HubSpot (HUBS) DEF 14ADefinitive proxy

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

(Amendment No.    )

Filed by the Registrant  ☒                             Filed by a Party other than the Registrant  ☐

Check the appropriate box:

HUBSPOT, 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): 

April 23, 2021

Dear Fellow Stockholders:

I am pleased to invite you to attend the 2021 Annual Meeting of Stockholders (the “Annual Meeting”) of HubSpot, Inc. (“HubSpot”) to be held on Thursday, June 3, 2021 at 11:30 a.m. Eastern Time. The Annual Meeting will be a virtual stockholder meeting, conducted via live audio webcast, through which you can submit questions and vote online.  

Details regarding the meeting and the business to be conducted are more fully described in the accompanying Notice of 2021 Annual Meeting of Stockholders and Proxy Statement.

Pursuant to the Securities and Exchange Commission (“SEC”) rules that allow issuers to furnish proxy materials to stockholders over the Internet, we are posting the proxy materials on the Internet and delivering a notice of the Internet availability of the proxy materials. On or about April 23, 2021, we will begin mailing to our stockholders a Notice of Internet Availability (the “Notice”) containing instructions on how to access or request a copy of our Proxy Statement for the 2021 Annual Meeting of Stockholders and our Annual Report on Form 10-K for the year ended December 31, 2020.

Your vote is important. Whether or not you plan to attend the virtual Annual Meeting, I hope you will vote as soon as possible. You may vote over the Internet or at the Annual Meeting or, if you requested printed copies of proxy materials, you also may vote by mailing a proxy card or voting by telephone. Please review the instructions on the Notice or on the proxy card regarding your voting options.

Thank you for being a HubSpot stockholder. We look forward to seeing you at our Annual Meeting.

Sincerely,

Brian Halligan

Chairman and Chief Executive Officer

HUBSPOT, INC.

25 First Street

Cambridge, MA 02141

NOTICE OF 2021 ANNUAL MEETING OF STOCKHOLDERS

NOTICE IS HEREBY GIVEN that HubSpot, Inc. will hold its 2021 Annual Meeting of Stockholders (the “Annual Meeting”) on Thursday, June 3, 2021 at 11:30 a.m. Eastern Time. The Annual Meeting will be a virtual stockholder meeting, conducted via live audio webcast, through which you can submit questions and vote online. The Annual Meeting can be accessed by visiting www.virtualshareholdermeeting.com/HUBS2021 and entering your 16-digit control number (included on the Notice Regarding the Availability of Proxy Materials mailed to you). The purpose of the Annual Meeting will be the following:  

Only stockholders of record at the close of business on April 8, 2021 are entitled to notice of and to vote at the Annual Meeting as set forth in the Proxy Statement. You are entitled to attend the Annual Meeting only if you were a stockholder as of the close of business on April 8, 2021 or hold a valid proxy for the Annual Meeting.

For instructions on how to vote your shares, please refer to the instructions on the Notice of Internet Availability of Proxy Materials you received in the mail, the section titled “Voting” beginning on page 1 of this Proxy Statement or, if you requested to receive printed proxy materials, your enclosed proxy card.

By Order of the Board of Directors,

John P. Kelleher

General Counsel and Secretary

Cambridge, Massachusetts

April 23, 2021

PROXY STATEMENT FOR THE 2021 ANNUAL MEETING
OF STOCKHOLDERS

TABLE OF CONTENTS

ABOUT THE ANNUAL MEETING

Our Board of Directors (the “Board”) solicits your proxy on our behalf for the 2021 Annual Meeting of Stockholders (the “Annual Meeting”) and at any postponement or adjournment of the Annual Meeting for the purposes set forth in this Proxy Statement and the accompanying Notice of Internet Availability of Proxy Materials (the “Notice”). The Annual Meeting will be held at 11:30 a.m. Eastern Time on Thursday, June 3, 2021. The Annual Meeting can be accessed by visiting www.virtualshareholdermeeting.com/HUBS2021 and entering your 16-digit control number (included on the Notice Regarding the Availability of Proxy Materials mailed to you). We made this Proxy Statement available to stockholders beginning on April 23, 2021.

In this Proxy Statement the terms “HubSpot,” “the company,” “we,” “us,” and “our” refer to HubSpot, Inc. The mailing address of our principal executive offices is HubSpot, Inc., 25 First Street, Cambridge MA 02141.

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DIRECTORS AND EXECUTIVE OFFICERS

The following table identifies our Board and executive officers and sets forth their current position(s) at HubSpot and their ages as of April 23, 2021:

Set forth below are the biographies of each executive officer and director, as well as information regarding each such person’s business experience, director positions held currently or at any time during the last five years, and, for directors, the experiences, qualifications, attributes or skills that caused the Nominating and Corporate Governance Committee to determine that the person should serve as a director of the company. We believe that each of our executive officers and directors has a reputation for integrity, honesty, and adherence to high ethical standards.

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CORPORATE GOVERNANCE

Board Independence

The Board believes, and our Corporate Governance Guidelines dictate, that the Board should consist of a substantial majority of independent directors. The Board has determined that, except for Messrs. Halligan and Shah as executive officers of the company, each of our current directors has no material relationship with HubSpot that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In making that determination, the Board considered all relevant facts and circumstances, including (but not limited to) the director’s commercial, industrial, banking, consulting, legal, accounting, charitable, and familial relationships. In addition, the Board has determined that a majority of our directors are “independent” within the meaning of the director independence standards of the New York Stock Exchange (the “NYSE”), other than Messrs. Halligan and Shah, who currently serve as executive officers of the company.

Further, the Board has determined that each member of each of the committees of the Board is independent within the meaning of the NYSE’s, the SEC’s, and our applicable committees’ independence standards, including Rule 10a-3(b)(1) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). There are no family relationships among any of our directors or executive officers.

At least annually, the Board will evaluate all relationships between us and each director in light of relevant facts and circumstances for the purposes of determining whether a material relationship exists that might signal a potential conflict of interest or otherwise interfere with such director’s ability to satisfy his or her responsibilities as an independent director. Based on this evaluation, the Board will make an annual determination of whether each director is independent within the meaning of the NYSE’s, the SEC’s, and our applicable committees’ independence standards.

Board Leadership Structure

Currently, our Chief Executive Officer, Mr. Brian Halligan, also serves as Chairman of the Board. The Board believes that its current leadership structure, coupled with an emphasis on Board independence provides effective independent oversight of management while allowing both the Board and management to benefit from Mr. Halligan’s leadership and years of experience in HubSpot’s business. Mr. Halligan possesses details and first-hand knowledge of the issues, opportunities, and challenges facing HubSpot and its business. We believe this extensive company-specific experience and expertise of Mr. Halligan, together with the outside experience, oversight, and expertise of our independent directors, allows for differing perspectives and roles regarding strategy development that benefit our stockholders. This structure enables Mr. Halligan to act as the key link between the Board and other members of management. Further, the Board believes that Mr. Halligan’s combined role enables decisive leadership, ensures clear accountability, and enhances HubSpot’s ability to communicate its message and strategy clearly and consistently to its stockholders, employees, customers, and partners.

The Board also has a Lead Independent Director who provides an effective independent voice in our leadership structure. As Lead Independent Director, Ms. Lorrie Norrington presides over meetings of our independent directors, serves as a liaison between our Chairman of the Board and the independent directors and performs such additional duties as our Board may otherwise determine and delegate.

Given our strong business, operational and financial performance, the Board believes that stockholders are best served by continuing this leadership structure. The Board continues to review the leadership of the Board on a regular basis.

Board and Committee Meetings

The Board meets on a regularly scheduled basis during the year to review significant developments affecting us and to act on matters requiring their approval. It also holds special meetings when important matters require action between scheduled meetings. Members of senior management regularly attend meetings to report on and discuss their areas of responsibility. During 2020, the Board held eight meetings. The Board has three standing committees:

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Each of the incumbent directors of the Board attended 100% of all meetings of the Board and meetings of committees of our Board upon which they served (during the periods that they served) during 2020. The Board regularly holds executive sessions of the non-management directors as well as the independent directors. Executive sessions of non-management directors do not include employee directors and executive sessions of independent directors do not include directors who do not qualify as independent under NYSE and SEC rules.

It is our policy that members of our Board are encouraged to attend annual meetings of our stockholders. All members of our Board attended the 2020 annual meeting of our stockholders.

Corporate Governance Policies and Committee Charters

The company and the Board regularly review and evaluate the company’s corporate governance practices. The Board has adopted Corporate Governance Guidelines to assist and guide its members in the exercise of its responsibilities. These guidelines should be interpreted in accordance with any requirements imposed by applicable federal or state law or regulation, the NYSE and our certificate of incorporation and bylaws.

In addition, we have adopted a Code of Business Conduct and Ethics (a/k/a our Code of Use Good Judgment) that applies to all of our employees, officers, and directors, including those officers responsible for financial reporting. We intend to disclose any amendment or waiver of a provision of the Code of Use Good Judgment that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, by posting such information on our website (available at http://www.hubspot.com) and/or in our public filings with the SEC.

The Board has also adopted a written charter for the Audit Committee, the Compensation Committee, and the Nominating and Corporate Governance Committee, each of which satisfy the applicable rules of the SEC and the listing standards of the NYSE.

Our Corporate Governance Guidelines, Code of Use Good Judgment, and committee charters are available on the Investor Relations – Leadership and Governance section of our website at https://ir.hubspot.com/leadership. You may also request a copy of these documents by contacting Investor Relations at our principal executive offices.  

Board Committees

Our bylaws provide that the Board may delegate responsibility to committees. The Board has three standing committees: an Audit Committee, a Compensation Committee, and a Nominating and Corporate Governance Committee.

The table below shows the composition of the standing committees of the Board. Messrs. Halligan and Shah do not currently serve on any standing committee.

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Audit Committee

Mr. Gill, Ms. Herendeen, and Mr. Sahai currently serve on the Audit Committee, which is chaired by Mr. Gill. The Board has determined that each member of the Audit Committee is “independent” for audit committee purposes as that term is defined under Rule 10A-3 of the Exchange Act, and the applicable NYSE rules. Each member of the Audit Committee meets the requirements for financial literacy under the applicable rules and regulations of the SEC and NYSE. The Board has designated Mr. Gill as an “audit committee financial expert,” as defined under the applicable rules of the SEC. The Audit Committee’s responsibilities include:

Compensation Committee

Mr. Caldwell, Mr. Simons, and Ms. Ward currently serve on the Compensation Committee, which is chaired by Mr. Simons. The Board has determined that each member of the Compensation Committee is “independent” as that term is defined in the applicable SEC and NYSE rules. The Compensation Committee’s responsibilities include:

Nominating and Corporate Governance Committee

Mmes. Herendeen, Norrington, and Ward currently serve on the Nominating and Corporate Governance Committee, which is chaired by Ms. Norrington. The Board has determined that each member of the Nominating and Corporate Governance Committee is “independent” as that term is defined in the applicable SEC and NYSE rules. The Nominating and Corporate Governance Committee’s responsibilities include:

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Identifying and Evaluating Director Nominees

The Board has delegated the director selection and nomination process to the Nominating and Corporate Governance Committee, with the expectation that other members of the Board, and of management, will be requested to take part in the process as appropriate.

Generally, the Nominating and Corporate Governance Committee identifies candidates for director nominees in consultation with management, through the use of search firms or other advisors, through the recommendations submitted by stockholders or through such other methods as the Nominating and Corporate Governance Committee deems to be helpful to identify candidates. Once candidates have been identified, the Nominating and Corporate Governance Committee confirms that the candidates meet all of the minimum qualifications for director nominees established by the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee may gather information about the candidates through interviews, detailed questionnaires, comprehensive background checks or any other means that the Nominating and Corporate Governance Committee deems to be appropriate in the evaluation process. The Nominating and Corporate Governance Committee then meets as a group to discuss and evaluate the qualities and skills of each candidate, both on an individual basis and taking into account the overall composition and needs of the Board. Based on the results of the evaluation process, the Nominating and Corporate Governance Committee recommends candidates for the Board’s approval as director nominees for election to the Board.

From time to time, we have engaged, for a fee, a third-party search firm to assist the Nominating and Corporate Governance Committee with identifying, evaluating, and screening Board candidates for the company. Rich Talent Group, a boutique search firm, has previously assisted the Nominating and Corporate Governance Committee with evaluating and screening Board candidates, including Nick Caldwell, who was appointed to the Board in January 2021.  

Minimum Qualifications

In evaluating proposed director candidates, the Nominating and Corporate Governance Committee may consider all facts and circumstances that it deems appropriate or advisable, including, among other things, the skills of the proposed director candidate, his or her depth and breadth of professional experience or other background characteristics, his or her independence, the current size and composition of our Board and the needs of our Board and its respective committees. Some of the qualifications that our Nominating and Corporate Governance Committee considers include, without limitation, integrity, judgment, diversity of experience, expertise, business acumen, understanding of our business and industry, potential conflicts of interest and other commitments. Nominees must also have proven achievement and competence in their field and the ability to provide guidance to our management team and make significant contributions to our success, and an understanding of the fiduciary responsibilities that are required of a director. Director candidates must have sufficient time available in the judgment of our Nominating and Corporate Governance Committee to perform all Board and committee responsibilities. Members of our Board are expected to prepare for, attend, and participate in all Board of Director and applicable committee meetings.    

Stockholder Recommendations

Stockholders may submit recommendations for director candidates to the Nominating and Corporate Governance Committee by sending the individual’s name and qualifications to our Secretary at HubSpot, Inc., 25 First Street, Cambridge, MA 02141, who will forward all recommendations to the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee will evaluate any candidates recommended by stockholders against the same criteria and pursuant to the same policies and procedures applicable to the evaluation of candidates proposed by directors or management.

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Stockholder Communications

The Board provides to every securityholder and interested party the ability to communicate with the Board, as a whole, and with individual directors on the Board through an established process for securityholder and other interested party communication. For a communication directed to the Board as a whole, securityholders and other interested parties may send such communication to the attention of the company’s Secretary via U.S. Mail or Expedited Delivery Service to: HubSpot, Inc., 25 First Street, Cambridge, MA 02141, Attn: Board of Directors, c/o Secretary.

For a securityholder communication directed to an individual director in his or her capacity as a member of the Board, securityholders and other interested parties may send such communication to the attention of the individual director via U.S. Mail or Expedited Delivery Service to: HubSpot, Inc., 25 First Street, Cambridge, MA 02141, Attn: [Name of Individual Director], c/o Secretary.

We will forward by U.S. Mail any such communication to each director, and the Chairman of the Board in his or her capacity as a representative of the Board, to whom such communication is addressed to the address specified by each such director and the Chairman of the Board, unless there are safety or security concerns that mitigate against further transmission.

Board and Committee Evaluations

The Nominating and Corporate Governance Committee oversees the annual Board and committee evaluation process. Generally, the Board and each committee conduct self-evaluations by means of written questionnaires completed by each director and committee member. The anonymous responses are summarized and provided to the Board and each committee at their next meetings in order to facilitate an examination and discussion by the Board and each committee of the effectiveness of the Board and committees, Board and committee structure and dynamics, and areas for possible improvement. The Nominating and Corporate Governance Committee establishes the Board and committee evaluation process each year. From time to time, it may determine to use an independent third party evaluation process. In 2020, the Nominating and Corporate Governance Committee engaged a third party consultant, Martin Rosenthal, to conduct and facilitate individual assessments for each Board member. This process, overseen by the Chairman of the Board and the Lead Director, included individual assessment surveys and one-on-one interviews. Following completion of the individual assessments, Mr. Rosenthal and Ms. Norrington delivered developmental feedback to each Board member.

Board’s Role in Risk Oversight

One of the key functions of our Board is informed oversight of our risk management process. Our Board does not have a standing risk management committee. Rather, the Board administers this oversight function directly through the Board as a whole, as well as through its standing committees that address risks inherent in their respective areas of oversight. In particular, our Board is responsible for monitoring and assessing strategic risk exposure and overall enterprise risk exposure. Our Audit Committee is responsible for reviewing and discussing our major financial risk exposures and cybersecurity risk exposure, including the steps our management team has taken to monitor and control these exposures, as well as guidelines and policies with respect to risk assessment and risk management. Our Audit Committee also monitors compliance with legal and regulatory requirements, in addition to oversight of the performance of our external audit function. Our Nominating and Corporate Governance Committee monitors the effectiveness of our Corporate Governance Guidelines, Code of Use Good Judgment, and other company policies; oversees executive and board succession planning; and reviews our policies and practices relating to our corporate social responsibilities. Our Compensation Committee reviews and discusses the risks arising from our compensation philosophy, policies, and practices applicable to all employees to determine whether they are reasonably likely to have a materially adverse effect on us.

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Compensation of Non-Employee Directors

Pursuant to our Non-Employee Director Compensation Policy in effect for 2020, our non-employee directors were paid an annual cash retainer of $35,000, our lead independent director was paid an additional annual cash retainer of $20,000 and committee members and committee chairs received additional annual cash retainer fees as set forth below:

In addition, each of our non-employee/non-investor affiliate directors received an annual equity award with a value of $200,000, 25% of which was in the form of an option to purchase shares of our common stock and 75% of which was in the form of a restricted stock unit (“RSU”) award settled in shares of our common stock. Such equity award vests upon the first anniversary of the grant date of such award (or, if earlier, immediately prior to the annual meeting of stockholders that is closest to the first anniversary of the grant date); provided, however, that all vesting ceases if the director resigns from our Board or otherwise ceases to serve as a director, unless the Board determines otherwise in certain warranted circumstances. Newly-elected non-employee directors receive a pro-rated annual equity award. All unvested options and/or RSU awards held by a non-employee director accelerate and immediately vest if the non-employee director’s service relationship ends within three months prior to or 12 months following a “sale event” (as defined in the company’s 2014 Stock Option and Incentive Plan).

We reimburse our non-employee directors for their travel, lodging and other reasonable expenses incurred in attending meetings of our Board and Board committees.

The Board periodically evaluates the compensation of our non-employee directors, including the recommendations of the Compensation Committee. The Board also considers input from the Compensation Committee’s compensation consultant, who reviews director pay levels at peer companies and provides feedback on where our non-employee director compensation is positioned relative to the company’s peers.

The following table provides certain information concerning compensation earned by the non-employee members of our Board during the year ended December 31, 2020 pursuant to our Non-Employee Director Compensation Policy. The table excludes Messrs. Halligan and Shah, who are named executive officers of the company and did not receive any additional compensation for their service as directors in 2020. The compensation received by Messrs. Halligan and Shah during 2020 is set forth in the section of this Proxy Statement captioned “Executive Compensation— 2020 Summary Compensation Table.”  Mr. Caldwell is not included in the tables below as he joined the Board in January 2021, and accordingly did not receive any compensation or equity in 2020.  

2020 Director Compensation Table

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Certain Director Equity Information

Our non-employee directors held the following aggregate number of shares of our common stock subject to unexercised stock options and unvested RSUs as of December 31, 2020:

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SUSTAINABILITY AT HUBSPOT

With a mission of helping millions of organizations grow better, we believe HubSpot needs to lead the way by growing better ourselves as a company. We do this by creating value for our customers and stakeholders, taking an active role in fighting racial injustice, working hard to protect customers’ data and privacy, and doing what we can to reduce our impact on the environment. Together, these initiatives help us build a company that is sustainable: one that helps sustain the employees, communities, systems, and environment we operate in. In addition to our internal teams dedicated to our culture and diversity, inclusion and belonging, we have a cross-functional sustainability team that is focused on driving forward our corporate responsibility and sustainability efforts. We review our company-wide initiatives and efforts in this area twice a year with our Nominating and Corporate Governance Committee of the Board, which is responsible for and has oversight over this important area under its committee charter. Please refer to www.hubspot.com/sustainability to learn more about our sustainability efforts. 

Our Award-Winning Culture

In 2013, we published the HubSpot Culture Code which outlines our core company values, including transparency, autonomy, flexibility, and HEART (an acronym that describes the characteristics that we believe amazing employees have: humble, empathetic, adaptable, remarkable, transparent). The HubSpot Culture Code was initially published as a commitment to our customers about the kind of company we are. Today, the Culture Code has garnered more than five million views and is a top reason candidates say they are drawn to working at HubSpot. Having the tenets of the Culture Code also helps us stay aligned with our values as HubSpot scales globally. A copy of our Culture Code can be found at: www.culturecode.com.     

HubSpot is proud to be named the #4 Best Place to Work in 2021 by the Glassdoor Employees’ Choice Awards. Based on employees’ reviews and feedback, this recognition is a strong testament to the innovative culture we are building, and is a signal to talent that HubSpot is committed to their growth and employee happiness. 2020 taught us a lot about what employees need to do their best work, and to be their best selves. Amazing people value flexibility and diversity in the organizations they work for. That is why we are betting on hybrid for the future of work and focusing on building an inclusive company that reflects the diversity of our customers.

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Diversity, Inclusion, and Belonging

At HubSpot, diversity, inclusion, and belonging (“DI&B”) is a core part of our mission. HubSpot customers are diverse in their backgrounds, experiences, and needs, and to help them grow better, we need to build a company that is reflective of that diversity. We have incorporated DI&B into our policies and practices, education and events, and executive and community programs, which include:

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DI&B Workplace Awards

In addition to being the #4 Best Place to Work in 2021 on Glassdoor, we were honored that HubSpot received important recognitions for our work in DI&B in 2020, including the #1 Best Company for Women by Comparably, a Best Company for Diversity by Comparably, a Best Workplace for Parents by Great Place to Work® and FORTUNE and a Best Workplace for Women by Great Place to Work® and FORTUNE.

Diversity of Executive Leadership Team and Board

Building an organization that is diverse, welcoming, and inclusive is not just a people priority for HubSpot, it is a business priority. Our Board, executive leadership team, and employees are invested in making HubSpot a diverse and inclusive company where everyone can bring their best selves to work with a sense of belonging. Since 2018, we have included diversity recruiting and retention as a key goal on our annual company-wide strategy document. We are proud to have four women on our executive leadership team, with 28.6% of our executive leadership team identifying with a minority group. 

In January 2021, we were proud to appoint our first Black director, Nick Caldwell, to our Board. Of our nine-member Board, three members are women, two members identify as South Asian American, and one member is Black. Furthermore, our Lead Independent Director is a woman and identifies as a member of the LGBTQ+ community, and our Nominating and Corporate Governance Committee is comprised entirely of women. 

We are proud to have both an executive leadership team and a Board that represents our customers and employees by bringing diverse ideas and backgrounds to the table. While we do not have a specific policy with regard to the consideration of diversity in identifying director nominees, we believe it is essential to have directors representing diversity in many areas, including but not limited to race, ethnicity, gender, age, abilities, sexual orientation, background, and professional experience.  

Corporate Citizenship

As part of our company mission, we are passionate about helping global communities grow better. Through our global program, HubSpot Helps, we focus on impacting our investment in two core areas: education and entrepreneurship. These two areas align with our core mission, our DI&B strategy, and employees' passions globally. 

Our core charity partners include BUILD, United Way, Early Learning Initiative, A Playful City, Open Doors, Frauenloop, Global Sisters and Halogen Foundation. 

Thanks to our partners' support, ideas, and passion, HubSpot has supported social impact in all our regions creatively. Through initiatives like the Zoom Ahead with Books, a partnership with The Early Learning Initiative, a project was designed to encourage parental involvement and promote children's enjoyment and motivation to read for pleasure. Also through mentoring programs with partners like BUILD and Global Sisters, HubSpot has helped grow the entrepreneurial mindset globally within underprivileged groups. 

HubSpot's partnerships and ongoing opportunities allow us to give back year-round through employee volunteer programs and events and manager days of service linked directly to HubSpot's DI&B mission. In addition, HubSpot hosts internal employee lead (virtual) matched funding events such as the global Pride 5km and global Gratitude Relay, both hosted on our internal Slack channels, to raise extra funds for our nonprofit partners.

Facilities Management

We have designed and maintained our global real estate facilities to reduce HubSpot’s environmental impact and have implemented several programs in the areas of video conferencing, workplace flexibility, recycling, and energy conservation that get the job done while using and re-using resources at the most efficient level possible. From implementing three-in-one waste sorting credenzas in our locations, lobbying on behalf of charging stations for electric cars at local garages used by HubSpot employees, optimizing the efficiency in lighting and HVAC systems on all fit outs, and sending our annual report and proxy statement electronically to reduce unnecessary paper usage, we are investing in best practices to reduce our carbon footprint and have invested in sustainable design features and green operations in many of our offices. For example, our Dublin headquarters at HubSpot House is one of only 12 buildings in Ireland that is platinum certified for shell and core in Leadership in Energy and Environmental Design (“LEED”), a voluntary rating system to certify sustainable buildings and neighborhoods. In addition, HubSpot House is one of two buildings with a commercial interior that holds a platinum certification based on version 3 of LEED in Ireland; it is the first and only building with a commercial interior that holds a platinum certification based on version 4 of LEED in Ireland.  

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We continue to maintain our global real estate portfolio and employee activity with a renewed focus on the health and safety of our employees. In doing so, we continue to consistently assess our environmental impact to allow for efficiencies and plan for further reductions. We have advanced several programs in the areas of greenhouse gas (“GHG”) mitigation, energy procurement, on-site renewables, green infrastructure, and green leasing. We have evaluated our remote work opportunities, providing our employees access to applications, programs, data, and collaboration tools which help to reduce the environmental effects associated with commuting, office space usage, and team travel. We continue to research our GHG footprint which will allow us to set targets for the near and long term. Some examples that we have enacted and that will continue to exhibit positive impact include: upgrading to LED lighting globally, updating lighting systems to run on occupancy sensors, integrating onsite renewables in some office locations, auditing, revamping, and planning for future energy procurement, and establishing a program focused on renewable energy certificates (“RECs”) and offsets to account for our past, present, and future carbon footprints.

We donate retired office furniture and information technology hardware (including laptops and computer monitors) to various organizations to extend each piece’s useful life. In addition, equipment from demolitions or rebuilds of our facilities are donated when usable or recycled when applicable.

Environmental

We believe in creating a company our grandchildren can be proud of. This is only possible if we create a company that can sustain and reduce harmful impacts to the environment. Companies have a duty to understand the GHG emissions they are putting out into the atmosphere and what practices they have as a business that contribute to climate change. Companies have a responsibility to use that understanding to reduce emissions and make meaningful progress towards mitigating those emissions they cannot reduce. In 2020, we worked to calculate all of our historical emissions from 2006, when HubSpot was formed. The first step for us was to get a firm understanding of our GHG emissions from our business travel, employee commute times, office waste, water, and electricity, as well as from third party vendors, and their related impact on the environment.

To date, we made two steps towards a more sustainable future. 

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Data Privacy

We believe privacy and the secure handling of an individual’s data is a fundamental human right. Privacy and data protection are also the foundation for trust. That is why we built our first ever Trust Compass in 2020 to prioritize initiatives deemed most critical to protecting the data of our customers, our employees, and our company. Initiatives are selected by way of a variety of inputs, including customers, employees, leadership, and industry trends; approved by executive leadership; and then shared with and reviewed by the Board. With the onset of COVID-19 in 2020 and the shift to remote work, we realized that we needed to evolve our security practices and lean into a Defense in Depth strategy. We made large investments in our Privacy and Security organization in 2020 to support driving these initiatives, more than doubling the headcount dedicated to these areas, which included the formation of a dedicated Product Trust and Safety team and the appointment of our Chief Information Security Officer.

We delivered the following data privacy and security initiatives in 2020 and 2021:

Finally, we support the roll-out of privacy and data protection laws around the world. The principles embodied in regulations like the General Data Protection Regulation (“GDPR”) in the European Union and the California Consumer Protection Act (“CCPA”) align with HubSpot’s core company principles and make the internet a safer and more secure place. To that end, we build privacy-enhancing features into our platform, as evidenced by our GDPR playbook that is available on our website at https://www.hubspot.com/data-privacy/gdpr/hubspot-product-playbook. We also help our customers navigate new regulations with resources, including our CCPA Compliance Guide, which is available on our website at https://www.hubspot.com/data-privacy/ccpa/ccpa-compliance.

Code of Use Good Judgment

At HubSpot, we are serious about compliance and doing the right thing. To that end, we adopted a Code of Business Conduct and Ethics, which we refer to as our Code of Use Good Judgment, that applies to all of our employees, officers, and directors. This Code highlights that everything we do at HubSpot will be, and should be, measured against the highest possible standards of ethical business conduct. We set the bar high for practical and aspirational reasons because our commitment to the highest standards helps us solve for our customers, hire great people, build a great platform and products, and attract loyal partners. Trust and mutual respect between us and our customers and partners are the foundation of our success, and following this Code helps us maintain that relationship. We also encourage our employees to report suspected policy violations through our anonymous Whistleblower Hotline (online or via phone). No waiver of any provisions of our Code of Use Good Judgment for the benefit of a director or an executive officer shall be effective unless approved by the Board and, if applicable, such waiver is disclosed to our stockholders in accordance with applicable U.S. securities laws and/or the rules of the NYSE. In addition, all amendments to the Code of Use Good Judgment must be approved by the Board or the Audit committee. Our Code of Use Good Judgment is available on our Investor Relations website at: https://ir.hubspot.com/leadership.

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Human Rights Policy

Respect for human rights is a fundamental value of HubSpot. Our company operates globally and has offices around the world. Our customers, employees, stockholders, and vendors represent virtually every race, national origin, religion, culture, political philosophy, and language. This diversity is the foundation of our business excellence and embodies HubSpot’s respect for human rights and dignity of all people. Where we have identified adverse human rights impacts resulting from or caused by our business activities, we are committed to provide for or cooperate in their fair and equitable remediation. In March 2020, our Board adopted a Human Rights Policy to outline HubSpot’s position on fundamental human rights. This policy is available on our Investor Relations website at: https://ir.hubspot.com/leadership.

Stakeholder Engagement

At HubSpot, we value and consider the viewpoints of a number of stakeholders, including our employees, our customers, our partners, and our stockholders. We have teams dedicated to engagement with each of these stakeholder groups, and feedback is regularly shared with our executive leadership team and Board to review, consider, and incorporate into future priorities for the company. The chart below describes the engagement process with each of our stakeholder groups and actions we have taken in response to their feedback.  

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT

The following table sets forth certain information known to us regarding the beneficial ownership of our common stock as of March 1, 2021, for:

Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Except as noted by footnote, and subject to community property laws where applicable, we believe, based on the information provided to us, that the persons and entities named in the table below have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them.

The table lists applicable percentage ownership based on 46,582,819 shares of common stock outstanding as of March 1, 2021 unless indicated otherwise. Options to purchase shares of our common stock that are exercisable, and shares of our common stock that may be acquired upon the vesting of RSUs, in each case, within 60 days of March 1, 2021, are deemed to be beneficially owned by the persons holding these options or RSUs, as applicable, for the purpose of computing percentage ownership of that person, but are not treated as outstanding for the purpose of computing any other person’s ownership percentage. Unless otherwise indicated, the address for each beneficial owner is c/o HubSpot, Inc. 25 First Street, Cambridge, MA 02141.

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Delinquent Section 16(a) Reports

Section 16(a) of the Exchange Act requires our directors and executive officers and persons who own more than 10% of our common stock, to file with the SEC initial reports of beneficial ownership and reports of changes in beneficial ownership. Officers, directors and greater than 10% stockholders are required by SEC regulations to furnish us with copies of all such reports.

To our knowledge, based solely on a review of the copies of such reports furnished to us and written representations that no other reports were required, we believe that for 2020, all required reports were filed on a timely basis under Section 16(a), except that Ms. Norrington had one late Form 4 transaction due to administrative oversight.

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

This Compensation Discussion and Analysis describes how our executive compensation program is designed and operates with respect to our named executive officers. For 2020, our named executive officers were:

Executive Summary

Business Overview

We help scaling companies deliver a delightful customer experience through our cloud-based customer relationship management platform, which we refer to in this Compensation Discussion and Analysis as our CRM Platform. Our CRM Platform includes marketing, sales, service, and a content management system (“CMS”), as well as other tools and integrations, that enable companies to attract, engage, and delight customers throughout the customer experience. Additionally, we provide education, services, and support to help customers be successful with our platform.

We are headquartered in Cambridge, Massachusetts and have international offices in Dublin, Ireland; Singapore; Sydney, Australia; Tokyo, Japan; Berlin, Germany; Bogotá, Colombia, Paris, France; and Ghent, Belgium. We were proud to be named a Best Place to Work in 2020 and 2021 by Glassdoor. We have also been recognized as a top workplace in 2020 by Great Place to Work, the Boston Globe, the Boston Business Journal, and more. We were also honored in a number of categories by Comparably's workplace awards in 2020 including Best CEOs, Best Companies for Women, Best Companies for Diversity, Best Overall Company Culture, and a Best Company for Employee Happiness.

Impact of COVID-19

In March 2020, we took immediate and decisive steps to mitigate the COVID-19 pandemic’s impact on our customers and partners by reducing prices on certain products in our Starter tier, temporarily suspending marketing email send limits, offering a one-time six-month advance on commissions to certain Solutions Partners, and providing discounts and flexible payment terms to customers under more severe short-term financial strain.

While the scope and duration of the pandemic remain uncertain, we plan to continue making investments that support business growth and help our customers grow better. We also plan to develop new products and applications to extend the functionality of our CRM Platform and drive value for our customers, while maintaining exceptional customer service and support.

We are grateful for our team’s efforts in accelerating our strategic priorities to serve our customers in new and differentiated ways and achieving a variety of important financial and operational accomplishments, including those summarized below. We believe these actions have put us in a strong position to fund our longer term growth strategies and support our business despite the challenges brought on by COVID-19.

2020 Financial Highlights

During 2020, we surpassed 100,000 paying customers and reached $1 billion in annual recurring revenue (as defined below), marking two important milestones in our nearly 15-year history. Despite the COVID-19 pandemic, we delivered strong growth and financial performance in fiscal year 2020, including:

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2020 Performance Highlights

In addition to our strong financial performance in 2020, we delivered numerous product launches and enhancements to our existing products designed to give companies a greater ability to unify their marketing, sales, and service efforts and build a delightful customer experience, including:

2020 Executive Compensation Program Highlights

Highlights of our 2020 executive compensation program include:

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Return to Stockholders

We have delivered significant long-term total stockholder return (“TSR”), as evidenced by the chart below, which shows how an initial investment of $100 in HubSpot on December 31, 2014 would have grown to $1,180 on December 31, 2020. The chart also compares TSR on an investment in our common stock to the same investment in the S&P 500 Index and the Nasdaq Computer Index over the last six fiscal years.

As evidenced by the table above, our stock price has been consistently strong since we went public in 2014. The stock price for our initial public offering on October 9, 2014 was $25.00 per share. Our closing stock price on December 31, 2020 was $396.44 per share, approximately 15.86 times our stock price at our initial public offering.

Compensation Philosophy

Our Compensation Committee designs our executive compensation program with the goal of attracting, motivating, rewarding, and retaining high-caliber executive officers, while simultaneously promoting the achievement of key company performance measures to align the incentives of our executive officers with our stockholders’ interests. We compete with many other public and private companies within our region and across the country for executives. Accordingly, the Compensation Committee generally targets overall compensation for our executive officers to be competitive in our industry and across the country. Variations in this target compensation may occur depending on the experience level of the individual and other market factors, such as the demand for executives with certain skills and experience and the costs associated with recruiting qualified executives from other established companies. We intend to provide a competitive total compensation package and believe in sharing our success with our executive officers, as well as our other employees, when our objectives are met.

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We endeavor to maintain strong executive compensation policies and practices as summarized below:

The compensation of our named executive officers in 2020 consisted of the following elements:

Each of the elements of our executive compensation program is discussed in more detail below. Our compensation elements are designed to be flexible, to complement each other and to serve the compensation objectives described above. While we have not adopted any formal policies for allocating compensation between fixed and variable compensation, we generally target our long-term incentive compensation to be a significant majority of target total direct compensation. Our mix of compensation elements is designed to reward short-term results and motivate long-term performance through a combination of short-term cash and long-term equity awards.

Determining Executive Compensation

Role of the Compensation Committee

The Compensation Committee of our Board oversees our executive compensation program and annually reviews and approves all executive compensation decisions. The Compensation Committee meets several times near the beginning of each fiscal year to review our executive compensation programs, establish the company performance measures used to set the annual cash bonus opportunities for the fiscal year and review the target total direct compensation for our executive officers to ensure consistency with our overall compensation philosophy. As part of this executive compensation review, the Compensation Committee is provided with relevant information, such as the competitive market data described further below, to use as a reference when determining each individual compensation element and target total direct compensation levels.

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Role of our Chief Executive Officer and Other Executive Officers

Our Chief Executive Officer and Chief Financial Officer assist, and our former President and Chief Operating Officer assisted, the Compensation Committee in identifying the key performance and incentive measures that may be used in setting annual cash bonus opportunities and also provide input on key contributors and performers within the company so as to ensure their compensation accurately reflects their responsibilities, performance, experience levels and expected future contributions. Our Chief Executive Officer makes, and our former President and Chief Operating Officer made, recommendations to the Compensation Committee regarding the compensation for our executive officers (except with respect to their own compensation). No executive officer participated in the final deliberations or determinations regarding his or her own compensation package, except for Messrs. Halligan and Shah, who each requested that his base salary be reduced to $1 for 2020 and elected to forego any cash bonus awards.

Role of the Compensation Consultant

The Compensation Committee has the authority to engage independent advisors to assist it in carrying out its responsibilities. For 2020, the Compensation Committee retained the services of Compensia, Inc. (“Compensia”), a national compensation consulting firm, to serve as its compensation consultant and to review and advise on the principal aspects of our executive compensation program. The executive compensation program services of Compensia included providing recommendations regarding the selection of compensation peer group companies, analyzing publicly available compensation data of peer group companies, compensation survey data, and other publicly available data to assess the competitive market for executive talent, and reviewing and advising on the target total direct compensation opportunities for our executive officers, including base salaries, annual cash bonus compensation, and long-term incentive compensation. In addition, Compensia also reviewed Board compensation and provided market practices for equity compensation design.

In compliance with the disclosure requirements of the SEC regarding the independence of compensation consultants, the Compensation Committee has assessed each of the six independence factors established by the SEC and adopted by the NYSE and has determined that the engagement of and work performed by Compensia does not raise any conflicts of interest or similar concerns. In addition, the Compensation Committee evaluated the independence of its other outside advisors to the Compensation Committee, including outside legal counsel, considering the same independence factors and concluded their work for the Compensation Committee does not raise any conflicts of interest.

Compensia reports directly to the Compensation Committee and does not provide any non-compensation related services to the company. Compensia does not make specific compensation-related recommendations, although it does use the competitive market data described below to provide ranges for base salary, annual cash bonus awards and long-term incentive compensation awards that are consistent with the company’s compensation peer group and relevant compensation survey data for the Compensation Committee to consider. Compensia attends certain Compensation Committee meetings, executive sessions and preparatory meetings with the committee chair and certain executive officers, as requested by the Compensation Committee.

Use of Competitive Market Data and Peer Groups

The Compensation Committee directs Compensia to provide it with competitive market data and analysis based on a select group of peer companies and published compensation survey data, as well as information about current market practices and trends, compensation structures and peer group compensation ranges. The competitive market data Compensia provides is based on a compensation peer group selected and approved by the Compensation Committee with input and guidance from Compensia and published compensation survey data in cases where there is insufficient data for specific executive positions within the peer group companies. The compensation peer group is comprised of companies that are considered similar to us at the time of selection based on industry, business focus, and various financial criteria, including revenue, market capitalization and revenue growth rate.

For its review and analysis of the compensation of our Named Executive Officers for fiscal year 2020, the Compensation Committee approved the following 18 companies as our compensation peer group:

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Because publicly-available compensation data is generally limited to that of a company’s Chief Executive Officer, Chief Financial Officer, and up to three most highly-compensated executive officers (other than the Chief Executive Officer and the Chief Financial Officer), the Compensation Committee also utilized compensation data based on a custom cut of the Radford Global Technology Survey (which is based on the peer group companies with additional similarly sized companies in order to provide sufficient market data for all of the executive positions) in reviewing, analyzing, and determining the compensation for Mmes. Bueker and Rangan and Messrs. Kelleher, Shah, and Sherman.

The Compensation Committee selected the companies in our compensation peer group and utilized the data drawn from the Radford Global Technology Survey because it believes that these companies compete with us for executive talent and were similar to us in terms of industry, revenue, market capitalization, and revenue growth rate. The Compensation Committee also determined that the companies in the compensation peer group generally have executive officer positions that are comparable to ours in terms of breadth, complexity, and scope of responsibilities.

While we compete for executive talent to some degree with companies that have revenues significantly in excess of those represented in the compensation peer group and published compensation surveys, we believe that the companies represented similarly compete for talent with such larger companies and hence are an appropriate comparison for our employment market. The Compensation Committee uses competitive market data as one factor when making compensation decisions, understanding that such data cannot be applied formulaically, and has historically taken into account other data, including input from the members of the Compensation Committee based on their experience in compensation matters.

The Compensation Committee reviews the compensation peer group annually and may replace some or all of the companies with others from time to time as changes in market positions and company size, including our own, may suggest more representative peer group companies.

Consideration of Say-On-Pay Advisory Vote

At our June 17, 2020 annual meeting of stockholders, approximately 97.6% of the votes cast on the non-binding, advisory say-on-pay proposal were voted to approve the 2019 compensation of our named executive officers. The Compensation Committee believes that the vote outcome indicates that stockholders generally approve of the structure of our executive compensation program. In light of the 2020 advisory say-on-pay vote results, the Compensation Committee structured executive compensation for 2020 in a manner that was generally consistent with our 2019 executive compensation program. Stockholders will have an opportunity annually to cast a non-binding, advisory say-on-pay vote on the compensation of our named executive officers.

Elements of Compensation

Base Salaries

Base salaries for our named executive officers were established initially at the time the individual was hired, taking into account competitive market data provided by the Compensation Committee’s compensation consultant, if applicable, and internal pay parity considerations, as well as the individual’s qualifications and experience. The base salaries of our named executive officers are reviewed by our Chief Executive Officer and were reviewed by our former President and Chief Operating Officer and are approved annually by the Compensation Committee. Adjustments to base salaries are also based on:

The Compensation Committee does not assign a specific weight to any single factor in making decisions regarding base salary adjustments.

In January 2020, after reviewing the base salaries of our named executive officers compared to similarly situated executives at the companies in our compensation peer group and the relevant compensation survey data, assessing both company and individual performance in 2019, as well as reviewing internal parity among our named executive officers, the Compensation Committee made adjustments to the base salaries for Ms. Bueker and Messrs. Kelleher and Sherman. As they did in 2019, Messrs. Halligan and Shah each requested that his base salary be maintained at $1 for 2020.

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The following table sets forth the base salaries for our named executive officers for fiscal 2019 and 2020:

Annual Cash Bonuses

We provide annual performance-based cash bonus opportunities linked to the achievement of pre-established corporate performance goals under our Senior Executive Cash Incentive Bonus Plan (the “Bonus Plan”) to our named executive officers. The Compensation Committee believes that the annual performance measures used in the Bonus Plan contribute to driving long-term stockholder value, play an important role in influencing executive performance, and are an important element of our executive compensation program to help attract, motivate, reward, and retain our executive officers and other employees.

Under the Bonus Plan, each year (generally during the first quarter) the Compensation Committee approves company-wide performance objectives, which serve as the basis for determining the eligibility for, and amount of, bonuses to be paid under the program. Typically, performance under the Bonus Plan is measured and paid out semi-annually as of June 30^th and December 31^st each year. After the end of each six-month period, the Compensation Committee reviews our actual achievement against the target levels for the pre-established performance measures and determines the bonuses, if any, to be paid under the program. The Compensation Committee may increase or decrease awards under the Bonus Plan in its discretion based on factors the committee deems appropriate.

2020 Target Annual Cash Bonus Opportunity. To establish our executive officers’ individual target annual cash bonus opportunities (expressed as a percentage of base salary), the Compensation Committee considers competitive market data prepared by its compensation consultant, and the level, position, objectives, and scope of responsibility of each executive officer, as well as considerations of internal parity among similarly situated executives.

In January 2020, based on its review of our executive compensation program, competitive market data, and the other factors described above, the Compensation Committee approved the following target annual cash bonus opportunities for the named executive officers, which remained unchanged from 2019 levels. As in 2019, Messrs. Halligan and Shah voluntarily requested to forego any cash bonuses under the Bonus Plan for 2020. In connection with his transition from the company, Mr. Sherman was not eligible for a cash bonus under the Bonus Plan for the six-month period ended December 31, 2020. Pursuant to the company’s policy for all new employees and as reflected in her offer letter, dated October 25, 2019, Ms. Rangan was entitled to receive a cash bonus for her first semi-annual bonus period payable at 100% achievement of the bonus performance measures, regardless of actual performance during the applicable period.

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The following table sets forth the target annual cash bonus opportunities for our named executive officers under our Bonus Plan for 2020:

2020 Cash Bonus Performance Measures. For 2020, the Compensation Committee selected the following two performance measures: (1) annual recurring revenue (“ARR”) install base and (2) non-GAAP operating income (loss). Performance is measured on a cumulative basis biannually as of June 30, 2020 and December 31, 2020. The performance measures are weighted as follows: 70% for ARR and 30% for non-GAAP operating income (loss).

For purposes of the Bonus Plan, we define “ARR” as the annual value of our customer subscription contracts as of the specified point in time excluding any commissions owed to our partners. We define “non-GAAP operating income (loss)” as operating income (loss), calculated in accordance with GAAP, excluding our stock-based compensation expense, the amortization of acquired intangibles, and acquisition-related expenses.

2020 Cash Bonus Performance Targets, Achievement, and Payout. The Compensation Committee believes the targets for the Bonus Plan should be rigorous and challenging. The Compensation Committee establishes target levels it believes are necessary to provide a competitive overall compensation package in light of each named executive officer’s base salary and to motivate our named executive officers to achieve an aggressive level of growth and profitability.

For ARR, the Compensation Committee established payout levels for 50% (minimum payout), 75%, 100% (target payout), 125%, 150%, and 200% (maximum payout) achievement, with a sliding scale applied between each payout level.

For non-GAAP operating income (loss), the Compensation Committee established payout levels for 50% (minimum payout), 75%, and 100% (target/maximum payout) achievement, with a sliding scale applied between each payout level.  

Due to the weighting of each performance measure (70% for ARR and 30% for non-GAAP operating income (loss)), the maximum payout is 170% of an executive officer’s target annual bonus opportunity:

(70% ARR * 200% Maximum) PLUS (30% non-GAAP operating income (loss) * 100% Maximum)

EQUALS 170% of Target Bonus Opportunity

Revised Second Half Cash Bonus Performance Target in light of COVID-19 pandemic. In January 2020, the Compensation Committee established the original performance measures and related targets for the semi-annual performance periods under the Bonus Plan, including targets for ARR install base. In light of the COVID-19 pandemic, in May 2020, we revised our previously disclosed financial guidance for the full year of 2020. No changes were made to the targets, performance levels, or resulting payout for the first half of 2020. In July 2020, to incent and motivate our executives in these unprecedented times, the Compensation Committee revised the target for ARR install base that would apply to the second half of 2020 in a manner consistent with the revised financial guidance. The Compensation Committee revised the maximum level of performance for the second half of 2020 at the target level of performance established at the beginning of 2020 (the “Original Target Level”), thereby limiting the full year potential bonus payment under the Bonus Plan to the amount that would have been paid had the Original Target Level been achieved, regardless of whether actual achievement exceeded the Original Target Level. On August 5, 2020, we filed voluntarily a Current Report on Form 8-K with the SEC to disclose this event.  

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The table below shows our 2020 ARR and non-GAAP operating income target levels (both the original targets and the revised targets) compared to our actual results and related achievement:

For the six-month period ended June 30, 2020, due to the COVID-19 pandemic, we did not achieve the ARR target level of $858.878 million and as a result, the payout associated with ARR was 0.0%. Our non-GAAP operating income exceeded the target level of $21.860 million and, as a result, the payout associated with non-GAAP operating income was 100.0%. Based on the weighting of the performance measures, the payout for the first half of 2020 was equal to 30.0% of the target annual cash bonus opportunity for that six-month period.  

For the six-month period ended December 31, 2020, we recorded ARR install base of $1,016.498 million, which surpassed both the original ARR target level of $976.338 and the revised ARR target level of $915.137 million. The result also surpassed both the original ARR maximum performance level of $1,012.450 million and the revised ARR maximum performance level of $976.227 million. As a result, the payout associated with ARR was 200.0%. Our non-GAAP operating income exceeded the target level of $57.818 million, which did not change from the Original Target Level. As a result, the payout associated with non-GAAP operating income was 100.0%. Based on the weighting of the performance measures, the payout for the second half of 2020 was equal to 170.0% of the target cash bonus opportunity for that six-month period.  

The Compensation Committee believed aligning second half ARR performance levels with the company’s revised guidance was necessary to continue to motivate executives to drive stockholder value in the second half of 2020 and over the long-term. The company’s ARR performance recovery in light of the global pandemic was unforeseen at the time the Compensation Committee determined to revise the ARR target for the second half of 2020. The Compensation Committee believes the company’s performance in the second half of 2020 warrants the actual payouts attained.

It is important to note that, the full year potential bonus payment under the Bonus Plan was limited to the amount that would have been paid had we achieved the Original Target Level for the full year. It is also worth noting that, had we maintained the Original Target Level, we would have achieved the maximum result (i.e., 200.0%) for ARR as a result of our strong performance in the second half of 2020.  

The above-referenced performance targets should not be interpreted as a prediction of how we will perform in future periods. As described below, the purpose of these objectives was to establish a method for determining the payment of annual cash bonuses.

Accordingly, the cash bonuses paid to the named executive officers for 2020 under the Bonus Plan are set forth in the table below.

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Long-Term Incentive Compensation

The Compensation Committee grants long-term incentive compensation in the form of equity awards to our named executive officers on an annual basis, generally in the first quarter of the year. In determining the size of equity awards for our named executive officers, the Compensation Committee reviews competitive market data provided by its compensation consultant and grants awards intended to be competitive with the prevailing market practice. In addition to the competitive market data, the Compensation Committee also considers a number of other factors, including the recommendations of our Chief Executive Officer and, while he was serving, former President and Chief Operating Officer (except with respect to their own awards), the company’s overall performance, the individual executive officer’s performance, the relative ease or difficulty of replacing the executive with a well-qualified person and the number of well-qualified candidates available to assume the executive’s role, the amount of equity previously awarded to the executive as well as the portion of previously awarded equity that remains unvested, and the company’s annual equity burn rates. The Compensation Committee also considers the appropriateness of various equity vehicles, as well as overall program costs (which include both stockholder dilution and compensation expense), when evaluating the long-term compensation mix. All equity awards are approved by the Compensation Committee.

Stock Options. We grant stock options to our executives to align their interests with those of our stockholders and as an incentive to remain with us. The Compensation Committee believes that options to purchase shares of our common stock, with an exercise price equal to the market price of our common stock on the date of grant, are inherently performance-based and are a very effective tool to motivate our executives to build stockholder value and reinforce our position as a growth company. With stock options, our executives can realize value only to the extent that the market price of our common stock increases during the period that the option is outstanding, which provides a strong incentive to our executives to increase stockholder value. Further, because these options typically vest over a four-year period, they incentivize our executives to build value that can be sustained over time.

Restricted Stock Units (“RSUs”). We also grant RSUs to our executives and other employees. RSUs align the interests of our executives and other employees with those of our stockholders and help manage the dilutive effect of our equity compensation program. Our RSUs are subject to time-based vesting. Because RSUs have value to the recipient even in the absence of stock price appreciation, RSUs help us retain and incentivize employees during periods of market volatility, and also result in our granting fewer shares of common stock than through stock options of equivalent grant date fair value. Our RSUs typically vest over a four-year period, and we believe that, like stock options, they help incentivize our executives to build value that can be sustained over time.

Approved Equity Award Value and Calculation of Shares. The Compensation Committee typically approves an overall target value to be awarded to each executive after considering the factors described above. Once the equity award value has been determined, the number of RSUs to be granted to the executive is calculated using the average per share closing price of HubSpot’s common stock on the NYSE over the 30 trading days up to and including the date of grant. In the case of options, the number of stock options to be granted is based on the 30 trading day trailing average fair value (Black-Scholes value) as of the date of grant. As a result, the intended target value of an equity award approved by the Compensation Committee will often differ from the grant date fair value of the stock option and RSU awards as computed in accordance with ASC Topic 718, which is shown in the 2020 Summary Compensation Table.

2020 Equity Awards. In early 2020, after considering the factors described above, the Compensation Committee approved equity award values for each executive officer and also determined that the mix for the annual equity awards would consist of 25% in value of stock options and 75% in value of RSU awards.

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On January 8, 2020, in connection with her hire, the Compensation Committee awarded Ms. Rangan the following equity awards: (i) an initial equity award valued at $2,600,000, comprised of 75% RSUs and 25% stock options, that vests over four years commencing on January 1, 2020, with 25% vesting on January 1, 2021 and the remaining 75% vesting in equal quarterly increments thereafter; (ii) a sign-on equity award valued at $6,000,000, comprised of 100% RSUs, that vests over four years commencing on January 1, 2020 in equal quarterly increments; and (iii) a sign-on equity award valued at $3,000,000, comprised of 100% RSUs, that vests over two years commencing on January 1, 2020 in equal quarterly increments. In determining the mix and size of Ms. Rangan’s awards, the Compensation Committee reviewed competitive market data provided by its compensation consultant for similarly situated executives, the number of well-qualified candidates available to assume the open Chief Customer Officer position, the amount of compensation forfeited from the prior employer, and internal pay equity among the named executive officers.

The table below shows the intended equity award value approved for our named executive officers and the resulting number of RSUs and stock options actually awarded to them on their respective grant dates. We note, however, that the reported values in our 2020 Summary Compensation Table may differ from the values reflected below due to fluctuations in our stock price prior to the actual grant date.

Compensation Risk Assessment

As part of its review of the compensation to be paid to our executives, as well as the compensation programs generally available to our employees, the Compensation Committee considers potential risks arising from our compensation programs and the management of these risks, in light of our overall business, strategy and objectives.

As is the case with our employees generally, our executive officers’ base salaries are fixed in amount and thus do not encourage risk-taking. Bonus amounts under our Bonus Plan are tied to overall corporate performance, and the bonus payout for executive officers is based on our performance during the fiscal year compared to pre-established target levels for two measures: ARR and non-GAAP operating income. These financial measures counterbalance each other, decreasing the likelihood that our executive officers will pursue any one measure to the detriment of overall financial performance. Combined, these measures limit the ability of an executive to be rewarded for taking excessive risk on our behalf by, for example, seeking revenue enhancing opportunities at the expense of profitability. Moreover, a significant portion of compensation provided to our executive officers is long-term incentive compensation in the form of equity awards that help further align their interests with those of our stockholders. These risk-mitigating factors are also present in our company-wide compensation program.

In short, we believe that our executive compensation program does not encourage excessive or unnecessary risk-taking. Furthermore, we do not believe that the risks that may arise from our compensation programs are reasonably likely to have a material adverse effect on us.

Other Benefits

Health and Welfare Benefits

Our named executive officers are eligible for the same employee benefits available to our employees generally. We offer group health, dental, life and disability insurance plans. The type and extent of benefits offered are intended to be competitive within our industry and region. We also maintain a tax-qualified Section 401(k) retirement plan for eligible employees in the United States. Under our Section 401(k) plan, employees may elect to defer up to 96% of their eligible

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compensation subject to applicable annual limits set pursuant to the Code. We currently provide a company matching contribution of 50% of the employee’s contributions (up to $2,500 per year) under the Section 401(k) plan. Employees are 100% vested in their contributions to the Section 401(k) plan and any employer contributions after one year of service. We intend for the Section 401(k) plan to qualify, depending on the employee’s election, under Section 401(a) of the Code so that contributions by employees, and income earned on those contributions, are not taxable to employees until withdrawn from the Section 401(k) plan.  

Perquisites and Personal Benefits

As noted above, our named executive officers are eligible to participate in the same benefits as those offered to all full-time employees. We do not have any programs for providing personal benefits or executive perquisites to our named executive officers.

Severance and Change in Control Benefits

We do not have any employment or change in control arrangements with our executive officers, except that all of the current outstanding equity awards to our employees, including our named executive officers, under our 2014 Stock Option and Incentive Plan and our 2007 Equity Incentive Plan, include a “double-trigger” vesting acceleration provision in the event of a change in control of the company and a subsequent termination of employment as further described below under “Potential Payments Upon Termination or Change in Control.”

Mr. Sherman did not receive any severance payments or other benefits in connection with his departure from the company. In connection with his role as an advisor to the company from July 1, 2020 through January 4, 2021, Mr. Sherman’s outstanding and unvested equity awards continued to vest through such period.

Other Compensation Practices and Policies

Stock Ownership Guidelines

We have adopted a Stock Ownership Policy that is applicable to our non-employee directors and those employees who have been designated as “officers” for purposes of Section 16 of the Exchange Act. The Stock Ownership Policy requires that non-employee directors hold equity in the company with a value equal to at least three times the director’s annual Board cash retainer, the Chief Executive Officer own equity in the company equal to at least six times his annual base salary, and that all other covered executives own equity in the company equal to at least one times his or her annual base salary. The Stock Ownership Policy provides for a phase-in period, which provides that an individual subject to this policy is required to be in compliance with the minimum equity ownership requirement by the later of December 31, 2021 or the first December 31^st that occurs following the five-year anniversary of date on which the non-employee director or Section 16 officer first became subject to the Stock Ownership Policy. The Stock Ownership Policy also includes certain share retention obligations that apply to officers and directors who have not met the minimum equity ownership requirements by the end of their phase-in period or who cease to hold the minimum equity ownership at any time following such date.

Anti-Hedging and Anti-Pledging Policies

We have an insider trading policy that prohibits all Board members, executive officers, and employees from engaging in, among other things, hedging of stock ownership positions and transactions involving derivative securities relating to our common stock. Our policy prohibits all Board members, executive officers, and employees from buying our securities on margin, borrowing against our securities held in a margin account, engaging in short sales of our securities, and buying or selling derivatives on our securities. Our policy also generally prohibits all Board members, executive officers, and employees from pledging our securities as collateral for a loan, other than as may be allowed in certain exceptional and limited circumstances with the permission of the Audit Committee. To date, no such requests have been made or approved.

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Policy for Recoupment of Incentive Compensation

We have adopted a Policy for Recoupment of Incentive Compensation (the “Clawback Policy”) that applies to those employees who have been designated as “officers” for purposes of Section 16 of the Exchange Act. The Clawback Policy provides that if we are required to prepare an accounting restatement due to the material non-compliance with any financial reporting requirement and/or intentional misconduct by an officer covered by the policy, then a committee of independent directors may require any officer covered by the policy to repay to the company any incentive compensation received by the officer during the previous three years, to the extent that the committee determines that the incentive compensation was in excess of the amount the officer would have received if the incentive compensation had been calculated based on the financial results reported in the restated financial statement. For purposes of the Clawback Policy, incentive compensation includes income related to annual cash bonuses and long term incentive compensation.   

Indemnification of Officers and Directors

We have agreed to indemnify our directors and officers in certain circumstances. See “Related Party Transactions—Limitation of Liability and Indemnification of Officers and Directors.”

Tax and Accounting Considerations

Tax Deductibility  

Section 162(m) of the Internal Revenue Code generally places a $1 million limit on the amount of compensation a company can deduct in any one year for certain executive officers and certain other individuals. While our Compensation Committee considers tax deductibility as one factor in determining executive compensation, our Compensation Committee also looks at other factors in making its decisions, as noted above, and retains the flexibility to award compensation that it determines to be consistent with the goals of our executive compensation program even if the awards are not deductible by us for tax purposes.

Accounting for Stock-Based Compensation

We follow ASC Topic 718 for our share-based compensation awards to employees and directors. ASC Topic 718 requires companies to measure the compensation expense for all share-based payment awards made to employees and directors, including stock options, restricted stock awards and RSU awards, based on the grant date “fair value” of these awards. This calculation is performed for accounting purposes and reported in the compensation tables below, even though our executive officers may never realize any value from their awards. ASC Topic 718 also requires companies to recognize the compensation cost of their share-based compensation awards in their statements of operations over the period that an employee or director is required to render service in exchange for the option or other award. The Compensation Committee considers the impact of ASC Topic 718 when making share-based compensation awards.

Compensation Committee Interlocks and Insider Participation

During 2020, the Compensation Committee was comprised of Ms. Ward and Messrs. Simon and Simons. None of the members of the Compensation Committee is an officer or employee of our company. None of our executive officers currently serves, or in the past year has served, as a member of the Board or Compensation Committee of any entity that has one or more executive officers serving on our Board or Compensation Committee.

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2020 SUMMARY COMPENSATION TABLE