior to the change in control; or (iv) a material breach by the successor company of its obligations under the plan. Qualifying “corporate transactions” include a merger or consolidation in which the Company is not the surviving corporation, the replacement of a majority of our Board of Directors, the sale of all or substantially all of our assets, the liquidation or dissolution of the Company, or the acquisition of a majority of our outstanding stock.

 

If triggered, the plan entitles the named executive officers (other than Mr. Ganek, as described below) to benefits equal to one year’s salary; a pro-rata bonus, based on actual results, for the year of termination; and reimbursement of a portion of the premium for continuation coverage under our medical plan. In the event of a termination following a change in control or other qualifying corporate transaction, the officers will also be entitled to an amount equal to the average annual incentive bonus received (or to be received) with respect to the three years preceding termination. All benefits are contingent on the employee signing a release of all claims and acknowledging his or her obligations under the plan, including obligations not to disclose our confidential information or to compete with or disparage Neustar or interfere with our business during the one-year period (or 18-month period for Mr. Ganek) following termination. The Compensation Committee may, in its sole discretion, cause Neustar to pay severance benefits at the same rate for an additional period as consideration for an extension of the employee’s obligations under the plan. An employee will not be eligible for benefits under the plan if he or she violates these obligations.

 

The severance benefits provided for by the plan are paid in installments without interest over a one-year period (or an 18-month period for Mr. Ganek) through our normal payroll processes, subject to a six-month delay in payment for certain employees as required by Section 409A of the Internal Revenue Code. An employee is not eligible for a severance benefit under the plan if the employee is entitled, pursuant to any agreement providing cash benefits, to cash severance in an amount in excess of the severance benefit upon termination of employment. In addition, the benefit to be provided under the plan shall be reduced dollar-for-dollar (but not below zero) by the benefits required to be paid under federal, state or local law or under any other plan, program or arrangement. The Board may amend or terminate the plan at any time after 90 days’ notice to the covered employees, provided that an amendment or termination may not adversely affect the severance benefits to which any employee is entitled if such employee’s termination occurred prior to the date of the amendment or termination.

 

Letter Agreement with Mr. Ganek

 

In 2008, in consideration for the termination of Mr. Ganek’s rights under a prior employment continuation agreement, we entered into a letter agreement with Mr. Ganek that provides for additional benefits under the 2007 Key Employee Severance Pay Plan. If Mr. Ganek’s employment is terminated without cause, if he terminates his employment for good reason, or if there is a closure, discontinuance of operations, sale of assets or other corporate event and he is not offered comparable employment with our successor or an affiliate, Mr. Ganek will be entitled to receive 250% of his annual base salary; a pro-rata bonus, based on actual results, for the year of termination; and reimbursement of a portion of his premium for continuation coverage under our medical plan. In the event of a

termination following a change in control or other qualifying corporate transaction, Mr. Ganek will also be entitled to an amount equal to 150% of the average annual incentive bonus received (or to be received) with respect to the three years preceding termination.

 

The letter agreement preserved the definition of “good reason” from Mr. Ganek’s prior employment continuation agreement. Specifically, “good reason” means any of the following events and the Company’s failure to cure such event within 30 days of receiving notice from Mr. Ganek: (i) a substantial diminution in status, title, position, authority, duties or responsibilities; (ii) a reduction in base salary other than in connection with a reduction for all senior management; or (iii) the Company requiring Mr. Ganek to be based at an office location that is more than 50 miles from both his existing office location and his house. All other terms and conditions of the 2007 Key Employee Severance Pay Plan, including those relating to execution of a release and compliance with noncompetition and other obligations under the plan, continue to apply to Mr. Ganek.

 

Equity Award Agreements

 

Under our long-term incentive compensation plans and the named executive officers’ option agreements, if we experience a change in control or other qualifying corporate transaction, all of the options will vest in full, unless the options are assumed or continued by the surviving company, or unless the surviving company substitutes the options with substantially equivalent options. If the surviving company assumes or replaces the options, the options will vest and become exercisable if the officer’s employment is terminated within two years of the corporate transaction, unless the officer’s employment is terminated by the surviving company for cause or by the officer without good reason (except that Mr. Lalljie’s non-executive agreements do not include good-reason protection).

 

Under the named executive officers’ restricted stock agreements, if we experience a change in control or other qualifying corporate transaction and a portion of the restricted stock remains unvested following the corporate transaction, the restricted stock will vest in full if the officer’s employment is terminated within two years of the corporate transaction, unless the officer’s employment is terminated by the surviving company for cause or by the officer without good reason (Mr. Lalljie’s non-executive agreements do not include good-reason protection).

 

Under the named executive officers’ performance award agreements, if an officer becomes disabled or dies prior to the vesting date, the officer or his representative will receive a pro-rata payment as if the target level of performance set forth in the agreement had been attained (or, for 2009 Stock Incentive Plan awards where the performance period has ended prior to the qualifying event, a pro-rata payment based on actual performance). Additionally, if we experience a change in control or other qualifying corporate transaction, the performance share units will be converted without proration into shares of restricted stock that vest on the original vesting date, subject to the officer’s continued service. The number of shares of restricted stock into which the performance share units convert will be determined as set forth in the agreement. The restricted stock will vest in full if the officer’s employment is terminated within two years of the corporate transaction, unless the officer’s employment is terminated by the surviving company for cause or by the officer without good reason (Mr. Lalljie’s non-executive agreements do not include good-reason protection).

 

Our 2009 Stock Incentive Plan generally defines “cause” as an employee’s insubordination, dishonesty, fraud, moral turpitude, willful misconduct, or willful failure or refusal to attempt to perform his or her duties or responsibilities for any reason other than illness or incapacity. Under the 2005 Stock Incentive Plan, “cause” generally means an employee’s insubordination, dishonesty, fraud, incompetence, moral turpitude, willful misconduct, refusal to attempt to perform his or her duties or responsibilities, or materially unsatisfactory performance of his or her duties.

 

For purposes of our equity awards, “good reason” generally means any of the following events and the Company’s or a successor company’s failure to cure such event within 30 days of receiving notice from the employee: (i) a reduction in base salary, except pursuant to a policy generally applicable to senior management resulting in a reduction of 10% or less; (ii) the successor company’s failure to provide employee benefits that are substantially comparable to those provided prior to the change in control; (iii) the successor company requiring the employee to be based at an office location that is more than 50 miles further from the employee’s existing office location; or (iv) a material breach by the successor company of its obligations under the plans. Qualifying corporate transactions include a merger or consolidation where the Company’s stockholders prior to the transaction do not

own a majority of the shares of the surviving company in approximately the same proportion as before the transaction, the replacement of a majority of our Board of Directors, the sale of all or substantially all of our assets, the liquidation or dissolution of the Company, or the acquisition of a majority of our outstanding stock.

 

Under the named executive officers’ agreements relating to option, restricted stock and performance share units granted in 2009, benefits are contingent upon the officer’s compliance with certain prohibitions on disclosure of confidential information and disparagement of Neustar. In addition, the officer must agree not to compete with Neustar or to engage in solicitation during the 18-month period following termination of employment.

 

Potential Payments as of December 31, 2009

 

The following tables show the value of the potential payments and benefits our named executive officers (other than Mr. Babka, who is no longer employed by Neustar) would receive in various scenarios involving a termination of their employment or a change in control or other qualifying corporate transaction, assuming a December 31, 2009 triggering date and, where applicable, using a price per share for our common stock of $23.04 (the closing market price as reported on the New York Stock Exchange for December 31, 2009).

 

Jeffrey Ganek