You are cordially invited to join us for our 2006 annual ... - Piper Jaffray

for this purpose base salary and incentive compensation) represented from 22% to 41% of totalcompensation, depending on the individual’s position.Executive Stock OwnershipWe have adopted stock ownership guidelines to ensure that each executive officer maintains ameaningful equity stake in the company, which serves as both a long-term incentive and alsostrengthens retention. The guidelines provide for the executive officers to hold Piper Jaffray Companiesstock with a value equal to seven times base salary for the chief executive officer, and two to five timessalary for the other executive officers, depending on the individual’s position, within five years afterbecoming subject to the guidelines. In addition to the ownership guidelines, we have adopted a shareretention policy requiring the executive officers to hold at least 50% of the shares awarded to themthrough the company’s incentive plans, or acquired upon exercise of stock options awarded to them,net of taxes and transaction costs, for a minimum period of five years.Chief Executive Officer CompensationIn determining Mr. Duff’s incentive compensation for 2005 and his base salary for 2006, theCompensation Committee took the following steps:) Reviewed the financial performance and the total relative shareholder return of Piper JaffrayCompanies, comparable public companies and other companies in the securities industry withwhich Piper Jaffray competes;) Analyzed data regarding the types and amount of compensation, including incentive compensation,paid to the chief executive officers of comparable public companies and other companiesin the securities industry with which Piper Jaffray competes;) Reviewed historical compensation information for Mr. Duff, including past grants of equity;) Considered feedback from Mr. Duff, other members of management, and the Board ofDirectors regarding Mr. Duff’s performance for 2005; and) Independently evaluated Mr. Duff’s performance as chief executive officer against the 2005performance goals and objectives that had been established for him by the CompensationCommittee.After completing this process, the Compensation Committee approved incentive compensation forMr. Duff under the annual incentive program in the amount of $1,800,000, consisting of $900,000 incash and $900,000 in equity. The equity component consisted of $765,000 in restricted stock (a totalof 15,988 shares) and $135,000 in stock options (a total of 6,098 shares). The allocation ofMr. Duff’s incentive compensation (50% in cash, 50% in equity) is consistent with our compensationphilosophy to pay a significant portion of incentive compensation in equity in lieu of cash to ensure anappropriate focus on shareholder value creation and the long-term success of the company. Thenumber of shares of restricted stock was determined based on the closing price of the company’scommon stock on February 21, 2006, and the number of shares underlying the stock option was basedon the Black-Scholes value of the option on that date. The restricted stock and option vest in full onFebruary 21, 2009.Mr. Duff’s incentive compensation reflects our view of his and the company’s performance for2005. The company achieved strong results in the second half of the year driven by increased advisoryservices revenue and a diligent focus on expenses, but full-year results suffered from the laggingperformance of our private client business and the impact of reduced revenues in our fixed income andequity institutional sales and trading businesses. Mr. Duff’s compensation reflects this mixedperformance. His compensation also reflects our evaluation of his personal performance against preestablishedgoals and objectives involving matters such as leadership, tone at the top, the company’sguiding principles, inclusion, communications and decision making, organizational development and16